A State Bank of India Ltd. (SBI) building stands illuminated at night in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Cabinet Approves Merger Of SBI With Its Five Subsidiaries

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  • The Cabinet has approved the merger of State Bank of India with three of its associates and two of its wholly-owned subsidiaries, Finance Minister Arun Jaitley said at a media briefing on Wednesday.

    When the plan was first mooted, Bharatiya Mahila Bank was also intended to be merged with SBI. However, the finance minister said that was still under consideration.

    In August, SBI’s board of directors had approved the scheme of arrangement for the merger of the bank with State Bank of Bikaner and Jaipur, State Bank of Mysore, and State Bank of Travancore, and the merger of its wholly-owned subsidiaries, State Bank of Hyderabad and State Bank of Patiala with itself.

    As part of the scheme of arrangement, shareholders of State Bank of Bikaner and Jaipur will receive 28 shares of SBI for every 10 shares held, SBI had said in notice to the stock exchanges in August. Shareholders of State Bank of Mysore will get 22 shares of SBI for every 10 shares held. The same ratio will apply to shareholders of State Bank of Travancore.

    The merger was initially slated to be completed by the end of the current financial year, but in a recent interaction with reporters, SBI Chairman Arundhati Bhattacharya said it could be postponed by a quarter on account of demonetisation.

    A formal notification from the government with the effective date of the merger is still awaited, SBI said in an emailed statement on Thursday following Jaitley’s media briefing. The merger will result in the creation of a stronger entity, it added.

    This will minimise vulnerability to any geographic concentration risks faced by associate banks. This merger is an important step towards strengthening the banking sector through consolidation of public sector banks. 
    SBI Media Statement

    Cost Synergies

    One of the primary objectives of the merger is to improve the operational efficiency of State Bank of India, which is already the largest bank in India, and the 55th largest in the world.

    This merger will certainly lead to far greater operational efficiency. It will lead to synergy of operations within these banks. And obviously because it will cut down cost of operations, the cost of funds will come down. 
    Arun Jaitley, Finance Minister

    Jaitley went on to say that SBI would become a very large bank after the merger, not just in India, but also globally.

    The major synergy benefits will include treasury improvement and lower cost of funds, the bank’s Chief Financial Officer Anshula Kant had told BloombergQuint in an earlier interview. The bank is also working on a plan to rationalise its brick and mortar presence.

    The merged bank will likely have over 23,000 branches. Some of these will either be merged or relocated, Kant had said.

    Also Read: SBI Board Approves Merger With Five Associates, Bharatiya Mahila Bank

    BloombergQuint