SBI, Associate Banks Merger Gets Cabinet Nod: 5 Things To Know
Shares in SBI and three listed subsidiaries - State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner and Jaipur - surged between 3 per cent and 13 per cent, a day after the Union Cabinet, chaired by PM Narendra Modi, gave its approval to the merger of India's largest bank with its five associate banks. The merger of SBI with the five lenders - including State Bank of Hyderabad and State Bank of Patiala - will create a stronger entity and is likely to result in recurring savings, estimated at more than Rs 1,000 crore in the first year, an government statement stated. Analysts say the merger will lead to synergy and increased balance sheet strength and will be a positive for the Indian banking industry, which is struggling with asset quality concerns.
Here are a few things to know in this mega merger:
1) Bharatiya Mahila Bank not part of merger: No decision has been taken on the proposal to merge Bharatiya Mahila Bank with State Bank of India. SBI had in March 2016 announced its plan to merge its five subsidiaries and Bharatiya Mahila Bank (BMB) once it gets the government approval.
2) Swap ratio: The swap ratio - which is the ratio in which an acquiring company offers its shares in exchange for a target company's shares - in the merger will remain the same as announced earlier, Dinesh Kumar Khara, MD-associates & subsidiaries at SBI, told NDTV Profit.
Also Read: SBI Chief Seeks More Clarity, Dispensations To Resolve NPAs
3) Bigger, stronger entity: The merger is expected to boost the government's 'Indradhanush' action plan - announced by the Finance Ministry in August 2015 to help bring about a desirable efficiency in the overall functioning of PSU banks. "The acquisition of subsidiary banks of State Bank is an important step towards strengthening the banking sector...and is expected to strengthen the banking sector and improve its efficiency and profitability," the statement noted.
4) Win-win for SBI and associates: The merger is expected to create a global-size bank, say analysts. "Existing customers of subsidiary banks will benefit from access to SBI's global network. The merger will also lead to better management of high value credit exposures through focused monitoring and control over cash flows...This will minimize vulnerability to any geographic concentration risks faced by subsidiary banks," the statement added.
Also Read: SBI Q3 Net Profit Doubles, 1st Rise In Five Quarters
5) While the merged SBI entity is seen attracting improved operational efficiency and economies of scale, it will also result in improved risk management and unified treasury operations. Mr Khara also pointed out benefits in terms of administrative costs and operational costs. Data integration among five associate banks is expected to be completed within a month or so and "four to six weeks is what we are expecting", he added.
