SBI Proposes Merger of Five Associate Banks, BMB, Unions Protest

New Delhi
SBI Proposes Merger of Five Associate Banks, BMB, Unions Protest
outlookindia.com
2016-05-17T22:28:18+0530

Top state-run lender SBI today proposed merger of its five associate banks and newly created Bharatiya Mahila Bank (BMB) with itself, a move that will create Rs 37-lakh crore banking behemoth with over 50 crore customers.

After a hurriedly called board meetings of State Bank of India as well as its associate banks, SBI said it has sought government approval for the merger even as employee unions threatened to go on a nationwide strike on Friday against what they termed as the "arrogant" attitude of the parent.

"This merger discussion is purely exploratory at this stage and not certain. A proposal seeking an in-principle approval to start negotiations with associate banks will be submitted to the government," SBI said in a statement issued late evening after the board meeting which was attended by RBI deputy governor Urjit Patel and financial services secretary Anjuly Chib among others.

"The proper merger will consolidate our group, make us more efficient and will be of great value to our all stakeholders," SBI chairman Arundhati Bhattacharya told news channels after the board meeting.

She further said the merger will create immense benefits through operational synergies. For instance, the cost of fund alone will come down by 100 bps. She further noted that the five associates are sitting on Rs 4,000 crore of fixed assets, which will add to the core capital under the new RBI norms. Out of these around Rs 2,000 crore in real estate alone, she said.

On the incremental cost side, she said, the merged entity will need Rs 23 crore a month on superannuation provisions, which the chairman termed as nothing.

After the 2010 merger of State Bank of Indore, the nation's largest bank has been saying it would merge others as well but none of its moves were fructified due to lack of capital (which was pegged at least Rs 2,000 crore each for per bank) and stiff opposition from employee unions.

The five associate banks that will be merged are State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore. It also wants to take over the newest state-run bank women-oriented lender Bharatiya Mahila Bank.

Each associate bank was called individually to submit its memorandum, which said the acquisition by SBI will leverage substantial business strengths of the banks and will be beneficial to their customers, employees and other stake holders.

"Rapid developments in technology and regulatory approach have driven innovations and it has become imperative to leverage technology and economy of scale," the memorandum cited as the purpose for the merger.

With rising bad loans which sucks banks growth capital, analysts and experts were for long calling for merger of small state-run banks and also SBI associates so that a rapidly growing economy can well be oiled.

Finance Minister Arun Jaitley at the second edition of the Gyan Sangam held in March had said that the government would consider merger of some of the state-run banks. "The country needs stronger banks rather than a large number of lenders."

The merged entity will create a banking behemoth, which can compete with the largest in the world, with an asset base of Rs 37 trillion or over USD 555 billion with 22,500 branches and with and 58,000 ATMs, as of December 2015. Out of this SBI alone has now close 16,500, including 191 foreign offices spread across 36 countries.

Among the associates, State Bank of Hyderabad is the largest with over 1,800 branches, followed by Bikaner and Jaipur with 1,350, Patiala with 1,300, Travancore with 1,200 and Mysore with 1,050 branches as of end December.

SBI alone has assets of over Rs 28 trillion while the five associates have close to Rs 10 trillion in assets.

Within hours of SBI announcing merger plan, employee unions of the five banks threatened to go on a nationwide strike on Friday.

"SBI management's arrogant and high-handed approach has forced an all-India strike in five associate banks on May 20 to protest against forceful takeover of the associate banks by SBI," the All-India Bank Employees Association (AIBEA) said in a statement.

All employees of Associate Banks will go on strike on May 20, AIBEA General Secretary C H Venkatachalam said.

SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged.

The government recently set up the Bank Board Bureau (BBB) to look into the issues including consolidation in public sector banking space.

The newest public sector bank, Bhartiya Mahila Bank (BMB) received the banking licence from Reserve Bank of India on September 25, 2013.

The bank with 100 branches focuses on the entire pyramid of Indian women, special attention is given to economically neglected, deprived, discriminated, underbanked, unbanked, rural and urban women to ensure inclusive and sustainable growth.

For the December quarter SBI reported a net income of Rs 1,115 crore, down 61.67 per cent from a year ago, while most of the associates also reported massive drop in net due to the rising bad loan issues. For the full year ending March 2015, the bank had a revenue of Rs 2,57,289 crore and a profit if Rs 17,517 crore.

State Bank of India was founded on June 2, 1806, as the Bank of Calcutta and on January 27, 1921, it was renamed as the Imperial Bank of India by merging the Bank of Madras, the Bank of Calcutta and the Bank of Bombay.

State Bank of India was born on July 1, 1955, in which Reserve Bank held 60 per cent equity. The bank was nationalised on June 2, 1956. In 2008, the government bought stake held by the Reserve Bank.

State has an employee base of over 2.23 lakh who serve 30 crore customers.

In the past SBI has acquired many local banks in government/RBI-mandated rescues. The first was Bank of Bihar in 1969, the next year it took over the National Bank of Lahore. Five years later, in 1975, SBI acquired the Krishnaram Baldeo Bank. In 1985, SBI acquired the Bank of Cochin.

The first step towards unification of SBI associated took place in August 2008 when State Bank of Saurashtra was merged with SBI, reducing the number of associate state banks from seven to six. Then in June 2009 the SBI board approved the absorption.

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