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Q. Merger of SBI Associates: Discuss the benefits and challenges associated with merger of SBI associate banks with SBI.
Feb 20, 2017 Related to : GS Paper-3

Ans :

Introduction-

Recently union cabinet has given its nod for the proposed merger of State Bank of India’s (SBI) five associate banks and Mahila Bank with SBI. The process of merger of the State Bank of India (SBI) with its five associate banks and the Bharatiya Mahila Bank has entered the final phase. The proposal has been already approved by respective banks, now with approval of government SBI will become single entity very soon. 

Benefits-

  • SBI’s takeover of its five subsidiaries and the Mahila bank, once consummated, the merged entity higher up the rankings ladder on the global banking stage. This has various benefits to bank as well as economy.
  • The increased balance sheet size will enable the bank to obtain better pricing on both internationally sourced funds and domestic deposits, thus helping it lower lending rates and improve its profitability.
  • The added branch network and customer base will also help it expand reach and enable the lender to rationalise resources across the board. 
  • There are various estimates of the potential cost savings, with one projection putting the possible reduction in cost-to-income ratio at 1% point. 
  • The lender’s increased size, in terms of assets, will also give it the requisite muscle to take on new competition from larger banking entities that are likely to be created by consolidation in the banking industry. 

Challenges-

  • The merger and resultant big entity possesses its unique set of challenges. The scale of the task is substantial given the total staff strength. It will pose a huge test in terms of integration of roles, salary, and perquisite and pension structures and, no less importantly, work cultures.
  • Much of the opposition from the bank unions stems from concerns relating to these issues. For example prospects of promotion may be hampered due to curtailment of seniority or rationalisation of branches due to overlap may lead to their relocation.
  • Customers of the smaller, community or regional market-focussed subsidiaries such as the State Bank of Travancore may be discomfited by having to deal with a larger, more impersonal lender, one where the size of their accounts may be viewed as comparatively marginal.
  • For regulators, the new entity will throw up interesting oversight issues. The size of new entity possesses huge challenge for regulators.  

Conclusion-

Government is aiming to reduce the number of state-owned lenders and improving their financial health. In this background proposed merger will benefit to not only to bank but also to economy as whole. Similarly the Bank Board Bureau has been tasked with overseeing a restructuring among other public sector banks to speed of the long delayed process.


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