New Delhi, February 16: State Bank of India, the country’s largest bank, has received Cabinet approval to merge its five subsidiaries, which will make the bank among top 50 banks in the world. On Wednesday Finance Minister Arun Jaitley said that the Cabinet has approved the merger of the SBI and its five associate banks.The banks are State Bank of Bikaner and Jaipur ( SBBJ ), State Bank of Hyderabad (SBH), State Bank of Mysore ( SBM ), State Bank of Patiala (SBP) and State Bank of Travancore ( SBT ).
No decision has been taken on merging Bharatiya Mahila Bank. Currently, no Indian bank features in the list of top 50 global banks. Dinesh Khara, Managing Director, SBI, said that we expect the data integration process to be completed in a month’s time. We are awaiting government notification for the effective date of merger. Stabilization of the processes after the merger will be the biggest challenge.”
"This merger is an important step towards strengthening the banking sector through consolidation of Public Sector Banks. A formal notification in this regard is awaited from Government of India wherein the effective date of merger will be indicated," SBI said in a statement. The merged entity will create a enormous banking structure and administration, one-fourth of market share in India’s banking sector in terms of loans and deposits, with an asset base of about Rs 40 lakh crore from Rs 23 lakh crore.
“The merger is likely to result in recurring savings, estimated at more than Rs 1,000 crore in the first year, through a combination of enhanced operational efficiency and reduced cost of funds,” Union Cabinet said in its notification. SBI chief Arundhati Bhattacharya had said “we are quite ready and as soon as the government notifies the final order, we will be ready to kick it off. We were planning to do it by March but again because of demonetisation it will probably mean a deferment of a quarter.”
According to the merger scheme proposed by SBI in August last year, a shareholder will get 28 shares of SBI for every 10 shares in SBBJ and 22 shares of SBI for every 10 shares held in SBM/SBT. The remaining two subsidiaries are not listed.
“In terms of cost benefit, the bank will save its cost of funds by up to 30 basis points which is 0.30% points. The cost to income ratio will be also reduced by 100 bps, from the current 49 percent,” Khara said.
“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 instead of separate monitoring by six different banks,” according to the Cabinet notification.
The merger will boost the number of employees by further 64,000 employees of the subsidiaries making total employee strength of nearly 2.70 lakh from 2 lakh people across 23,000 branches. At present, SBI has about 18,000 branches, including 200 foreign offices spread across 36 countries, and about 62,900 ATMs.