Wednesday, April 17, 2013

SBI mulls merging one of its associate banks this year

State Bank of India will revive the plan to merge its associate banks with itself after putting it on the back-burner for more than three years. For the first time after taking charge in April 2011, SBI chairman Pratip Chaudhuri said that the bank is now open to merging its associate banks with itself. The move will further enhance its already enormous balance sheet.

"Now that the capital conditions are favourable for merger, we will think about it," Chaudhuri told reporters.

However, he did not indicate any timeline. "For us, all five fingers are the same," he said when asked which of the remaining five associates would be considered first for merger.

OP Bhatt, former chairman of SBI, had ambitious plans to merge all the seven associate banks with itself to create a bank which, in India, would resemble behemoths such as ICBC, and National Agricultural Bank of China. During Bhatt's tenure two associate banks, State Bank of Saurashtra and State Bank of Indore, were merged with SBI. After taking charge, Chaudhuri had put merger of associate banks on hold on the grounds that such mergers consume enormous amount of capital.

SBI's tier I capital (equity and reserves) had fallen to 7.9%—lower than its internal target of 8%—after it nearly slipped into losses in the March 2011 quarter.

In an interview with ET in 2011, referring to the bank's decision to press the pause button on merger of associate banks, Chaudhuri had said, "It is very much on the table, but associate bank mergers are not going to happen in a hurry. It is not because we are not convinced that merger is the right thing, but it is because it requires capital and operational efficiency. The cost of a single merger of an associate bank with the parent would be Rs 1,500 crore in terms of payout on staff benefits."

SBI received Rs 11,900 crore in capital from government in two years and it ploughed back Rs 11,700 crore profit last year, which improved its capital position.

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