Moving ahead with the long-pending reform of consolidation in the banking sector, the government on Wednesday cleared State Bank of India’s acquisition of five subsidiary banks.
The merged entity will create a banking behemoth, one-fourth of market share in India’s banking sector (in terms of loans and deposits), with an asset base of about Rs 40 lakh crore from Rs 23 lakh crore. This is one-fifth the size of India’s gross domestic product (GDP) and more than five times the balance sheet size of ICICI Bank — India’s largest private lender. “The merger is likely to result in recurring savings, estimated at more than Rs 1,000 crore in the first year, through a combination of enhanced operational efficiency and reduced cost of funds,” Union Cabinet said in its notification.
Two of the five associate banks —State Bank of Patiala and State Bank of Hyderabad — are unlisted. Among the other three, Mumbai-based SBI holds a 75 per cent stake in State Bank of Bikaner & Jaipur, 90 per cent in State Bank of Mysore and 79 per cent in State Bank of Travancore.
“Existing customers of subsidiary banks will benefit from access to SBI’s global network. The merger will also lead to better management of high value credit exposures through focused monitoring and control over cash flows instead of separate monitoring by six different banks,” according to the Cabinet notification. “The acquisition…will result in the creation of a stronger merged entity. This will minimise vulnerability to any geographic concentration risks faced by subsidiary banks. It will create improved operational efficiency and economies of scale. It will also result in improved risk management and unified treasury operations,” the notification added.