SBI Merger with Five Associate Banks: Reasons & Effects

Introduction

  • The State Bank of India (SBI), India’s largest Bank has started working as a unified entity from 1 April, 2017. 
  • It merged with 5 associate Banks besides Bharatiya Mahila Bank (BMB). 
  • The associate Banks are State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), State Bank of Hyderabad (SBH) and State Bank of Patiala (SBP). 
  • According to a gazette notification dated 22 February, the government said that all shares of these associate banks would cease to exist as individual entities and would merger with SBI. 
 SBI Merger with Five Associate Banks


What is the reason behind SBI-associate banks merger?

  • After this merger, SBI will probably join the league of top 50 Banks in terms of Assets. 
  • To decrease unhealthy competition among Public Sector Banks(PSBs). 
  • It is difficult for smaller outfits to sustain the pace of competition and regulatory / risk mitigation norms. 
  • The merger has been necessitated on account of change in banking environment due to emergence of new area for compliance like Basel III, risk management etc., which require heavy investment on technology and compliance. 
  • After merger, SBI is expected to compete with the largest bank in the world, with an asset base of Rs 37 lakh crore, or over $555 billion, with 22,500 branches and 58,000 ATMs. It will have over 50 crore customers. 
  • Now, Bank can better focus on defaulters. Many people had availed multiple finances. With merger, they can be brought under one roof which makes recovery easier. 

How will the shares of different Associated Banks and SBI be distributed?

  • The board of SBI has approved the merger plan under which SBBJ shareholders will get 28 shares of SBI (1 each) for every 10 shares (10 each) held. In the same way, SBM and SBT shareholders will get 22 shares of SBI for every 10 shares. 
  • SBI had approved separate schemes of acquisition for State Bank of Patiala and State Bank of Hyderabad. There will not be any share swap or cash outgo as they are wholly-owned by the SBI. 

Status of SBI after merger

  • SBI will now have 23,899 branches and an employee strength of 271,765. 
  • SBI now has a deposit base of more than Rs 26 lakh-crore and advances level of Rs 18.50 lakh crore. 
  • The total customer base of the bank reaches 37 crore and nearly 59,000 ATMs across the country. 
  • Now, SBI is set to be among the top 50 large banks of the world. SBI was ranked 52 in the world in terms of assets in 2015, according to Bloomberg. 

Criticism

  • All the Associate banks were once owned by rulers of respective states. For example SBH was once a Nizam bank. Now, SBH losses its glory. 
  • Last year, employees of the State Bank of Travancore (SBT) observed a strike under the aegis of the State Bank of Travancore Staff Union. The agitation was in protest against the move to merge the SBT with the State Bank of India. 
  • SBT was the only bank headquartered in Kerala. 

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