Cabinet gives go-ahead for SBI’s acquisition of subsidiary banks

The government has cleared the way for the merger of five associate banks with the State Bank of India, in a move aimed at a major banking consolidation in the country. However, the merger, which will create a banking behemoth, does not include Bharatiya Mahila Bank as earlier proposed.

The union cabinet today approved the acquisition by the State Bank of India of its subsidiary banks, which include the State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore.

The cabinet chaired by Prime Minister Narendra Modi also approved the introduction of a bill in Parliament to repeal the State Bank of India (Subsidiary Banks) Act, 1959 and the State Bank of Hyderabad Act, 1956.

The merger will create an Indian banking behemoth with an asset base of Rs3,700,000 crore, five times larger than that of the second-largest Indian lender, ICICI Bank.

Post-merger, SBI will have about 22,500 branches and 58,000 ATMs. Some of them may be rationalised as well. It will have over 500 million customers.

The five associate banks of SBI had a market share of 5.3 per cent in deposits and 5.33 per cent in advances approximately as on 31 March 2016. Their net profit stood at Rs1,640 crore at that time.

Other two SBI subsidiaries, State Bank of Saurashtra and State Bank of Indore, had already merged with SBI in 2008 and 2010 respectively.

According to initial plans, SBI will give 28 of its shares for every 10 shares of State Bank of Bikaner. It will give 22 of its shares for every 10 shares of State Bank of Mysore. The lender will give 22 of its own shares for every 10 shares of State Bank of Travancore.

While the exact time schedule for the merger is not clear, SBI chief Arundhati Bhattacharya had earlier said the merger may be deferred by a quarter from the earlier plans to do it by March this year.

The merger is likely to result in recurring savings, estimated at more than Rs1,000 crore in the first year, through a combination of enhanced operational efficiency and reduced cost of funds, an official release stated.

The existing customers of subsidiary banks will also 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.

The acquisition under Section 35 of the State Bank of India Act, 1955 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 acquisition of subsidiary banks of State Bank is an important step towards strengthening the banking sector through consolidation of public sector banks. It is in pursuance of the `Indradhanush' action plan of the government and it is expected to strengthen the banking sector and improve its efficiency and profitability.