Consolidation of SBI & its Associates

It is not just the Goods & Services Tax (GST) that will be implemented in April 2017, but the country’s largest lender State Bank of India, will merge all its subsidiaries with itself to become a single entity. SBI planned to submit the proposal to the government in September and to start merging in October.

State Bank will merge all its 5 subsidiaries — State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad. Earlier in June, the government accepted to the merger of State Bank of India (SBI) with its five associate lenders and Bharatiya Mahila Bank. To be noted, this will be the biggest consolidation ever in the banking system.

SBI consolidations & associates

Outcomes..

SBI servers is ready to host the associate banks. And, when it happens, it is likely to be the fastest merger ever. The bank will add one third of its current customer base of 300 million during the merger process. When merged, the entity will be a banking monster with an asset base of Rs 37 lakh crore, a branch network of nearly 25,000 and 58,000 ATMs. That may be more than five times the country’s second largest lender ICICI Bank. If the merger goes through, the combined entity will be ranked as the 45th largest bank globally in terms of assets, up 7 ranks from its current 52nd position. Any launch of new technology by SBI will uniformly available to all the customers including its subsidiaries and associates.

SBI first merged associate State Bank of Saurashtra with itself in 2008. Two years later in 2010, State Bank of Indore was merged.

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A matter of Concern..

With this merger, the bank will bear some critical problems in managing the bank. Like, Staff Integration and rationalisation of branches. Though several unioin employees are against the merger, but SBI chairperson Arundhati Bhattacharya promised that, there will be no losses of jobs or salaries in the process. Also, the employees promotion prospects may suffer which is restricted to the criteria called seniority. Because of different employee benefit structure, the immediate negative impact would be pension liability provisions. But, cost savings on account of treasury operations, audit, and technology, among others, will lower the cost-to-income ratio in the long term. The cost-to-income ratio is nothing but the company’s costs in relation to its income. To get the ratio, operating cost of a company has to be divided by its operating income. Although rationalisation is not a big concern as the bank operates through 14 circles, while associate banks have strong presence in states where they are headquartered.

The group will benefit from the efficiency created by the rationalisation of branches, common treasury pooling, and proper deployment of skilled resource base.

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