Shares of State Bank of India and its associate banks spurted on reports that the Union Cabinet may approve the proposed merger of associate banks with State Bank of India today, 15 June 2016.
State Bank of Mysore (up 12.57%), State Bank of Travancore (up 10.97%), State Bank of Bikaner and Jaipur (up 9.96%) and State Bank of India (up 1.16%), edged higher.
Meanwhile, the S&P BSE Sensex was up 95.21 points, or 0.36% at 26,490.92.
Earlier on 17 May 2016, State Bank of India (SBI) announced that it is seeking in principle sanction of the Government of India (GoI) to enter into negotiation with its 5 subsidiary banks viz. State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore to acquire their businesses including assets and liabilities. The decision is purely exploratory at this stage and there is no certainty in relation to SBI completing the acquisitions, SBI said. SBI's board of directors will take a final call after evaluating all the relevant considerations. SBI also said that it is considering acquisition of the newly-created Bharatiya Mahila Bank.
In May 2016, government officials were quoted by the media as saying that no legislative changes will be required for SBI merger and that the process may get completed within this fiscal. SBI Chairman Arundhati Bhattacharya had told the media that the benefits of merger would be huge and one of them will be 100 basis points reduction in lending cost within a year post this merger.
Brokerages, which see merger a positive development, had reportedly said employee integration and their cost will be the key to watch out for when the merger will take place. According to brokerages, the merger is long term positive for SBI, but financially it may be negative in the near term due to higher retirement cost, reports said.
While explaining the importance of staff cost, a foreign brokerage reportedly highlighted earlier merger of SBI. In its note, the brokerage reportedly said that SBI had to make additional employee provisions in the case of merger with its subsidiaries historically. This was due to likely rationalization of pay scales, and higher retirement related benefits. Currently SBI subsidiaries get only two retirement related benefits versus three at SBI (pension, provident fund and gratuity), reports suggested.
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