Non-performing assets (NPAs) for the combined entity — State Bank of India and its subsidiaries — are around 50 basis points higher than that for the parent bank, B Sriram, managing director, national banking, said on Friday.

The bank’s chief financial officer, Anshula Kant, had pointed out on Thursday that the parent bank and the subsidiaries shared several large corporate clients, and consequently there was an overlap. Kant had said the NPAs would be aligned over time.

“Between SBI and the consolidated book, the difference in NPLs would be around 50 basis points. Of the 70% of the loan book that is common to the parent bank and the consolidated book, we will try and align this soon. Some of this has already been done in Q1FY17, the rest will be done in Q2FY17,” Sriram said on a television channel.

Analysts at Motilal Oswal believe that if the branch rationalisation is well executed, it would be one of the key synergy benefits from the merger. “The liability franchise is likely to get further strengthened from the merger,” the analysts wrote. Moreover, they believe cost savings on account of treasury operations, audit and technology would lower the cost-to-income ratio in long term.

Analysts point out that the near-term negative impact would arise out of pension liability provisions because of different employee benefit structures. They also feel that the integration of 70,000 employees from the subsidiaries could be a challenge.

Kant had pointed out that the parent bank sees a natural attrition of 10,000-12,000 people every year. Sriram said on Friday several employees would be deployed as marketing staff and for cross-selling products.

“The issue will be sorted out very fast because the culture across the banks is the same and we we have a fair knowledge of expectations and how to address them,” he said.

Analysts at IIFL observed that while the merger will strengthen SBI’s competitive position in some aspects such as corporate banking, it will worsen in other aspects such as deterioration in cost competitiveness.

“The merger presents an opportunity for the combined entity to improve operational efficiencies over the long term. However, costs are likely to increase in the medium term and present a downside to earnings and profitability,” they wrote.

Sriram observed while larger gains from the merger would be realised in a year or two, in the short run, the combined entity will benefit from a larger treasury book and the shutting down of certain administrative offices. “We have similar processes and technology across banks so there is an in-built cushion and consistency of systems,” Sriram said.

Sriram also explained that while the base rate of SBI was lower than that of the subsidiaries, this would be sorted out. “Our MCLR is lower, but the effective rate as and when the merger happens may change since we will put in our risk systems. Accordingly, the account may either be at the same level or enhanced or reduced depending on SBI’s systems,” the managing director observed.

“Most of the larger accounts would not suffer since they are common, but for other accounts, there could be a change,” he said.

The SBI management has said the bank has tried its best to be as consistent and transparent as possible and followed the best global practices while arriving at the swap ratios.

According to Sriram, valuations for all the entities that are part of the merger were arrived at as per their books at the end of May 2016 to ensure that post-announcement movements in shares of the entities didn’t play a role in arriving at the swap ratios.

Analysts at Jefferies observed that the merger exercise will result in an equity dilution of 1.8%, while increasing the consolidated entities’ equity by 1.1%, thereby leading to a negligible
book value per share dilution of 0.6%.