Creating a bank behemoth

Creating a bank behemoth
  • Come April, and an Indian bank will find place among the top 50 in the world

The proposed merger of SBI with five associate banks and Bhartiya Mahila Bank will create one of the largest banks in Asia. But financial experts say a complete merger can take up to three years. After merger, the behemoth bank will have an asset base of Rs37 lakh crore, a global network of 25,000 branches, and 58,000 ATMs.

“The merger of SBI and its associate banks is a win-win for both,” says Arundhati Bhattacharya, chairperson of SBI. A team of 15 members is working on the merger looking at different aspects like accounting, legalities and human resources.

The associated banks have been asked to update their books and be ready for the merger. But nearly 7,000 employees of the associated banks are worried about their future in the merged entity—salary, promotions and transfers are worry lines for them.

Allaying their fears, Bhattacharya said, “There is no loss of jobs or salary, but a few transfers may become necessary.”

Saddled with bad debts, public sector banks require Rs35,000 crore as capital funding in this fiscal. Though, the finance minister has promised help, capitalisation by government is not seen as a viable option. With expanded capital base through mergers, these banks can survive without Central funding. Justifying the amalgamation of banks, the SBI chief said, “It is difficult for banks to survive in the face of stiff competition. Technological changes are taking place and we need capital.”

Consolidation of other struggling public sector banks is also in the cards. Punjab National Bank, Canara Bank, Union Bank of India, Bank of India and Bank of Baroda are willing for merger with loss-making smaller public sector banks. SBI had successfully amalgamated two of its associated banks in the past. State Bank of Saurashtra was merged with SBI in 2008, and State Bank of Indore two years later.

Three of the associated banks—State Bank of Bikaner and Jaipur, State Bank of Travancore and the State Bank of Mysore—and Bharatiya Mahila Bank are already listed on the stock exchanges. Independent consulting firms are doing valuation to decide on the swap ratio for merger. The shares of these banks have appreciated since the Centre gave its nod for merger with SBI. State Bank of Hyderabad and State Bank of Patiala are both fully owned by SBI, but will be evaluated ahead of the merger.

Pros and Cons

About 70 per cent of the bank assets in India belong to the public sector. So also the lion's share of non-performing assets. SBI is itself in the watch list with a bad loans worth Rs31,000 crore. Public sector banks badly need investment to face the stiff competition from young and ever-expanding private sector. Modernisation, trained manpower and accessibility are important for banks' survival. In the current situation, mergers are seen as the only hope for government-owned banks.

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