Banking consolidation in the public sector is set to deepen further with State Bank of India (SBI) seeking to expand its foothold beyond immediate associate banks by possibly absorbing Uco Bank and Dena Bank.
The government has, of course, decided to maintain a hand-off approach to the development, but it is understood that informal consultations are already on among the banks.
?The process of consolidation among SBI and the associate banks have already begun,? said a source familiar with the developments. In October, SBI absorbed State Bank of Saurashtra within its fold. That process is likely to be completed by the end of this fiscal.
The government has recently decided to approve a rights issue by SBI. It is also expected to soon okay a capital recast plan for Uco Bank. The plan, to be ratified by the Cabinet soon, will involve reducing its equity base to Rs 500 crore after converting Rs 300 crore of equity into preference capital.
UCO Bank?s capital base vis-?-vis turnover is considered high.
For SBI, the acquisitions would sharply ratchet up its branch network in both eastern and western seaboards. SBI also has more room for manoeuvre now as its shareholding has passed on to the finance ministry from the Reserve Bank of India (RBI) this fiscal. The bank is, however, capital strapped, hampering any plans to shop extensively.
Uco Bank and Dena Bank have in the past couple of years improved their bottomlines significantly. Uco Bank may also go in for a follow-on public offer soon. Its shares were trading at Rs 56.15 on the NSE on Monday. Its net sales stood at Rs 5,317.84 crore in the last fiscal and Rs 1,581.04 crore by September 2007, while its net profit to September this year was Rs 110.53 crore.
On Monday, Dena Bank stock closed 5.58% higher at Rs 87.95 on the BSE. The bank had an equity base of Rs 286.82 crore in March 2007. Its net sales stood at Rs 2,118.52 crore in the last fiscal and at Rs 658.53 crore by September this fiscal. Its net profits amounted to Rs 92.15 crore to September 2007.
The government sources said big-bang consolidation in the public sector space was overdue. But given the number of players, the process of consolidation would stretch beyond 2008-09 and could even go beyond RBI?s planned deadline to let foreign banks move into the domestic bank mergers & acquisitions territory. To give domestic banks time to consolidate, RBI may extend the deadline to beyond 2009.