Seeking to create a global-sized bank, the Cabinet on Wednesday gave the go-ahead to the merger plan of SBI and its five associates, a step aimed at strengthening the banking sector through consolidation of public banks.
However, no decision was taken on the proposal to also merge the Bharatiya Mahila Bank with the SBI.
The merger is likely to result in recurring savings, estimated at more than Rs 1,000 crore in the first year, through a combination of enhanced operational efficiency and reduced cost of funds, read an official statement.
"The Cabinet had earlier in-principle cleared the (merger) proposal. It had gone to the boards of various banks which have granted the approvals. The recommendations of the boards were considered today and the Cabinet cleared the proposal," Finance Minister Arun Jaitley said in a post-Cabinet briefing.
The associate banks which will be merged with SBI are State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Travancore, State Bank of Patiala and State Bank of Hyderabad.
"With this merger, the SBI, with all these five subsidiaries merging in it, will also become a very large bank, not merely from a domestic point of view but actually a global player in its very size," the minister said after the Cabinet meeting.
It will, Jaitley added, "certainly lead to far greater efficiency. It will lead to synergy of operations within these banks... it will cut down the cost of operations. The cost of funds itself will come down".
The Cabinet, chaired by Prime Minister Narendra Modi, also approved the introduction of a Bill in Parliament to repeal the State Bank of India (Subsidiary Banks) Act, 1959, and the State Bank of Hyderabad Act, 1956.
The acquisition of subsidiary banks of SBI is "an important step towards strengthening the banking sector through consolidation of public sector banks. It is in pursuance of the Indradhanush action plan of the government and is expected to strengthen the banking sector and improve its efficiency and profitability", the release added.
With the merger of all the five associates, SBI is expected to become a lender of global proportions with an asset base of Rs 37 trillion (Rs 37 lakh crore) or over $555 billion, 22,500 branches and 58,000 ATMs. It will have over 50 crore customers.
On the proposal to merge Bharatiya Mahila Bank with SBI, Jaitley said, "It is under consideration as of now. We have not taken any decision related with that today."
About the specific date on which the merger of five associate banks with SBI would become effective, he said, "We will inform you about the specified date when the merger will come into effect."
Jaitley also said the merger will not be detrimental to the services of any employee and "it will be a smooth arrangement".
The release further said existing customers of the subsidiary banks will benefit from the access to SBI's global network. The merger will also lead to better management of high value credit exposure through focused monitoring and control over cash flows instead of separate monitoring by six different banks.
The release further said the acquisition under the Section 35 of the State Bank of India Act, 1955, will result in creation of a stronger merged entity.
"This will minimise vulnerability to any geographic concentration risks faced by subsidiary banks. It will create improved operational efficiency and economies of scale. It will also result in improved risk management and unified treasury operations," it said.
State Bank of India has about 16,500 branches, including 191 foreign offices spread across 36 countries.
SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged with it.
The board of SBI earlier approved the merge plan under which SBBJ shareholders will get 28 shares of SBI (Re 1 each) for every 10 shares (Rs 10 each) held. Similarly, SBM and SBT shareholders will get 22 shares of SBI for every 10 shares.
SBI had approved separate schemes of acquisition of State Bank of Patiala and State Bank of Hyderabad. There will not be any share swap or cash outgo as they are wholly-owned by the SBI.
SBI stock closed 0.68 per cent down at Rs 268.65 on BSE.
Out of the five subsidiary banks, three are listed. State Bank of Mysore stock closed 0.47 per cent down at Rs 561.65, State Bank of Bikaner and Jaipur fell 0.51 per cent to Rs 718 and State Bank of Travancore slipped 0.91 per cent to Rs 559.95.
Meanwhile, SBI in a statement said the merger will result in creation of a stronger entity.
"This will minimise vulnerability to any geographic concentration risks faced by associate banks. This merger is an important step towards strengthening the banking sector through consolidation of public sector banks," the statement said.
A formal notification in this regard is awaited from the government in which the effective date of merger will be indicated, it added.