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5 Associate Banks+BMB may Merge with SBI
May 25, 2016

State Bank of India (SBI), the country’s largest lender, has kick-started the process of merging its five associate banks with itself at one go. Taking forward the consolidation agenda, State Bank of India (SBI) may merge its five associate banks  and Bharatiya Mahila Bank (BMB) with itself to emerge as a financial giant, with assets worth Rs 37 lakh crore.

Key Points

  • Its five associates are State Bank of Bikaner & Jaipur, State Bank of Hyderabd, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore.

  • Merger if taken place would consolidate the group. Besides making SBI more efficient, it will be of huge value. The group will have the benefit of all synergies. Also, the associate banks have fixed assets of around Rs 4,000 crore, which will add to the capital.

  • After the merger, cost-to-income ratio will come down by 100 basis points in a year.

  • The cost of funds should come down sharply and there itself we will have quite a bit of benefit.

  • On a standalone basis, the SBI has a balance sheet of Rs 28 lakh crore and this will grow to Rs 37 lakh crore after consolidation.

  • The government owns 61.32 per cent of the country's largest lender.

  • SBI had merged State Bank of Saurashtra in August 2008 and later State Bank of Indore in August 2010.

  • The decision on the merger will be taken by the bank's board upon evaluating all the relevant considerations, discussions with stakeholders and regulators' nod.

  • The swap ratios for the merger would be worked out by two valuers and a third to certify the process.

  • The merged entity will have one-fourth of the deposit and loan market, as SBI’s market share will increase from 17 per cent to 22.5-23 per cent.

  • SBI’s staff strength will increase by 35-49 per cent while branch network will increase by 6,000. At present, SBI alone has more than 15,000 branches in the country.

  • The SBI will have to create and expand its present structure to ensure smooth operations of the merged entity.

However, SBI said the decision was purely exploratory at this stage and there was no certainty to it completing the acquisition. But the consolidation move invoked immediate adverse reaction from trade unions. Opposing the proposed move to merge associate banks with SBI, the All India Bank Employees’ Association called a strike on May 20.

The merger move comes after the government announced a road map for bank consolidation during the budget. This was required to build size, seen as necessary to fund the huge infrastructure financing needs of the country. No bank in India features in the top 50 banks of the world in terms of size.


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