What does a bank merger, which has been in discussion for over a decade, mean for the banks in focus and the overall banking system? The amalgamation of five associate banks of the State Bank of India (SBI) with the parent is the biggest merger in recent times. It will make SBI—already the country’s largest commercial lender by assets and deposits—even larger.
The union cabinet has approved the proposal whereby State Bank of Bikaner and Jaipur (SBBJ), State Bank of Travancore (SBT), State Bank of Mysore (SBM), State Bank of Patiala and the State Bank of Hyderabad will merge with SBI. The Bharatiya Mahila Bank (BMB) will also be merged with SBI, as part of the move.
The move comes at a time when SBI—like several other state-run banks—is struggling to cope with rising bad loans. Its net profit for the three months ended March 31, 2016 slumped 66 percent from the year-ago period, due to higher provisioning for bad loans.
Three of the associate banks, SBBJ, SBT and SBM, are listed on the stock exchanges and investors have cheered the merger move. Stocks of the associate banks moved up sharply when the cabinet clearance for the move came on June 15, but have retraced since then, partly due to profit booking and also due to fears of a British exit from the European Union.
SBT stock is up 1.3 percent, SBM up 12.12 percent and SBJJ up 2.4 percent since the merger was approved by the cabinet. SBI’s stock, on the other hand, has shed 1.2 percent in the period.
There are some very clear long-term benefits from the merger, but it will come with short-term pain. Cost savings will come from common treasury operations and audits. Branch rationalisation will also be a medium- to long-term benefit. But there will be tricky issues which SBI and the government will have to face, relating to integration of manpower, restructuring job profiles and remuneration to staff.
Some analysts Forbes India spoke to say the merger could be complete in about three years time.
Investors will watch for the share-swap ratio and what SBI will have to pay to buy out the remaining stake in the associate banks. These details will emerge in about three weeks.
Source: SBI investor presentationSBI’s associate banks largely operate as independent banks, but considering that SBI already owns between 75 and 90 percent in these five banks, there are inefficiencies and overlap of operations, which could lessen with the merger.
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No doubt the merged entity of SBI results are not only among top most Bank in India in all parameters, SBI will also find its place in the top Global banks. All the five Associate Banks which are in existence for more than five or more decades (SBM has completed 100 years and SBP close to 100 years) with the patronage of customers having long standing relationship will lose their entity shortly, which is really sad. Similarly the work force of these associates especially those who have served these Associate Banks for decades will have to lose their attachment they had with the Bank. What needs to be seen is the relocation of Associate Bank Branches and their workmen in different cadres. Obviously, one could find the Branches of State run Associate Banks established and functioning for decades and in close proximity to the Branches of SBI. Post merger, one can expect rapid changes in the State Bank scenario and the customers are likely to experience the initial hiccup. As mentioned in the article, merger of Associate Bank no doubt accounts for reduction in cost cutting by common treasury operations, down sizing the number of bank branches and audits etc. The challenges before the management is in the area of integration of serving workmen, reshuffling job profiles and fixing of pay parity and other relevant issues among the serving personnel of Associate Banks on par with the SBI employees. The stability of merger of five Associate Banks may not likely to happen immediately but over a period of time. Hope for the best.on Jun 23, 2016
Government has taken a decision and SBI has agreed & the merger is taking place. But as a pensioner of SBM I am worrying about pension. At present there is no uniform procedure for making pension payment. Different pensioner is getting different slabs of pension. Whether we get a uniform pension & other benefits after merging with SBI is the worrying point for us.on Jun 23, 2016
Integration of employees is big challenge . Bank unions are strong muscle power and will extract pound of flesh including pay parity and other benefits on par. Merger will enhance the working cost .Already efficiency in SBI is very low and merger will enhance . Trimming thro' VRS may be needed. Also TOP will be bulky with too many senior executives with less vacancy post merger. Needs a good leader to tackle.on Jun 22, 2016
It will definitely improve the banking system in public sector banks and International standards also.on Jun 22, 2016