Hinting at More Consolidation
The Cabinet Committee on Economic Affairs also approved the award of contracts to develop 31 areas comprising 44 discovered small hydrocarbon fields that had been lying undeveloped for decades. This is expected to speed up commercial development of these fields.
In June last year, the government had given an in-principle approval for the merger of the associate banks with State Bank of India.
“We have now entered the last lap,” State Bank of India chairman Arundhati Bhattacharya told ET. “Merger will create a stronger, more efficient (and) vibrant entity. Date (of the merger) will be as per (government) notification.”
The SBI-associate merger is an important step towards strengthening the banking sector through consolidation of public sector banks, a government statement said, suggesting the possibility of more consolidations.
“It is in pursuance of the Indradhanush action plan of the government (to revamp functioning of state-run banks) and it is expected to strengthen the banking sector and improve its efficiency and profitability,” it noted.
State Bank of India’s shares closed 0.68% lower at .₹ 268.65 Wednesday, in line with the broader Mumbai market. The listed subsidiaries also closed almost flat, or lower.
The merger is likely to result in recurring savings, estimated at more than .₹ 1,000 crore in the first year through a combination of enhanced operational efficiency and reduced cost of funds, the government said.
“The merger will also lead to better management of high-value credit exposures through focussed monitoring and control over cash flows, instead of separate monitoring by six different banks,” the statement said. Existing customers of subsidiary banks will benefit from access to SBI’s global network, it added.
Jaitley said with this merger, SBI will become a large bank; in fact, a global player.
According to market estimates, after the merger, SBI will have more than 50 crore customers and an asset base of .₹ 37 lakh crore. A decision on Bharatiya Mahila Bank will be taken later.
The merger plans will follow as earlier decided, the government said. Earlier this month, SBI chairman Bhattacharya had hinted that the merger might get delayed.
“We were planning to do it by March but again because of demonetisaiton it will probably mean a deferment of a quarter,” she had said. The government had given her one-year extension amid the lender’s consolidation with its associate banks.
There has been no consolidation among state-run banks since State Bank of Indore was merged with SBI in 2010. SBI took over State Bank of Saurashtra in 2008.
The merger of State Bank of India with the associates will minimise vulnerability to any geographic concentration risks faced by the subsidiary banks, the government said.