Cabinet approves merger of SBI, 5 associate banks
The merged entity will create a banking behemoth, one-fourth of market share in India‘s banking sector (in terms of loans and deposits), with an asset base of about Rs 40 lakh crore from Rs 23 lakh crore.
State Bank of India, the country’s largest bank, has received Cabinet approval to merge its five subsidiaries, which will make the bank among top 50 banks in the world.
Finance Minister Arun Jaitley on Wednesday said the Cabinet has approved the merger of the SBI and its five associate banks — State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT). No decision, however, has been taken on merging Bharatiya Mahila Bank.
Currently, no Indian bank features in the list of top 50 global banks.
Dinesh Khara, Managing Director, SBI, told Moneycontrol, “We expect the data integration process to be completed in a month’s time. We are awaiting government notification for the effective date of merger. Stabilisation of the processes after the merger will be the biggest challenge.”
"This merger is an important step towards strengthening the banking sector through consolidation of Public Sector Banks. A formal notification in this regard is awaited from Government of India wherein the effective date of merger will be indicated," SBI said in a statement.
The merged entity will create a banking behemoth, one-fourth of market share in India’s banking sector (in terms of loans and deposits), with an asset base of about Rs 32 lakh crore from about Rs 23 lakh crore.
This is one-fifth the size of India’s gross domestic product (GDP) and more than five times the balance sheet size of ICICI Bank — India’s largest private lender.
“The merger is likely to result in recurring savings, estimated at more than Rs 1,000 crore in the first year, through a combination of enhanced operational efficiency and reduced cost of funds,” Union Cabinet said in its notification.
In a post-earnings call last week, SBI chief Arundhati Bhattacharya had said: “We are quite ready and as soon as the government notifies the final order, we will be ready to kick it off. We were planning to do it by March but again because of demonetisation it will probably mean a deferment of a quarter.”
According to the merger scheme proposed by SBI in August last year, a shareholder will get 28 shares of SBI for every 10 shares in SBBJ and 22 shares of SBI for every 10 shares held in SBM/SBT. The remaining two subsidiaries are not listed.
“In terms of cost benefit, the bank will save its cost of funds by up to 30 basis points (0.30 percentage points). The cost to income ratio will be also reduced by 100 bps, from the current 49 percent,” Khara said.
“Existing customers of subsidiary banks will benefit from access to SBI’s global network. The merger will also lead to better management of high value credit exposures through focused monitoring and control over cash flows instead of separate monitoring by six different banks,” according to the Cabinet notification.
“The acquisition...will result in the creation of a stronger merged entity. This will minimise vulnerability to any geographic concentration risks faced by subsidiary banks. It will create improved operational efficiency and economies of scale. It will also result in improved risk management and unified treasury operations,” the notification added.
As previously stated by Bhattacharya, there would be no lay-offs and that the employees of the associates will be offered a letter of employment from SBI.
The merger will boost the number of employees by further 64,000 employees of the subsidiaries making total employee strength of nearly 2.71 lakh from 2 lakh people across 23,899 branches. At present, SBI has about 18,000 branches, including 200 foreign offices spread across 36 countries, and about 62,900 ATMs.