ANALYSIS OF MERGER OF SBI & ITS ASSOCIATES

Abstract

Merger of SBI with its 5 associate banks and Bharatiya Mahila Bank which took place on 1

April 2017 is the largest merger in history of Indian Banking Industry.

Post-merger, SBI is at 45th position among top banks of the world. In our project, we would like to focus
on reasons of this merger, after effects of merger and also what could have been done better.

1. Introduction

Merger of SBI with its 5 associates namely State Bank of Bikaner and Jaipur (SBBJ), State Bank

of Mysore(SBM), State Bank of Travancore (SBT), State Bank of Hyderabad (SBH), State Bank

of Patiala (SBP) and Bharatiya Mahila Bank took place on 1 April, 2017. Shri Arun Jaitely was

confident that the bank will become global player due to this step of its merger with its five

associate banks and Smt. Arundhati Bhattachary, Chairperson of SBI, expected that profits of

Bank shall increase by Rs. 3000 crore in upcoming 3 years.

2. History

In history of SBI it is not the first time when SBI has merged with other banks. Earlier in 2008,

State Bank of Saurashtra was merged with SBI and in 2010 State Bank of Indore was merged

with SBI.

In fact, SBI came into existence when Bank of Bengal, Bank of Madras and Bank of Bombay

amalgamated to form Imperial Bank of India in 1921 which was subsequently converted to State

Bank of India in 1955.

3. Objectives

Being the largest unification in history of Indian Banking Industry, it attracts attention towards

following objectives:

1) To study the reasons behind the merger.

2) To find out the effects of merger on shareholders, public etc.

3) To study and analysis what could have been done differently.

4. Reasons of Merger

The reasons behind the merger of SBI with its associate banks and Bharatiya Mahila Bank are

listed as follows:
1) Government of India provides subsidy and contribution for bad debt recovery and share

capital to SBI and its associate banks. It will become easy for government to provide aid

to this single amalgamated bank instead of giving it separately to SBI and its associate

banks.

2) Profitability of SBI was going down for last few years and this merger will be able to

show better position of profitability in books of SBI. Net profit of the group fell from Rs.

12,225 crores in Financial Year 2016 to Rs. 241 crores in Financial Year 2017 and the

losses were mainly due to associate banks.5

3) To recover loans which have turned bad and to reduce NPA of SBI and associate banks in

future, merger of SBI with associate banks was important.

4) For reconstruction of SBI and associate banks in face of financial crises so that it can

meet its liabilities.

5) With the merger, SBI has become bigger than before. Now it has a larger asset base and

ranks 45th among top banks of the world.

6) Management of bank will become easier as earlier all the branches were managed by

separate management though the holding was same, and it used to make the whole process

cumbersome.

7) Cost of managing large number of branches will reduce which will increase profitability

of bank.

5. Effects of Merger

Because of merger SBI will be among top 50 large banks of the world. Now SBI will have an

asset base of Rs. 37 lakh crores. Presently number of SBI offices along with its associates are

809 which is likely to be reduced to approximately 687 after merger.6

Employees will be reallocated mainly to customer interface operations of those branches which

are likely to be shut down. The task has been lightened as around 13000 employees have retired

this year and 3600 have taken voluntary retirement. However, bank will hire less employees in

this financial year. Out of total asset base of SBI, 28 shares of SBI will be given to shareholders

of SBBJ who had 10 shares and shareholders of SBM and SBT having 10 shares will get 22 SBI

shares each as only these associate banks are listed with stock exchange. Rest two banks i.e. SBP
and SBH are not listed with the stock exchange.

Effects of merger on customers shall have a dual effect. Most of the continuing branches are

working in the manner they used to work. Even the rate of interest they are offering on deposits

is still same till the end of that contract. However, NEFT/RTGS charges are applicable to SBI are

being charged. Online transactions of associate banks can now be done from website of SBI

using previous username and password.

