State Bank of Indore, SBI merger gets nod

The Cabinet on Thursday approved the merger of State Bank of Indore with State Bank of India (SBI). The move is expected to enable SBI cut costs and scale its operations.

State Bank of Indore has a large number of branches outside Madhya Pradesh and Chhattisgarh and all of them would be controlled conveniently from SBI’s local head offices, leading to substantial cost savings, Ambika Soni, information & broadcasting minister, said after the Cabinet’s decision.

“The acquisition of State Bank of Indore by SBI would allow economies of scale in terms of footprint, manpower and other resources,” Soni said.

SBI holds 98% stake in State Bank of Indore. The merger proposal was approved by the central board of SBI last year. Following this, the Centre also gave an in-principle approval.

To facilitate the merger, the Cabinet also gave an in-principle approval to introduce a Bill in Parliament for amending the State Bank of India (Subsidiary Banks) Act of 1959, to remove references of State Bank of Indore. This will be the second merger of an associate bank with SBI after State Bank of Saurashtra was mergered in August 2008.

The merger, according to the government, would also avoid competition between the two entities and lead to easier access to funds at competitive rates, compared to what State Bank of Indore would have managed for its growing balance sheet.

“SBI is facing a situation where most of its branches and those of State Bank of Indore are competing for the same business, in the same market under the same brand. This has prevented SBI from fully exploiting its brand equity for driving business growth,” Soni said.

SBI has already announced a share swap ratio of 34:100 for the merger. It has agreed to give 34 SBI shares for every 100 shares of State Bank of Indore held by minority shareholders. For this purpose, SBI would issue up to over 1.16 lakh shares of face value of Rs 10 each to minority shareholders of State Bank of Indore. SBI had also said the issued capital of SBI would rise from Rs 634.96 crore to a maximum of Rs 635.08 crore after the merger.

Following the merger, SBI will be left with five associate banks?State Bank of Bikaner & Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad. Among these, the State Banks of Bikaner & Jaipur, Mysore and Travancore are publicly listed.