SBI sets swap ratio for merger with associates

SBI’s market share will increase from 17% to 23%

August 19, 2016 12:33 am | Updated 12:33 am IST - MUMBAI:

Officers of the State Bank of India protesting at the relay strike in Hyderabad on Tuesday demanding salary revision . The All India Bank Employees’ Association (AIBEA) claimed that 22,000 branches of PSU banks were closed across six States and one Union Territory in South India. Photo: P.V. Sivakumar

Officers of the State Bank of India protesting at the relay strike in Hyderabad on Tuesday demanding salary revision . The All India Bank Employees’ Association (AIBEA) claimed that 22,000 branches of PSU banks were closed across six States and one Union Territory in South India. Photo: P.V. Sivakumar

The board of State Bank of India (SBI) approved a swap ratio for the merger of its three listed associate banks and the Bhartiya Mahila Bank.

The deal involves allotting 28 shares of SBI (of Re 1 each) for every 10 shares in State Bank of Bikaner and Jaipur (Rs 10 each) and 22 shares of SBI for every 10 shares held in State Bank of Mysore and State Bank of Travancore.

The other two associate banks, that is, State Bank of Hyderabad and State Bank of Patiala, are unlisted entities, which are fully owned by the SBI.

For Bharatiya Mahila Bank, which is also an unlisted entity but owned by the government, SBI fixed the swap ratio at 4.42 crore shares of SBI for every 100 crore share of BMB.

“Barring State Bank of Mysore shareholders, the share allotment ratio is broadly even for all the holders. In our view, even if the allotment ratio is favourable / unfavourable for shareholders of associate banks, it is unlikely to make any difference since SBI holds 75-90% in these banks,” said Parag Jariwala, VP – Institutional Research, Religare Capital Markets.

Merger process

SBI had earlier said that the merger process will be completed by the end of the current financial year. SBI chairman Arundhati Bhattacharya had said that while all the six mergers will not happen on the same day, but it will be done in close order.

The merged entity will have a business of around Rs.40 lakh crore, and SBI will aspire to be in the top 50 global banks, going ahead.

SBI’s market share will increase from 17 per cent to 22.5-23 per cent, it staff strength will increase by 35-40 per cent and branch network will grow by 6,000. At present, SBI alone has more than 15,000 branches.

Analysts said asset quality of SBI — which is better than its peers — is not expected to improve post the merger. This is because the three listed entities gross non-performing asset ratio is 6.2 to 9.4 per cent while SBI’s gross NPA is 6.5 per cent.

“The (balance sheet) clean-up exercise should continue for associate banks in Q2FY17 since their Asset Quality Review list is substantially different from SBI. This would further deteriorate their asset quality,” Mr. Jariwala said.

While the capital adequacy ratio is not expected to be impacted much, but the management had said there could be some impact on profitability parameters that will not stretch beyond 2017.

Widespread opposition

Special Correspondent adds from Chennai:

Bank employees have staged demonstrations throughout the country to protest against the merger.

The demonstrators have also got support from the Kerala Government which registered its protest against the merger of State Bank of Travancore with the State Bank of India.

On Wednesday, it was the turn of Telangana Finance Minister to oppose merger of State Bank of Hyderabad with State Bank.

Representatives of All India Bank Employees’ Association (AIBEA) and All India Bank Officers’ Association (AIBOA) said State Bank of India was proceeding ahead with the merger unilaterally without addressing the basic questions raised by the unions.

AIBEA General Secretary C. H. Venkatachalam said: “To show five associate banks in poor health, performing loans are declared as bad loans. Associate Banks are compelled to show them as bad loans, whereas State Bank, which is saddled with huge bad loans, is not addressing these issues.” “It has to be set aside in the country’s interest. Till then, we will intensify our action and struggle opposing the merger.” he said.

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