SBI begins merger with associate banks
The State Bank of India (SBI), the country’s largest lender, has
kick-started the process of merging its five associate banks with itself at one
go. The merger is expected to be completed by the end of the current financial
year.
· The merger move comes after the government announced a road map
for bank consolidation during the budget.
· The five associate banks are State Bank of Bikaner & Jaipur,
State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State
Bank of Travancore.
Key facts:
· 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%.
· The total business of the merged entity will be over Rs. 35 lakh
crore.
· Also, SBI’s staff strength will increase by 35-49% while branch
network will increase by 6,000. At present, the SBI alone has more than 15,000
branches in the country.
Benefits of merging:
· The merger will make it a bigger bank and will bring in a lot of
efficiencies.
· Now there are a lot of overlaps among associates. Merging is
expected to end these overlaps.
· This might also be helpful in funding the huge infrastructure
financing needs of the country.
· 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.
· 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.
Way ahead:
· The SBI will have to create and expand its present structure to
ensure smooth operations of the merged entity.
· The SBI has to create a post-merger structure. Controlling the
branches will be crucial.
Previous mergers:
SBI first merged associate State Bank of Saurashtra with itself in 2008.
Two years later in 2010, State Bank of Indore was merged.