SBI unlikely to merge subsidiaries this fiscal

The State Bank of India is unlikely to merge any of its five associate banks in the current financial year, according to the chief of the country’s largest lender. The State-promoted 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.

Speaking on the sidelines of a recent banking event in Mumbai, SBI chairman and managing director Pratip Chaudhuri said that the SBI would take a call, depending on the cost of employee compensation at the subsidiaries.

Another senior banker has also confirmed that the merger is currently not on the table and the bank is still working out the valuation.

In 2008, SBI undertook the first-ever amalgamation of its associate, the State Bank of Saurashtra, followed by the merger with the State Bank of Indore in August 2010.

“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. “Taking a call on the cost, I would say it’s just out of consideration now as we were challenged for capital last year,” he pointed out.

“However, going by the current net profit and the fact that the associate would bring in its own capital, we would go for a merger if the employees are more willing and the Basel requirement would not be a deterrent,” added Chaudhuri.

According to media reports, the banks’ unions are opposed to the merger of any of these associate banks with the SBI. These reports also suggest that most of the unions are in favour of a merger of the associate banks into one entity, but not with the SBI itself.

Two unlisted lenders, the State Bank of Patiala and the State Bank of Hyderabad, are wholly owned by the SBI. Of the remaining three listed entities, SBI has 75 per cent stake each in the State Bank of Travancore and the State Bank of Bikaner and Jaipur (SBBJ) while it holds as much as 92 per cent stake in the State Bank of Mysore.

The State Bank group has a network of 20,193 branches and 5,096 branches across its five associate banks. SBI’s five associate banks had a market share of 6.02 per cent in deposits and 6.05 per cent in advances as on March 2012.

One banker from SBBJ notes that one key issue faced by the SBI is the cost of the contributory provident fund, in which the employing bank puts in as much money as an employee contributes towards PF. Therefore, a merger would significantly push up the employee cost for SBI.

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(Edited by Sanghamitra Mandal)

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