Cabinet nod for merger of SBI with 5 associate banks

AFTER the Union Finance Minister spelled out a policy regarding the merger of PSUs in the Union Budget to create a bigger entity, merger of five associated banks with State Bank of India seemed imminent. On Feb 16, the Union Cabinet approved the merger of State Bank of India with five of its associate banks including State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, and State Bank of Travancore. The merger proposal...
was announced in May last year and was scheduled for March 2017.
Announcing the decision, Finance Minister Arun Jaitley said that the Cabinet had earlier given its in-principle approval for the merger, and then had sent it to the respective banks for their suggestions. These suggestions have been taken on-board, and the decision has been formally approved by the Cabinet. “This will lead to far greater operational efficiency and synergy of operations within these banks,” Jaitley said. “It will decrease the cost of operations, which will also result in a decrease in the cost of funds.” “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,” the government said in a statement. “Existing customers of subsidiary banks will benefit from access to SBI’s global network.”
Jaitley also said that SBI, following the merger, will not only be a large domestic bank, but will also become a global player as well.
"This merger is an important step towards strengthening the banking sector through consolidation of Public Sector Banks. A formal notification in this regard is awaited from Government of India wherein the effective date of merger will be indicated," SBI said in a statement.
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. In a post-earnings call last week, SBI chief Arundhati Bhattacharya had said: “We are quite ready and as soon as the government notifies the final order, we will be ready to kick it off. We were planning to do it by March but again because of demonetisation it will probably mean a deferment of a quarter.”