SBI planning to merge subsidiaries by Mar '09

State Bank of India (SBI), the country's largest lender, is likely to merge its seven associate banks with itself by March 31, 2009, the year the sector is thrown open to foreign competition.

"The merger is likely to be completed by March, 2009," said a government official. The process has begun with the in-principle board approval of State Bank of Saurashtra (SBS) to merge with SBI.

"The scheme of merger of SBS is yet to be submitted to the Reserve Bank for approval. RBI will take its own time, but we expect SBS merger to be completed by end-2007," the official added.

The merger of associate banks with SBI will result in a massive resources restructuring "" involving hierarchy, retaining benefits for associate bank staff and extending existing benefits of SBI to the associate banks' staff. SBI will also have to estimate and provide for the pension liabilities of the associate banks.

"The reason for starting the merger with SBS was that the major unions at both the banks were supportive of the move. In many SBI associates, the unions are different and there could be some difficulty in getting them on board," said the source.

Two executives, one working in SBI and one in an associate bank, may have same years of experience, but the promotion in the latter is faster than in SBI. That means, the executive of associate bank may be in grade 6, while the SBI official is in grade 5. "How to accommodate associate bank staff in SBI will be an issue, which needs to be tackled," the source said. But the merger will not result in any retrenchment and even if some branches are closed to avoid duplication, the staff will be accommodated in some other branch in the same locality.

The State Sector Bank Employees Association, an umbrella organisation of the six associate banks, has called for a strike on September 27 to oppose the merger.

There will be no hurdle from shareholders for the merger as SBI has 100 per cent stake in subsidiaries - State Bank of Hyderabad, State Bank of Patiala and State Bank of Saurashtra.

SBI also has majority stake in three other banks listed on the exchanges. They are State Bank of Bikaner & Jaipur, State Bank of Travancore and State Bank of Mysore. In the case of listed subsidiaries, the merger needs to be approved by the High Court.

The aggregate net profit of associate banks, which together own 4,820 branches, was Rs 2,031 crore in 2006-07. SBI Group accounts for 25 per cent each in deposits and advances of the total commercial banks' business in India as on March 2006. SBI Group had Rs 6,36,273 crore in deposits and Rs 4,87,286 crore advances as of March, 2007.