The Union Cabinet, chaired by Prime Minister Narendra Modi recently announced it’s nod to the merger of India’s largest bank, SBI with it’s five associate banks including State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner and Jaipur, State Bank of Hyderabad and State Bank of Patiala. Amongst these 5, there are 3 listed subsidiaries of SBI – State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner and Jaipur.
This decision was awaited from last year, engendering palpable curiosity and bullish sentiments in the market. After the decision was finally made, shares of all the listed banks including SBI. It was indeed a happy day for all SBI shareholders post the approval grant.
While we are juggling with the technicalities as to how shareholders, promoters group and assets will be amalgamated for a consolidated Balance Sheet, among other nuances, you have a look into 6 important implications of this merger:
1) Power of Synergy
This merger is expected to boost the government’s ‘Indradhanush’ action plan announced by the Finance Ministry in August 2015 to boost overall functioning of PSU banks. “The acquisition of subsidiary banks of State Bank is an important step towards strengthening the banking sector and is expected to strengthen the banking sector and improve its efficiency and profitability,” the statement noted. It will engender consolidated assets and financial resources, thereby leading to effective results for India’s largest public sector bank, SBI.
Consequentially, this merger will reuslt in recurring savings, estimated at more than Rs.1,000 crore in the first year.
2) Bharatiya Mahila Bank not let in
Amongst all five banks which have joined the wagon, Mahil Bank which was also rumoured to be included has finally been secluded from this merger. As of now, no decision has been taken on the proposal to merge Bharatiya Mahila Bank with State Bank of India. SBI had in March 2016 announced its plan to merge its five subsidiaries and Bharatiya Mahila Bank (BMB) once it gets the government approval. However, the Union cabinet cleared the air through it’s merger announcement.
3) Swap ratio
Swap ratio is the ratio in which the target company offers it’s shares to the shareholders of the target company as an exchange of shares. For this merger, the swap ratio will remain
The board of State Bank of India (SBI) approved a swap ratio for the merger of its three listed associate banks and the Bhartiya Mahila Bank.
The deal involves allotting 28 shares of SBI (of Re 1 each) for every 10 shares in State Bank of Bikaner and Jaipur (Rs 10 each) and 22 shares of SBI for every 10 shares held in State Bank of Mysore and State Bank of Travancore.
The other two associate banks, that is, State Bank of Hyderabad and State Bank of Patiala, are unlisted entities, which are fully owned by the SBI.
4) A boon for Banking Industry
Analysts spelled out that the merger will render synergy effects. Moreover, this merger will result in an impressively strong balance sheet.
What does it hold for comprehensive growth? This merger will result in boosting the Indian banking industry, giving impetus to hassle-free loans. It will also plummet NPA (Non Performing Asset), thereby countering the asset quality concerns, an unyielding menace which the Indian banking Industry has been struggling with for quite some time now.
5) Half battle won by SBI and associates
Market analysts and brokers suggested, “Existing customers of subsidiary banks will benefit from access to SBI’s global network. The merger will also lead to better management of high value credit exposures through focused monitoring and control over cash flows. This will minimize vulnerability to any geographic concentration risks faced by subsidiary banks.”
6) Proliferated earnings among other perks
Not only will it result in improved operational efficiency and economies of scale, it will also bolster risk management along with streamlining treasury operations. Over all, this merger ushers in a positive outlook on the overall markets, especially the banking industry.
The shares of these banks spiked up in range of 3-13%, a day after Union cabinet’s nod was received.
