Banks' merger plan on the anvil; SBI and SBP first in queue

The government has asked IDBI Bank and United Bank of India to prepare a consolidation plan. A daily newspaper has reported that the government will first begin merger process between State Bank of India and State Bank of Patiala.

It may be recalled that talks have been going on for long for merging SBI’s subsidiaries with the parent bank. SBI first merged its State Bank of Saurashtra with itself in 2008. Two years later in 2010, State Bank of Indore was merged with SBI. 

The country’s largest lender has five associate banks—State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad. Among these, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed entities.

Finance Minister Arun Jaitley in his Budget speech had said, "There have been some suggestions for consolidation of Public Sector Banks. Government, in principle, agrees to consider these suggestions."

Jaitley, speaking to reporters after the Budget, had said that the consolidation could be between a big bank and its subsidiaries.

Will oppose RBI move to permit foreign bank takeover of domestic lenders: AIBEA

http://www.thehindubusinessline.com/industry-and-economy/banking/will-oppose-rbi-move-to-permit-foreign-bank-takeover-of-domestic-lenders-union/article5233557.ece

The All-India Bank Employees Association on Monday said it will launch an agitation if the Reserve Bank of India goes ahead with any proposal to allow take over of Indian banks by foreign banks.

“We strongly oppose the RBI Governor’s proposals aimed at takeover of our banks by foreign banks. These are against our country’s interest,” said C. H. Venkatachalam, General Secretary of the Association.

The Association is opposed to the statement reportedly made by RBI Governor Raghuram Rajan in Washington to the effect that the central bank will soon unveil major banking reforms, which will entail allowing foreign banks to take over domestic banks.

At present, 80 per cent of the banking sector in India is under public sector, another 15 per cent under private sector and only about 5 per cent are foreign banks.

“Foreign banks have never contributed to our country’s economic growth and development. They are interested only in profits and have no role in social banking.

“Some of these foreign banks have also been involved in various scams in the past. Their licences should have been cancelled, but unfortunately the RBI Governor wants to encourage them,” said Venkatachalam in a statement.

CRISIS PRONE

Pointing out that Indian banks deal with more than Rs 70 lakh crore of public money as deposits, the AIBEA said the country cannot afford to liberalise its regulations.

The experience of the US and other countries shows that liberalised banking regulations have led to crises and collapse of banks.

Hundreds of banks in the US have been closed in the last few years. The US Government has bailed out the big banks in their country.

However, public sector banks in India are functioning well and do not face such crisis.

Need Rs 3,000 cr to merge one associate bank this year: Pratip Chaudhuri

http://www.business-standard.com/article/finance/need-rs-3-000-cr-to-merge-one-associate-bank-this-year-chaudhuri-113062100972_1.html

The State Bank of India (SBI) today said it would need up to Rs 3,000 crore to merge one of its associate banks with itself, adding that one of these banks would be merged  this year.

Pratip Chaudhuri, chairman of SBI, told shareholders during the annual general meeting (AGM): “SBI will need Rs 1,000 to Rs 3,000 crore in capital if it were to merge one of its associate banks with itself.”

After the AGM, Chaudhuri told reporters a committee headed by S Vishvanathan, managing director (associates and subsidiaries) at SBI, is looking into all the aspects. “That committee would report to the board (and) then we will finalise the name.”

When asked whether it would be a listed entity or an unlisted one, Chaudhuri said: “We have an open mind.”

Currently, SBI has five associate banks – State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Travancore and State Bank of Mysore.

Out of these, State Bank of Hyderabad and State Bank of Patiala are unlisted while rests are listed.

Earlier there were speculations that bank might first prefer to merge unlisted entities first as they completely owned SBI. But Chaudhuri cleared the air by saying all aspects will be looked into and it has open mind over the issue.

Incidentally Chaudhuri had a key role in merging in another associate bank State Bank of Saurashtra in 2008 as its managing director. Seventh associate bank, State Bank of Indore was merged in 2010.

On SBI's own capital raising plans this year, he said a decision would be taken by next month.

According to Chaudhuri, the recent depreciation in rupee was a result of global phenomenon and not restricted to India. "I think it’s not a reaction to India, it’s a reaction overseas everywhere” he said.

“Some of the money is headed back to US (and) all the markets including England, Germany all have lost substantially," Chaudhuri said, adding that it affects India more because of our dependence on the inflows.

