SBI, arms’ merger to add $120 bn assets
The bank also said the merger of State Banks of Bikaner & Jaipur (SBBJ), Travancore (SBT), Patiala (SBP), Hyderabad (SBH) and Mysore (SBM), and also of Bhartiya Mahila Bank, a bank for women set up in November 2013, will lead to a 36 per cent increase in the SBI’s total assets at Rs 30 trillion or about USD 447 billion.
The mergers will dwarf ICICI Bank assets to just one-fourth of SBI and will also catapult the bank into the top 50 banks globally, the bank said. The combined entity will have network of over 24,000 branches with 2,70,000 employees and 58,000 ATMs serving serving over 50 crore customers.
This Thursday, the board of SBI had cleared the merge plan and had finalised the share swap agreement under which an SBBJ shareholder will get 28 shares of SBI (Re 1 each) for every 10 shares (Rs 10 each). Stated differently, the ratio is 1:2:8. Similarly, SBM and SBT shareholders will get 22 shares each of SBI for every 10 shares they hold.
In the case of Bharatiya Mahila Bank, 4,42,31,510 shares of SBI will be swapped for every 100 crore of the BMB share having a face value of Rs 10. The other two unlisted subsidiaries are fully owned by SBI. Abizer Diwanji, partner and national leader for financial services at EY which advised the share swap deal for SBI, said, “the ratio will be acceptable to all shareholders.”
Last month, the Cabinet had cleared the merger plan. SBI has close to 16,500 branches, including 191 foreign offices spread across 36 countries, while the five subsidiaries have around 6,800 branches. The mergers will allow the SBI to leverage its operational synergies, reach out to new clients and improve market share by ensuring a better reach through enlarged presence, the bank said in a statement.
Increased presence in all terrains and geographies will increase bank’s deposit raising capacity and bring down the cost of funds further. Thus, the benefit so derived will flow on to the customers in the form of improved services, borrowing costs etc, it added.
The bank also expects the merger to fasten the roll out of digital initiatives, which is currently hamstrung by existence of different entities with separate managements causing a lag in implementation across the SBI Group. It also expects reduction in overheads, administrative offices, and centralisation of treasury will lead to major reduction in operating costs.
Post mergers, the bank will re-deploy manpower in customer facing roles with a sharper marketing focus. The same is expected to create a superior customer experience. On the additional capital requirement (which the chairperson had earlier pegged at around Rs 3,000 crore) arising due to the mergers will be met through the resultant increase in efficiencies and economies of scale.
During the June quarter earnings, chairperson Arundhati Bhattacharya had said that the merger will lead to shuttering of the treasury desks of the merged entities but had ruled out massive closure of retail branches, though she said there would be rationalisation of branches specially in cities.
SBI had first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged. SBI was founded on June 2, 1806, as Bank of Calcutta and on 27 January 1921, it was renamed as the Imperial Bank of India. On July 1, 1955, it was formally named as State Bank of India after nationalisation.