Cabinet approves merger of 5 associate banks with SBI

Industry:    2017-02-16
The Cabinet has approved the merger of five associate banks with the State Bank of India (SBI), which will catapult any bank from India to among the top 50 global leaders for the first time. The merger does not include Bharatiya Mahila Bank.

The five associate banks are State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore.

Finance Minister Arun Jaitley said after a Cabinet meeting on Wednesday the merger would lead to a synergy in operations and lower State Bank of India’s cost of funds. An official statement said the savings would be over Rs 1,000 crore in the first year.

SBI’s shares closed down 0.68 per cent at Rs 268.65 on the BSE on Wednesday. State Bank of Bikaner and Jaipur slipped 0.51 per cent to Rs 718, State Bank of Mysore by 0.47 per cent to Rs 561.65 and State Bank of Travancore by 0.91 per cent to Rs 559.95.

Earlier, SBI Chairperson Arundhati Bhattacharya had said the merger could be deferred by a quarter beyond March. “Doing things in the last quarter is not wise. There will be a lot of information technology changes and normally by mid-February, we freeze all system changes. We do not want to take any risks at annual closing time,” she added.

SBI had cleared the proposal for the merger last May. In June, the Cabinet approved the merger in principle. The proposal then went to the respective bank boards before returning to the Cabinet for a final approval.

The merger will create a bank with a projected asset book of Rs 37 lakh crore by March 31. As of December 2016, the asset book was Rs 33.5 lakh crore.

SBI

None of the Indian banks are on the list of top global 50 lenders, but with a larger entity, SBI will be the 45th biggest bank in the world.

SBI’s asset base will now be five times larger than its nearest rival ICICI Bank. After the merger, SBI will have 22,500 branches, 58,000 automated teller machines and over 500 million customers.
The five associate banks had a market share of 5.30 per cent in deposits and 5.33 per cent in advances on March 31, 2016. Their net profit stood at Rs 1,640 crore at that time.
SBI will offer 28 of its shares (face value of Rs 1 each) for every 10 shares (Rs 10 each) held of State Bank of Bikaner and Jaipur. It will offer 22 of its shares each for every 10 shares held of State Bank of Mysore and State Bank of Travancore.  The other two are wholly owned subsidiaries of SBI. In earlier rounds of consolidation, State Bank of Saurashtra and State Bank of Indore had merged with State Bank of India in 2008 and 2010, respectively.
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