1. Apparently under pressure from the government to assimilate six banks almost in one go, State Bank of India will bank on its experience of acquiring State Bank of Saurashtra (in 2008) and State Bank of Indore (in 2010) to push through the exercise.
2. India’s largest bank will face a Herculean task, integrating the five associate banks — State Bank of Mysore (SBM), State Bank of Patiala (SBP), State Bank of Hyderabad (SBH), State Bank of Bikaner and Jaipur (SBBJ), and State Bank of Travancore (SBT) — and the Bharatiya Mahila Bank (BMB) — in view of concerns among employees of these banks that they may get a raw deal.
In a definitive push for consolidation in the banking sector, the Union Cabinet gave a go-ahead to the merger of State Bank of India (SBI) with its five associate lenders and Bharatiya Mahila Bank. The combined entity would create a financial sector powerhouse, with total assets worth Rs 29.7 lakh crore.
SBI has indicated it wants to complete the merger in 2016-17. While India's largest lender would reap benefits of scale and a larger balance sheet, it will be a major challenge to integrate staff and rationalise branches.
3. The employees are worried that their promotion prospects may be hampered due to curtailment of seniority. Further, rationalisation of branches due to overlap may lead to their relocation.
4. If the merger of the five associate banks with the SBI goes through, the latter’s assets will jump from about ₹21.50 lakh crore to ₹28.25 lakh crore (numbers as of December-end 2015). The number of branches will increase from 16,500 to over 21,500. If one takes into account the branches of BMB, then the total number of branches will go up by another 100.
5. The country is taking a quantum leap, there is a necessity to consolidate within the group itself. “The merger benefits include getting economies of scale and reduction in the cost of doing business,”
6. Long-term benefits Long-term synergy benefits (of the merger) will outweigh near-term challenges. However, integration of over 70,000 employees (34 per cent of the parent’s workforce; size of business is 25 per cent of the parent’s) will be a key challenge. Cost savings on account of treasury operations, audit, and technology, among others, will lower the cost-to-income ratio in the long term.
7. Immediate negative impact would be from pension liability provisions (due to different employee benefit structures) and harmonisation of accounting policies for bad loans recognition.
8. PSU mergers
When it comes to merging public sector undertakings, the Centre does not have a good track record. For example, the merger between Air India and Indian Airlines was not very smooth.
9. Interestingly, while the merged entity is yet to report a profit, the individual airlines made profits before their merger into one entity. In 2003-04, the then Indian Airlines was able to come out of the red and reported a net profit ₹44 crore.
10. In the last, one thing is clear that Indian banking is stepping toward a new era of Banking World.
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