As a lot of groundwork has to be done both at the bank and government-level before a merger can take place. The classic example of the State Bank of India (SBI) and its associates is a case in point. Associate banks (ABs) have been pleading their case with SBI, RBI and the government for decades. Two options have emerged: first, the merger of ABs with SBI. Second, the merger inter se of the ABs. The latter would have created a large bank, next only to SBI in size and reach. The proposal was favourably considered at the finance minister (the present PM) level in the early 90s but implementation was deferred on the plea that more urgent issues concerning (the then) sick banks like UCO, UBI and Indian Bank were engaging the attention of the government. The case of the ABs could, therefore, wait.

Some chairmen of SBI too talked about merger, consolidation, economies and strengths of size, but ended up emphasising better coordination etc.

Instead of accomplishing the most logical and simplest merger of SBI and ABs straightaway, the government and RBI are only now talking of consolidation. No doubt, some employee unions were working against the proposal.

The ABs are owned, either fully or with a major stake, by the SBI. The corporate philosophies, policies and accounting systems are similar, if not identical. The chairman and three directors are common on the boards of the ABs. All senior executives have exposure in more than one member-bank of the group. The unions have close coordination and a common agenda for dealing with the managements. Even HRD policies are common for the group. The business profile, including conduct of government business and management of currency chests is the same. The group has a nationwide and global presence, and brand equity with a common logo.

It is difficult to pinpoint why the merger has not taken place so far. Even the consultants have brought out the need for either a merger or de-linking of the ABs for avoiding the costs of duplication. In all important towns and areas in metros, four or five members of the group often fight for the same business. The various stakeholders should have demanded and prevented this long ago.

• Groundwork at bank, govt levels has to be done before a merger takes place

• Reorganisation of branches, staff redeployment is indeed the major task

SBI was opposed to the move to delinking ABs, as it would have meant creating a formidable competitor for themselves. Besides, the huge asset base and reserves would have slipped out of their hands without adequate compensation.

ABs and their employees preferred delinking to enjoy more freedom of action. Delinking would have meant loss of mileage from the group brand equity and support of SBI. But, even today, for all major business policies and decisions, ABs look to SBI. Unfortunately, there has been no consistent policy with regard to business or personnel matters in dealing with ABs.

Individual employees and trade unions are more favourably disposed towards merger than any time before. A few amendments to the statute are required to be made, which are non-controversial. The only major issue that needs to be addressed is the reorganisation of the branch network along with staff redeployment. In any merger, this is the major task. In fact, an exercise to swap or merge some branches has already been attempted, though not implemented. Even the ongoing parleys with employee unions are stressing the need for redeployment.

The SBI group has the advantage of having group companies in the mutual fund, insurance and credit card business, whose products are already being marketed by group banks. Many employees can be deployed to increase this business and conduct it more efficiently.

The merger can be implemented from April 1, 2005, which would serve as a good example for others to follow, as also spur them to take similar steps to face the changed competitive environment.

The author is a former managing director of the State Bank of Mysore