SBI Chairman says not looking at group consolidation for now

http://www.thehindubusinessline.com/industry-and-economy/banking/sbi-chairman-says-not-looking-at-group-consolidation-for-now/article4689398.ece

State Bank of India on Monday made it clear that it was not looking at consolidation of any of its associate banks with itself for now.

But the issue has not gone off its radar and may well be taken up for consideration after July, Pratip Chaudhuri, SBI Chairman, told Business Line here. He was in the Capital to attend the board meeting of State Bank of Bikaner & Jaipur (SBBJ).

Chaudhuri, however, maintained that there was good economic logic in going for consolidation of its associate banks with SBI.

In recent years, two of SBI’s erstwhile associate banks — State Bank of Saurashtra and State Bank of Indore — were merged with it.

The other five stand-alone associate banks of SBI are State Bank of Patiala, State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner & Jaipur and State Bank of Travancore.

SBI mulls merging one of its associate banks this year

http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/sbi-mulls-merging-one-of-its-associate-banks-this-year/articleshow/19582055.cms

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.

Do we need more banks or bigger banks?

http://www.moneycontrol.com/news/business/do-we-need-more-banks-or-bigger-banks_829673.html

The Reserve Bank of India on Friday fueled enough optimism for India Inc, mostly bruised with economic blues. They can now apply for a new banking licence. The central bank released guidelines for the same. Corporate CEOs were vying each other in airing their voices to stake claim as potential candidates. According to reports, RBI may issue 4-5 such licences.

Is it the need of the hour?

India, the second largest populated country, has total 77 banks including 27 public sector banks, 20 private banks and 30 foreign banks. However, this huge universe has not clinched any significant global footprint.

Country's largest lender - the State Bank of India (SBI) ranks 60th globally in 2012 in terms of tier I capital (equity + reserves). The second largest bank (in terms of loan book) ICICI Bank 's position is way below at 110. Among top 200, four more banks including HDFC Bank , Bank of Baroda ,Canara Bank and Punjab National Bank managed to find their ranks.

Financial inclusion or basic banking service for every Indian seems to be the motivating factor for expanding banking reach. According to experts, consolidation should be the ideal solution to it, not new banks.

"There is no substitute for consolidation in PSU banks," Ramnath Pradeep, former chairman of Corporation Bank and currently chief advisor at PDS & Associates, a Mumbai based law firm; toldmoneycontrol.com.

"Indian companies are spreading their tentacles by acquiring companies abroad. For funding cross-country acquisitions Indian banks should acquire size and sophistication. State Bank of India is considered to be small fry in the global banking arena. Despite cornering about 25 per cent of the banking business in the country, SBI does not rank in the top 20 global banks. Ideally, India should have 4 or 5 global-scale banks," he said.

SBI & associate banks

SBI has five associate banks including State Bank of Hyderabad (SBH), State Bank of Patiala,State Bank of Mysore (SBM), State Bank of Travancore (SBT) and State Bank of Bikaner and Jaipur (SBBJ). Earlier, SBI had merged the State Bank of Saurashtra with itself in 2008 while the State Bank of Indore was merged in 2010. 

Since then, no further merger has taken place. Once all its subsidiaries are merged with it, it would be among the top 10 banks in the world in terms of various parameters.

Smaller PSU banks of no use? 

Even today, some small public sector banks (viz. Dena Bank, Andhra Bank, United Bank of India and others) have not been able to show a healthy performance. They are even hesitant  to act as a lead bank and are content with being a consortium member . The need of the hour is merger of small banks to emerge into large entity (ies).

Some market considerations for possible mergers

Allahabad Bank, Central Bank, Corporation Bank and P&S Bank - projected to be the fourth largest

Canara Bank, Indian Bank, BoM, IOB and United Bank of India - projected be the second largest bank

SBI, BoI and BoB - projected to be among the largest banks in the world

PNB, Vijaya Bank, Andhra Bank and IDBI - projected to be the third largest

OBC, Syndicate Bank, UCO Bank and Dena Bank - projected to be the fifth largest

Govt now wants competition watchdog to okay bank mergers

http://www.thehindubusinessline.com/industry-and-economy/banking/article3808293.ece

In a policy U-turn, the UPA Government has decided to bring bank mergers within the purview of the Competition Commission of India (CCI).

