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When SBI, associate banks merge

March 05, 2017 01:50 am | Updated 01:50 am IST

State Bank of India headquarters in Mumbai. File photo

State Bank of India headquarters in Mumbai. File photo

The government has set the date for the record merger of the State Bank of India with its five associate banks on April 1, 2017. The five associate banks are the State Bank of Bikaner and Jaipur (SBBJ), the State Bank of Mysore (SBM), the State Bank of Travancore (SBT), the State Bank of Hyderabad (SBH) and the State Bank of Patiala (SBP).

Initially, SBI had seven associate banks — two of them, the State Bank of Indore and the State Bank of Saurashtra, were merged earlier.

What’s the big deal?

No Indian bank features among the top 50 banks globally. With the huge financing needs that the country faces, infrastructure in particular, size is important. With the merger, the SBI could break into the list of top 50 banks of the world, in terms of asset size.

The merged entity will have one-fourth of the deposit and loan market, as the SBI’s market share will increase from 17% to 22.5-23%. SBI chairperson Arundhati Bhattacharya recently said the consolidated balance sheet of the merged entity would be ₹32 lakh crore from ₹23 lakh crore now. The merged entity would have deposits worth ₹26 lakh crore and nearly ₹18.76 lakh crore worth advances on its books.

The business mix of the five associate banks is around ₹10 lakh crore, which is almost equal to the size of the second largest bank of the country, Punjab National Bank. So, the distance between the SBI and the second largest bank, PNB, will increase further and the latter will be one-fourth of the SBI. The merged entity would have close to 24,000 branches and an employee strength of 2,71,765.

What will happen to shares?

From April 1, all shares of these associate banks will cease to exist as individual entities and will be transferred to the SBI.

The SBBJ, the SBM and the SBT are listed entities, while the SBH and the SBP are unlisted. According to the share-swap ratios announced last August, SBBJ shareholders will get 28 shares of SBI for every 10 shares. Investors in the SBM and the SBT holding 10 shares will get 22 SBI shares each.

The merger will also mean that all SBI associate bank customers will become SBI customers and all associate bank employees will become SBI employees. So, all associate bank employees will be eligible for the same retirement benefits as SBI employees. SBI employees get three retirement benefits (provident fund, gratuity and pension), while associate bank staff members get two retirement benefits.

What does it mean for banking?

The merger of associate banks with the SBI kicks-starts the long pending consolidation exercise among public sector banks, but the bigger question is whether a similar move will be successful between other state-run banks.

The merger of weaker banks with stronger banks was mooted by the BJP government at the Centre during the first edition of bankers’ retreat — Gyan Sangam — in 2015, but the plan faced opposition from bankers, who claimed the time was not ripe since the balance sheets of all public sector banks had weakened by a sharp rise in non-performing assets. At the next bankers’ retreat, the government was keen on pushing through consolidation as it planned to identify six to eight anchor banks which would lead the exercise. Recently, the newly appointed Deputy Governor of the Reserve Bank of India, Viral Acharya, revived consolidation talks and said the banking system would be better off if there were fewer, but healthier, public sector banks.

“As many have pointed out, it is not clear why we need so many public sector banks,” he said in his maiden address to bankers.

Mr. Acharya suggested that voluntary retirement schemes be offered to manage the headcount and usher a younger, digitally savvy talent pool into these banks.

Amid consolidation talks, preparations are on for the third edition of Gyan Sangam. While further consolidation among public sector banks is on the agenda, it is not clear whether it will remain at the discussion stage or the government will be able to move forward with some concrete action.

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