SBI Chairman Arundhati Bhattacharya created a banking behemoth India has been aspiring for decades. Saloni Shukla looks at the journey and what’s ahead for the globally ranked bank.
One of the challenges that cropped up in independent India soon after the British left the Indian shores was resolved seven decades later, on April 1, 2017. That was the merger of the ‘state-associated banks’ whose ownership was given to State Bank of India in 1959 after a protracted battle between the Reserve Bank of India, politicians and the Nehru government.
The merger of five associate banks of SBI in the last weekend, which comes after decades of efforts, has created the 45th biggest bank in the world with an asset size of Rs. 37 lakh crore and a customer base of 500 million, serving almost every other Indian.
“I have not seen a merger of this kind attempted anywhere in any industry,”’ said Arundhati Bhattacharya, chairman, SBI. “The bank has accomplished in 48 hours a mass mission in the banking sector, I don’t think anywhere in the globe anybody has attempted a merger of such magnitude.”
The merged entity will have one-fourth of the deposit and loan market in the country. The consolidated business will go up to Rs.44 lakh crore. It would have deposits worth Rs.26 lakh crore and nearly Rs. 18.76 lakh crore worth of advances on its books.
“To give you a sense of how huge the task is, the merger of these five banks with SBI is like merging one ICICI into SBI… that is their combined size,” said Shiv Bhasin, CTO, SBI.
The merger mooted decades back, got a push from the government and started moving nine months ago. It was a team of ten people led by Dinesh Khara, managing director of SBI, and a veteran of mergers such as State Bank of Saurashtra and Indore. This merger is quite different from the previous ones in a way that in the earlier ones less than 10 applications were to be combined, and the advancement of technology led to the integration of more than 100 applications.
The aim of the merger is to exploit synergy, cut overlap, exploit a diverse workforce that can be on the ground than doing back office work and have an upper hand when raising funds or lending to customers.
“We will now have more manpower who are engaged in administrative setup, which would be available for delivering services to customers and that will improve our feet on the street,” said Khara.
“The ability of raising resources in the banking sector depends on its sheer size. We have done a calculation which indicates that the yield of our treasury paper will be better by 50 bps over what they were earlier. That will help improve our earnings.”
Synergies and cost savings are the cornerstones of any merger. A combination of different entities brings with it the issue of culture, integration of business practices, products and the ability to bring about the change.
“We believe there is significant governance and efficiency arbitrage between SBI and its subsidiaries,” says Gautam Chhugani, director, India Financials, Sanford C Bernstein. “SBI seems to be moving in the right direction with employee consolidation and the voluntary retirement scheme to keep costs under control post-merger.”
The history of SBI and its associates has been complicated, which also included a dispute between the Reserve Bank of India and the Nehru administration. When the question of the fate of these regional banks came up, some including the then RBI Governor B Rama Rau said they should be part of the RBI to start with.
Because of the poor financial and governance practices at many of these banks, some suggested they be left alone and instead spearhead growth through the State Bank of India, the post-Independence avatar of Imperial Bank, according to the History of the Reserve Bank of India.
After years of debate, things started moving after the sudden resignation of Governor Rama Rau and a former SBI chairman, HVR Iengar, succeeding him. The idea that all these banks should be owned by SBI but still retain their character was proposed by SBI chairman PC Bhattacharyya, which was accepted by Iengar.
Once SBI acquired and made these banks its associates through an Act, some suggested their merger itself. Although the Reserve Bank and State Bank of India discussed the issue in 1963-64, the issue came to the fore in 1967 after a private member’s bill proposing the merger of the subsidiary banks with State Bank of India was tabled by Ramkishan Gupta.
But what led to the abandonment of the merger plan?
“Replying to a debate on the State Bank of India Amendment Bill, 1964, finance minister TT Krishnamachari pointed to reports he had received that customers got better facilities from the subsidiary banks than they did from State Bank of India,” the History of the Reserve Bank of India says. Thereafter the merger proposal was buried.
But it was revived two decades back after which State Bank of Indore and State Bank of Saurashtra were amalgamated with SBI. With the fear of employees’ backlash, regional politics and cultural issues taking a back seat, the government revived the proposal.
Post merger, SBI will add more than 7,000 branches to its current strength of 17,000, taking the total to more than 24,000. The bank’s customer base will go up to 50 crore and it will have 75 crore customer accounts. The bank currently processes 6.5 crore transactions per day, which will go up to more than 8 crore per day.
“This is one of a kind merger in the whole world, hence, we have done more than 40 mock mergers so that there is no disruption,” said Mrityunjay Mahapatra, DMD, SBI. “We have adopted an advanced project management model and everything will be done in a transparent manner by applying mobility solutions and analytics, which is one of the most advanced form of managing mergers in the world.”
Although India would, at last, have a single bank with substantial size, doubts still linger among some investors because of the enormity of the task.
“From a strategic point of view, I can understand the rationale, but from a quantitative point of view, I am yet to see the synergy,” says Siddharth Purohit, senior research analyst, Angel Broking. “SBI can’t rationalise all the branches at one go, or for that matter employee alignment. So, we have to keep an eye on these milestones every quarter.”
One Bhattacharyya’s project culminated in creating the biggest bank, the fruits of labour of the other Bhattacharya would be seen in a few years.