It has now decided to drop a proposal in the Banking Laws (Amendment) Bill that would have taken bank mergers out of the ambit of the competition panel, a top Finance Ministry official said.

This will come as a setback for the Reserve Bank of India (RBI), which had wanted bank mergers kept out of the competition watchdog’s ambit. This new thinking on bank mergers comes soon after the change of guard at the Finance Ministry where P. Chidambaram has taken charge.

If this decision is enacted into law, the RBI will not have the last word on bank mergers and acquisitions.

The current thinking in the Finance Ministry is that the CCI, as competition watchdog, should get to approve merger transactions in all sectors, including banking, and that there should be no carve-outs or exceptions. Simply put, banks will have to take the panel’s approval before going ahead with any merger or forced amalgamation transaction.

All bank mergers will come under the scrutiny of the competition watchdog. Ever since the RBI, as banking regulator, made a pitch for exempting bank mergers from the Commission’s scrutiny, there have been similar demands from other sectors, especially those such as telecom that have their own regulators.

Insurance and shipping players had also reportedly lobbied through their ministries seeking to be exempted from the panel’s scrutiny.

SBI might absorb one Associate Bank this year

http://www.business-standard.com/india/news/sbi-might-absorb-one-associate-bank-this-year/483230/

State Bank of India (SBI) is likely to merge one of its five associate banks in the current financial year.

The board of the country’s largest lender has given its approval for the merger, and SBI will now start the process of identifying an associate for the merger.

SBI merged one of its associate, State Bank of Saurashtra, with itself in 2008. State Bank of Indore was merged with SBI in 2010.

According to bank officials, this time the debate is whether the bank would go for a listed entity or an unlisted entity.

Of the five associate banks of SBI, State Bank of Hyderabad (SBH) and State Bank of Patiala are unlisted, while State Bank of Mysore (SBM), State Bank of Travancore (SBT) and State Bank of Bikaner and Jaipur (SBBJ) are listed entities.

Apart from State Bank of Mysore, the others have reported profit growth for the quarter ended June. While SBM’s profit dipped to Rs 40 crore from Rs 64 crore reported during the first quarter of the previous financial year, State Bank of Patiala posted 87 per cent growth in profit, SBBJ’s profit growth was 31 per cent, while SBT and SBH 30 per cent and 18 per cent respectively.

SBI may not go for associate bank merger this year

State Bank of India (SBI) is unlikely to go for consolidation of its associate banks this year as some issues are yet to be sorted out.

SBI undertook first ever amalgamation of its associate State Bank of Saurashtra in 2008, followed by State Bank of Indore in August, 2010.

There are five associate banks of SBI. Two of them are fully-owned, State Bank of Patiala and State Bank of Hyderabad, while remaining three - State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner and Jaipur (SBBJ) - are not 100 per cent owned. These three entities are also listed at stock exchanges.

Amalgamation of unlisted banks is easier compared to the listed entities. So, State Bank of Patiala and State Bank of Hyderabad could be next on the block.

Link for the news:


http://www.thehindubusinessline.com/industry-and-economy/banking/article3616349.ece

Merger of Associate Banks with SBI

The Hindu

http://www.thehindu.com/business/Economy/article3572616.ece

State Bank of India (SBI) Chairman Pratip Choudhary has emphasised the need for enhancing equity and foreign investment in the country, besides taking measures for raising exports.

“There is a need for more equity investment in the country and enhancing capabilities for raising exports as at present we import more and export less,” the SBI Chairman told reporters here last evening while commenting on the measures taken by the Reserve Bank of India (RBI) to arrest the slide of the rupee.

Mr. Choudhary, who earlier addressed SBI officers at its regional headquarters, said, “These are short-term measures while the country needed steps for a long-term growth.”

Refusing to comment on the Indian economy, he said that government only could say anything about it but he insisted on raising foreign investment in the country.

Referring to the ongoing merger process of associate banks with the SBI, he said it will be done in a gradual manner, one every year and not all of them together.

The associate banks slated to be merged with SBI are State Bank of Patiala, State Bank of Hyderabad, State Bank of Mysore, State Bank of Bikaner and State Bank of Travancore.

On the issue of appointments in SBI, he said the process would be completed by Dussehra and added that this year the bank would make 9,500 clerical level appointments and appoint nearly 1,000 probationary officers.