SBI looking to add an ICICI Bank to its kitty

To prepare itself from the threat of increased foreign competition post 2009 and need for capital for expansion, State Bank of India has kicked of a process to merge its 7 associate banks in itself. In the first step, it is merging State Bank of Saurashtra with itself, which expectedly is also the smallest associate having assets of Rs 18,847 crore.

The total market share of all seven associate banks are equal to that of India’s second largest bank, ICICI Bank and the merger would place it much ahead of others. Post-merger, SBI’s deposit base will rise 46%, advances by 44% and net worth by 37%. The total balance sheet size would be worth over $ 200 billion.

After Saurashtra, next to be merged would be State Bank of Hyderabad (largest associate bank), State Bank of Indore and State Bank of Patiala. Regarding the listed associate banks which are State Bank of Travancore, State Bank of Mysore, State Bank of Bikaner and Jaipur, it is still to be decided whether they would work independently or be merged.

By merging listed banks, the government holding in SBI would decline leading to equity dilution. Other options explored earlier by SBI included merging all associates an hiving off into a separate bank having deposit of Rs.2 lakh crore.

SBI has already integrated the treasury operation of seven associate banks and is using a common technology platform. The merger would also benefit SBI’s earnings as EDP growth of SBI is just 3% while that of its subsidiaries is 23%.

It all 7 banks are merged, SBI is surely emerge as a banking behemoth adding 4000 branches and 50,000 employees to its current base. It would also provide it with competitive strength to gather more business from retail as well as corporate market.

But the issue of employee integration and trade union opposition would continue to halt the smooth merger process.