Even as telecom giants Idea Cellular and Vodafone India explore merger talks, another consolidation in the banking sector is underway. The Cabinet has approved the long-awaited merger of State Bank of India and its five associate banks.
The effective merger of SBI with 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) – is likely to be completed in the next financial year.
The merger will give a new look to the state-owned bank while creating a Rs 32-lakh crore banking giant.
The SBI merger will create a bank with a projected asset book of Rs 32 lakh crore by March 31, 2017. As of December 2016, the asset book was Rs 33.5 lakh crore.
Also, the consolidation will help both SBI and the associate banks to deal with the non-performing assets (NPAs) in a better way as there will be a common account among these banks.
SBI’s gross NPAs as a combined entity will increase slightly to 8.70 percent from the standalone 7.23 percent, currently.
Capital adequacy ratio
With the merger, the provision coverage ratio will decline to about 60 percent from SBI’s current ratio of 62.87 percent. The associate banks are much lower on this ratio.
Upon merger, the capital adequacy ratio (CAR) of SBI will come down to 13.19 percent from 13.73 percent.
Employees and their new roles
The employee strength of the bank will change after the merger. At present, bank’s workforce is 2 lakh and with other banks coming together there will be around 64,000 more employees taking the total employee strength to 2.70 lakh.
The existing employees will be redeployed in other direct operation roles.
Total branches will increase to 23,899.
At present, SBI has about 18,000 branches, including 200 foreign offices spread across 36 countries, and about 62,900 ATMs.
With banks, treasuries also merge
SBI Chairman said the six treasuries will be combined into one to avoid any overlap and duplication.