SBI set to emerge a giant in 18 months on merging arms

Source:Business Line :K. R. SRIVATS :NEW DELHI, FEB 23: 2011

SBI to consolidate all subsidiary banks with itself in 12-18 months

If the Finance Ministry had its way, the State Bank of India (SBI) would become a mammoth bank in about 18 months.

It has told the Parliamentary Standing Committee on Finance that SBI is looking to consolidate all its subsidiary banks with itself “within a period of 12 to 18 months”.

This consolidation will be “immensely beneficial” to the SBI Group as it would bring in economies of scale, reduce administrative overheads, help re-deploy and channelise trained manpower to business development.

This process would also reduce avoidable competition from different arms of the same SBI group engaged in the same activity in the same segments and geography. “The consolidation is aimed at making the State Bank Group a stronger and more resilient organisation,” the Finance Ministry has said.

Although SBI is the largest bank in India, it ranks only 68th among the world's largest banks. Considering the growing role and importance of India in the world economy, it is desirable that the country's largest bank is sufficiently strong in terms of balance sheet size to cater to the growing requirements especially of Indian-origin multinational companies, according to the Finance Ministry.

Mr R. Gopalan, currently Economic Affairs Secretary, and other senior officials of the Department of Financial Services had represented the Finance Ministry before the Standing Committee on Finance in November last year.

“While SBI has also stepped up its efforts to grow organically, the inorganic growth through mergers would also help the bank in scaling up within an acceptable time frame, to enable it to compete on an equal footing with foreign banks, not only in India but in the international economic arena as well,” the standing committee was informed.

Currently, SBI has five associate banks with controlling interest ranging from 75-100 per cent. These associate banks are State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore.

SBI has been active with its consolidation efforts and over the last two years acquired two of its subsidiary banks — State Bank of Saurashtra and State Bank of Indore.

Meanwhile, the Finance Ministry has conveyed to the Standing Committee on Finance headed by Mr Yashwant Sinha that the merger/acquisition of its subsidiary banks by SBI should not be seen as a merger in the conventional sense but is more in the nature of restructuring within the Group as SBI already held 75 per cent or more equity stake in all its subsidiary banks.

“The merger of subsidiary banks with itself is thus more in the nature of restructuring leaving size, market share etc of the Group unchanged but leading to better operational efficiency,” the Finance Ministry has said.

The Finance Ministry has also highlighted that the technology platform of SBI and that of subsidiary banks is the same.

Also, many of the policies of the SBI and its subsidiary banks such as loan policy, investment policy are similar. All the associate banks have products, services and processes broadly similar to that of SBI.