6. Conclusion

In view that profitability of SBI was going down, and it needed reconstruction, this step of

merger seems to be a smart step. It has brought SBI in list of top 50 banks in the world which is a

big deal. However, profitability of the bank after merger has fallen by approximately Rs. 3000

crore. This was mainly because of accumulated losses of associate banks which were shown in

balance sheet of the amalgamated entity and it reduced the enthusiasm of investors. Still,

investors should not lose hopes as such bold steps have effects in long run and they take time to

become visible.

SBI formed ABCD – Associate Banks Consolidation Department to deal with all pre-merger issues and
also to draft a business continuity plan after the effective merger date. SBI knew that customers of
associate banks might not necessarily feel comfortable to bank with gigantic lender. A major task for the
department is to address all the woes these customers might have.

SBI feared that depositors in associate banks, who used to communicate with officers in their mother
tongue might also leave. The Local customers might miss the local touch that the banks had been
offering for all these years.

However, SBI fired on all cylinders to retain customers. The top management of the SBI and associate
banks met important customers in person to remove numerous apprehensions regarding their
relationship with the bank. ABCD drafted a coordinated committee in 5 circles, where head offices of
associate banks are situated.

Things that changed after the merger :

1. Online transaction – Online portal of all the associate banks ceased to function from the date of
merger.
Impact on customers :

1. Globally use of cards - earlier visa and master cards of associate banks not used/ valid in foreign
countries. Now after the merger these cards used in foreign payment as well.
2. One shop – Customers of associates bank will get connected to a larger network of SBI branches
with diversified product under one roof.
3. New technology – Any introduction in new technology by SBI will be uniformly available to all
the customers of associates of the banks.
4. Interest rate – SBI which is largest lender in offering an interest rate of 8.6 for women borrower
and 8.65 to other on loan up to Rs 75 Lakhs. While the associates bank charge b/w 8.85% to
9.2%.
5. More use of digital gazettes – all the customers of associates bank’s now enjoy the wide array of
digital product and services offered by SBI.
6. Adequate liquidity – After merger, SBI can manage their liquidity short term as well as long
term. Thus they will not resort to borrowing from call money market and RBI under LAF
(liquidity marginal scheme).

New initiatives by SBI:

1. Post-merger and in order to move towards cashless economy, SBI pay (BHIM) was launched.
2. SBI has partnered with Flipkart to offer its consumers facility of preapproved EMI facility on
purchases. Under this partnership, SBI provide overdraft facilty to pre-qualified set of customers
for transacting on flipkart for a minimum purchase of 500.
3. SBI Mingle – the social media banking platform for Facebook and Twitter user, where they can
check account balances and mini statements.
4. Keeping in view the young customers of the Bank, your Bank has also launched SBI Mingle - the
Social Media Banking Platform which offers a host of banking services on Social Media. Services
like account enquiries, cheque book request, SMS alert registration and fund transfer including
P2P transfer is available through the platform.
5.
6. Your Bank’s YouTube channel leads all Indian banks in terms of subscriber base. It uploaded
more than 400 videos that have garnered over 40 million views and has over 44,000 subscribers,
indicating appreciation by the digital users.
7.
8. Your Banks has figured in Twitter advertising index for 6 weeks in a row. The Instagram handle
also garnered more than 2.3 lakh followers. In the current financial year, your Bank also
launched its presence on Quora.
9. Enabled inter-operable ATM Card based Transactions BC/CSP Outlet.
10.
11. - Merchant Transactions menu for CSPs through Kiosk Application provided convenience of e-
payment for goods/services purchased by customer from CSP outlet.
12.
13. - Rolled out of SBI Aadhaar Pay Merchant App, facilitating less cash economy.
14.
15. - OTP based refund facility under IMPS helped easy refund of failed IMPS transactions to the
authentic customer.
16.
17. - BUDDY integration with Kiosk Banking enabled cash deposit and withdrawal from Buddy at
Kiosk Channel.
18.
19. - Deployment of robust Direct Benefit Transfers solution to handle higher volumes and provide T
0 processing with complete accounts and funds reconciliation.
20.
21. - New Solution for processing State Government subsidies offers DBT services to state level
subsidy paying agencies.