SBI to merge with associates, BMBL: All about India’s largest banking giant in 10 points

By: | Updated: August 18, 2016 7:07 PM

The SBI is on course to become one of the largest banks in the world with the merger of its associate banks and Bhartiya Mahila Gramin Bank (BMBL).

SBI, State Bank of India sbbj sbt sbmThe merger in the Indian banking industry is not a new concept. In fact, the State Bank of India itself is a product of mergers of the Presidency Banks. (Reuters)

The SBI is on course to become one of the largest banks in the world with the merger of its associate banks and Bhartiya Mahila Gramin Bank (BMBL). On Thursday, the SBI board approved a proposal in this regard, even as there were several apprehensions over the move. Earlier it was proposed to merge five associate banks including State Bank of Mysore, State bank of Bikaner and Jaipur, State bank of Patiala, State Bank of Hyderabad and State bank of Travancore with the SBI. However, the merger of only three associates and acquisition of BMBL have been approved for now.

TV reports said that other two associates will also be merged with the parent bank soon. The merger proposal was earlier opposed by employees of the associate banks under the banner of All India Bank Employees’ Association. The staff apprehended downsizing, redeployment and closure of branches in the name of rationalisation of the branches. However, SBI chief Arundhati Bhattacharya has assured all stakeholders that the merger will not negatively affect them.

Here are 10 things to know about one of the world’s largest banking giant in the making.

Banks to be merged with SBI

In a filing on BSE, the public sector lender said, “The Central Board of Directors of the State Bank of India have accorded their approval to the Scheme of Acquisition of State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT) and Bharatiya Mahila Bank Limited(BMBL) by State Bank of India (the Scheme) under Section 35 of the State Bank of India Act, 1955, subject  to approval of the Scheme by Reserve Bank of India and Government of India.”

What about other SBI associates?

TV reports said that other associates of SBI –State Bank of Hyderabad and State Bank of Patiala will also be merged with the parent soon. The Union Cabinet had last month cleared the proposal to merge all five associates with the parent and acquisition of BMBL.

Effect on SBI asset base

The SBI merger will create a giant entity with an asset base of Rs 37 lakh crore.

Why the merger?

The merger of all SBI associates with the parent is a part of the the Government of India’s plan to create a large Indian lender which could compete with other global giants. According to Bhattacharya, the merger will increase SBI’s “visibility” at the global level.

When merger process started?

SBI started the acquisition of associate banks as early as in 2008 with the merger of State Bank of Saurashtra. In 2010, State Bank of Indore was also merged. SBI had announced the merger of five associates three months ago.

How the shares of associates and BMBL will be acquired?

According to the BSE filing by the SBI, the acquisition scheme provides for allotment of:
a. 28 equity shares of Rs 1 each of SBI for every 10 equity shares of Rs 10 each of SBBJ
b. 22 equity shares of Rs 1 each of SBI for every 10 equity shares of Rs 10 each of SBM
c. 22 equity shares of Rs each of SBI fvor every 10 equity shares of Rs 10 each of SBT
d. 4,42,31,510 equity shares of Rs 1 each of SBI for every 100 crore equity shares of Rs 10 each of BMML

ALSO READ: SBI board approves merger of 3 associate banks and BMBL to create banking giant

Is the merger sound?

The merger announcement has led to a surge in share prices of SBI and its associates. While the SBI stocks have gained about 39%, the shares of associates have surged between 24 to 43%. Though merger seem sound, experts believe that investors should be wary of the merger as it will also mean merger of the weak balance sheet of the associates with the parent.

Global impact

The merger will put SBI among the top 50 banks of the world. At present no Indian bank features in the coveted list.

Challenges behind merger

To put the merger process into effect, SBI will have to integrate about 70,000 staff of the associates and business operations which is about 25% of the parent’s business at present. It is, however, believed that short term losses will be compensated by long term gains.

Will the merger work?

It is difficult to predict now. The government’s track record in merger of public sector undertakings has not been impressive so far. The last merger of Indian Airlines with Air India was not very smooth and moreover the merged company is yet to report profit. Though they had reported profit individually before the merger.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition