Saturday, June 20, 2009

SBI to merge State Bank of Indore with itself

The State Bank of India (SBI) board on Friday approved the merger of its subsidiary, the State Bank of Indore, with itself. This would be the second acquisition by SBI of a subsidiary bank after the merger of State Bank of Saurashtra. The State Bank of Indore board, too, has approved the merger proposal. SBI holds 98.3% in the bank, and the balance 1.77% is owned by individuals, who held the shares prior to its takeover by the government.

The acquisition of State Bank of Indore will help SBI add 470 branches to its existing network of 11,448. Also, following the acquisition, SBI’s total assets will inch very close to the Rs 10-lakh crore mark. Total assets of SBI and the State Bank of Indore stood at Rs 998,119 crore as on March 2009.

The country’s largest lender had in early 2007 announced its intention to merge all its seven associate banks with itself. The market had estimated that SBI would first merge the small unlisted banks. SBI holds 100% stake in State Bank of Hyderabad and State Bank of Patiala, and in the range of 75-98% in State Bank of Bikaner and Jaipur, State Bank of Indore, State Bank of Travancore and State Bank of Mysore.

For SBI, the acquisition of State Bank of Indore will mainly be an HR exercise. This is primarily because SBI and all its six associate banks share a common IT platform and follow similar policies. Further, even as treasuries of all the associate banks operate separately, they are situated in the same building in south Mumbai. Moreover, the associate banks already sell insurance policies of SBI Life and issue SBI credit cards.

“The timing of the approval indicates there is some level of comfort for SBI to go ahead with the plan of merging its associate with itself, given that the Left is out of the picture,” said Hemindra Hazari, head of equity research at Karvy Securities.

It may be recalled that the SBI board had approved the merger of State Bank of Saurashtra with itself sometime in August 2007, but could only complete the process by August 2008, after the Left had walked out due to differences over the Indo-US nuclear deal. In his first meeting with the CEOs of PSU banks, finance minister Pranab Mukherjee said consolidation was important to improve competitiveness among Indian banks.

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