SBI-associate banks merger: All you need to know

The Indian government on Tuesday kickstarted the process of bank consolidation, starting with the country’s largest lender State Bank of India (SBI), in which the government has a 61.32% stake.

SBI may merge its five associate banks - State Bank of Bikaner & Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT), and the relatively-newer Bharatiya Mahila Bank (BMB) with itself. The BMB was created by the UPA government in 2013, and is a Delhi-based public sector lender, with Rs 1,000 crore in capital. 

The boards of SBI and the associate banks met individually on Tuesday to take a call on the proposed merger and begin talks. However, SBI has indicated that the decision was purely exploratory at this stage. 

Earlier too, SBI has merged two of its erstwhile associate banks with itself - Bank of Saurashtra in 2008 and State Bank of Indore in 2010.

The latest merger will create a financial behemoth with assets worth Rs 37 lakh crore ($550 billion), including the fixed assets of associate banks worth about Rs 4,000 crore. 

Finance minister Arun Jaitley had hinted in an interview to Business Standard on Monday that the government was looking at bank consolidation with some urgency. 
 

Speculation over a merger of state-owned banks has been in the air since the Finance Ministry said it plans to cut down the total number of public sector banks to about 10 or less from the current 27 to ensure that there are stronger and more efficient PSBs.

Here’s all you need to know about the PSB consolidation

1)   If the merger goes through, the combined entity will be ranked as the 45th largest bank globally in terms of assets, up 7 ranks from its current 52nd position.

2)   Post the merger, the cost-to-income ratio will come down by 100 basis points a year. The cost-to-income ratio is nothing but the company's costs in relation to its income. To get the ratio, operating cost of a company has to be divided by its operating income.

3)   Post the merger, SBI's employee costs could rise by Rs 23 crore a month.

4)   The five subsidiaries have about 6,400 branches and 38,000 employees. As on 2014-15, SBI had more than 14000 branches, including 191 foreign offices spread across 36 countries, with employee strength at 2,22,033.

This compares to ICICI Bank, India’s largest private lender, having 67,857 employees as on March 31, 2015. ICICI Bank's bank branches stood at close to 4050 as on March 31, 2015. 

However, to ensure synergistic benefits are achieved, SBI will have to rationalise branch network and employees as there is some duplication of branches and costs currently.

5)   The All India Bank Employees' Association (AIBEA) wants the five associate entities to be merged into a separate, single large bank, instead of all of them being merged individually with SBI. AIBEA has even called for a strike on May 20, opposing the merger.

6)   The proposed merger is likely to be completed much before the end of the current financial year. SBI chairman Arundhati Bhattacharya expects to have a combined balance sheet for the financial year ending 2016-17.

7)   SBI's current balance sheet on a standalone basis stands at Rs 28 lakh crore, which will account for about 75% of the total assets of the new entity.

8)   SBI has already sought "in-principle sanction" from the government to enter into negotiations with subsidiary banks to acquire their businesses.

9)   Analysts fear the move will lead to higher operating costs in the near-term for SBI.

10) The swap ratio will only be worked out before getting final approvals from stakeholders - the Reserve Bank of India and the government - with two valuers of assets and a third valuer who will certify the process.