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Consolidation signal: SBI associate banks surge on proposed merger with parent

Shares of three associate banks of SBI on Tuesday, surged up to 13 per cent on reports that the lenders have proposed a merger with the parent bank.

Written by Khushboo Narayan | Mumbai |
May 18, 2016 1:20:04 am
SBI, SBI shares, SBI stocks, State Bank of Mysore, State Bank of Travancore, State Bank of Bikaner and jaipur, Merger, SBI merger, SBI merger associated banks, SBI news, Bhartiya Mahila Bank After over five years, associate banks of SBI, including State Bank of Bikaner and Jaipur, have proposed to merge with the parent lender.

The State Bank of India, the country’s largest bank, has started the process of merging five of its subsidiaries with itself and also with another state-owned bank, the Bharatiya Mahila Bank (BMB), signalling the start of a consolidation in the local banking industry.

The SBI central board passed a resolution Tuesday to request the Finance Ministry’s permission to start negotiating merger of its five subsidiaries and the BMB.

The five subsidiaries of SBI which have been proposed to be merged are State Bank of Mysore (SBM), State Bank of Bikaner and Jaipur (SBBJ), State Bank of Patiala (SBP), State Bank of Travancore (SBT) and State Bank of Hyderabad (SBH). If the merger goes through, the balance sheet size of the consolidated bank will be around Rs 37 lakh crore from the current Rs 28 lakh crore.

On Tuesday, three listed subsidiaries — State Bank of Mysore, State Bank of Bikaner and Jaipur and State Bank of Travancore — informed the Bombay Stock Exchange that the merger move is “purely exploratory at this stage and there is no certainty in relation to completion of the acquisition”.

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The SBI had earlier merged two subsidiaries — State Bank of Saurashtra in 2008 and State Bank of Indore in 2010. In the third quarter of FY16, all subsidiary banks posted an aggregate net loss of Rs 181 crore.

The three banks said they have obtained in-principle approval of the board of directors of the banks to enter into negotiation with SBI for acquisition of their businesses including assets and liabilities. The merger plan has been in the offing for long and has often been discussed, including during the term of the previous government.

Speaking to the CNBC, Arundhati Bhattacharya, chairperson of SBI, said the merger is a good move as it consolidates the group and makes it more efficient.

“There can be huge efficiency that we can get out of the merger and considering the fact that we can be a much greater and much bigger bank, definitely that itself will have quite a bit of advantage,” she said.

Bhattacharya said that within a year, the costs could come down mainly because the deposits with the subsidiaries are taken at a higher rate at present. “Associate banks have fixed assets to the tune of Rs 4,000 crore which will also add to the capital,” she said.

But moves on the proposed merger has not gone down well with bank unions. Vishwas Utagi, vice-president, All India Bank Employees Association (AIBEA), said bank unions would protest Wednesday against the merger before the subsidiaries. “Also all employees of the associate banks will go on strike on May 20,” he said in a statement.

According to a senior official, who attended the central board meeting, negotiations can begin only after government approval. “Under section 35(1) of the SBI Act, the bank requires permission from the government to start negotiations for acquiring any bank including its subsidiaries,” the official said.

The SBI Act states that, “The State Bank may, with the sanction of the Central Government, and shall, if so directed by the Central Government in consultation with the Reserve Bank, enter into negotiations for acquiring the business, including the assets and liabilities, of any banking institution.”

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