State Bank of India is likely to put the issue of merging associate bank State Bank of Saurashtra (SBS) with itself on the backburner. The contentious issue would not be brought up at the SBI board meeting to be held on May 2, sources said.
It is learnt that the government is also keen on going slow with the consolidation process to keep the Left parties happy. The merger of SBS with SBI would have been an acid test not only for the government but also for other PSU bank brass.
?We wanted to carry on with the merger process based on the experience of the SBI-SBS merger exercise. However, with this failing to even take off, there is little chance that other banks would be looking for mergers,? an industry source said.
The Raghuram G Rajan committee report released recently had highlighted the need for the government to reduce its holdings in public sector banks and to push for reforms in the financial sector.
Although earlier during the calendar year, the boards of the two banks had approved a merger in principle, there has been stiff resistance from the trade unions in the banking industry. The Cabinet has also not taken up the issue.
According to the Union Forum of Banks Union, the associate banks of SBI are separate legal entities and, therefore, an attempt to merge them would lead to major problems. SBI has a capital adequacy ratio of 12.3%. The capital reserves of SBI stood at Rs 30,772 crore in March 2007.