SBI to become a global top 50 bank in 9 months; here’s why

By: | Published: June 29, 2016 6:12 AM

The merger of State Bank of India (SBI) with its five associate banks and Bharatiya Mahila Bank will be fast-tracked so that the process is completed within the next nine months, a government official said.

SBIThe merger of State Bank of India (SBI) with its five associate banks and Bharatiya Mahila Bank will be fast-tracked so that the process is completed within the next nine months, a government official said. (Reuters)

The merger of State Bank of India (SBI) with its five associate banks and Bharatiya Mahila Bank will be fast-tracked so that the process is completed within the next nine months, a government official said.

On June 15, the Cabinet gave an in-principle approval to the SBI’s proposal for the merger, which would place it among the world’s top 50 banks in terms of assets. After working out the scheme of amalgamation in the next few weeks, SBI would seek the final approval from the Cabinet as per the Section 35 of the SBI Act.

“The last merger of SBI (with SBI Indore in 2010) took 55 weeks. This time, we would compress the time required for the merger process,” the official said. The plan is to complete the transactions by the end of the current fiscal. Currently, there are two views on whether the mergers should happen in one go or one at a time, the official said.

Besides the government approval, SBI would need nods of market regulator Sebi as three of its associate banks — State Bank of Mysore, State Bank of Bikaner and Jaipur and State Bank of Travancore are listed on the stock exchanges. The two unlisted associate banks are State Bank of Hyderabad and State Bank of Patiala.

“There could be a requirement to also seek the nod of the Competition Commission of India,” the person said.

The merger will result in a consolidated entity commanding a deposit base of over Rs 21.5 lakh crore or nearly a fifth of the banking system’s total deposit base of Rs 97 lakh crore.

“The merger of SBI and its associate banks is a win-win for both. While the network of SBI would stand to increase, its reach would multiply. One can expect efficiency to be created from rationalisation of branches, common treasury pooling and proper deployment of a large skilled resource base,” SBI chairman Arundhati Bhattacharya said after the Cabinet had approved the merger.

However, global rating agency Moody’s on Tuesday sounded a word of caution on consolidation among Indian banks.

The banks’ weakened metrics since 2012 and weak performance mean that many have difficulties meeting minimum regulatory requirements without regular capital injections from the government. As a result, few public sector banks have the excess capital required to acquire meaningfully sized peers.

Moody’s also sees considerable challenges from potential opposition from employee unions, which could hamper merger efforts and drive up costs.

However, the government does not see much opposition from employee unions as merger would help employees of associate banks getting better pay packages and benefits on par with SBI employees.

The government’s ultimate aim is to reduce the number of public sector banks to less than 10 from 27 at present.

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