SBI looking to merge a few subsidiaries this fiscal: Pratip Chaudhuri

The State Bank of India is likely to merge a few of its five associate banks in the current financial year, according to the chief of the country’s largest lender. Mergers of SBI's associate banks have been pending for long, partly due to the opposition from the employee unions on concerns that such mergers would lead to job cuts.

The government-controlled lender has five associate banks – State Bank of Travancore, State Bank of Hyderabad, State Bank of Patiala, State Bank of Mysore and State Bank of Bikaner & Jaipur – of which three are public-listed and two are wholly owned subsidiaries.

SBI chairman and managing director Pratip Chaudhuri said on Tuesday that the bank would take a call on the merger, depending on the liquidity conditions. The bank is also evaluating the possibilities of raising funds between Rs 10,000 crore and Rs 14,000 crore through a qualified institutional placement (QIP) for acquisition purposes.

Chaudhuri said it while speaking on the sidelines of an event held in Mumbai to announce the closure of a $1 billion international bond sale programme on the Singapore Stock Exchange (SGX). 

In 2008, SBI amalgamated its associate State Bank of Saurashtra, followed by the merger with the State Bank of Indore in August 2010.

Two unlisted lenders, the State Bank of Patiala and the State Bank of Hyderabad, are wholly owned by the SBI. According to sources, equity valuation reports of these banks have already been submitted to the parent organisation.

The process involves evaluation based on three methods - net asset value, relative valuation and profit earning capital valuation (PECV) - and the average of the three methods decides the valuation of the bank.

As per the latest valuation, State Bank of Patiala is valued at Rs 3,700 crore at Rs 1,300 per share, a source privy to the information told VCCircle. However, we could not independently verify this information and the valuation of State Bank of Hyderabad.

“If we are going for an acquisition, the cost of employee compensation and other expenses would come up to Rs 1,000-2,000 crore, depending on the size of the bank,” said Chaudhuri last year (more on that here: SBI unlikely to merge subsidiaries this fiscal).

However, the banks’ unions had always been a deterrent to the merger plans involving any of these associate banks and SBI. In the past, the unions were in favour of a merger of the associate banks into one entity, but not with the SBI itself. The merger would also significantly push up the employee cost for SBI.

(Edited by Sanghamitra Mandal)

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