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Radhika Menon
K.R. Srivats

Mumbai/ New Delhi, Aug. 25 State Bank of India, the country’s largest commercial bank, has kicked off the consolidation process with its associate banks.

SBI has decided to merge State Bank of Saurashtra, a wholly owned associate bank, with itself. The boards of both SBI and State Bank of Saurashtra have given an in-principle approval to the merger proposal, a senior SBI official confirmed on Saturday.

SBI will now have to get approvals from both the Government, the majority owner of the bank holding 59.73 per cent stake, and the Reserve Bank of India.

“Consolidation will benefit all the stake holders, be it shareholders, employees, and customers and the SBI as an entity,” said an SBI official.

“There is a lot of business synergy. The merger would enhance the capital and the balance sheet of SBI. This is important for the bank to grow its business,” he added

State Bank of Saurashtra is the smallest among the seven associate banks of SBI, in terms of networth. The other six associates are State Bank of Travancore, State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Indore and State Bank of Patiala. Of these, the first three are listed on the stock exchanges. SBI’s controlling interests in the associate banks range from 75 per cent to 100 per cent.

State Bank of Saurashtra (SBS) has a branch network of 460 and SBI officials said once the merger is approved, consolidation of the branch network for eliminating duplication of branches in the same geographical area would start in six months.

SBS reported a net profit of Rs 87.4 crore in 2006-07, a jump of 45.4 per cent from Rs 60.1 crore in the previous year. The bank has paid-up equity capital of Rs 314 crore.

SBS’ total deposits stood at Rs 15,804 crore while total advances were at Rs 11,081 crore. The capital adequacy stood at 12.78 per cent as on March 31, 2007.

At a recent press conference, Mr OP Bhatt, Chairman of SBI, had said, “As far as our associate banks are concerned the bank will look at initial public offerings, follow-on public issues as well as mergers.”

According to analysts, the authorised capital of the associate banks is small compared with their reserves, balance sheet size and profits.

The associate banks have been awaiting the unlocking of the value of their shares following the Lok Sabha’s passing of the State Bank of India (Subsidiary Banks Laws) Amendment Bill 2006.

Mr Vishal Goyal, Analyst, Edelweiss Securities, said, “The merger of State Bank of Saurashtra is a directional step towards the consolidation process. Eventually, all the associate banks are likely to be merged with the parent bank.”

A senior SBI official said State Bank of Indore could be the next bank on the radar in the consolidation process as it is the smallest bank after State Bank of Saurashtra.

More Stories on : Public Sector Banks | Mergers & Acquisitions | State Bank of India

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