SBI Merger: Creation of banking behemoth

Will SBI Merger make it one amongst top 50 banks of the world?

SBI Merger

Now-a-days, newspapers and news channels are featuring a lot of news pertaining to the SBI merger – merger of 5 SBI Associate banks and Bharatiya Mahila Bank into the State Bank of India (SBI). This is going to be the first move by the Government to unify Public Sector Banks across the country.

This post talks about key points on the merger of SBI Associates and Bharatiya Mahila Bank with the State Bank of India. After thoroughly reading this post you will be in a position to answer questions based on SBI merger. Also, this is one of the hot topics for Group Discussions.

Now, without any further delay, let’s learn about the 5 SBI Associate banks.

  • State Bank of India (SBI) has five associate banks, viz., State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.
  • The government has a stake of 61.32% in these banks.

Reasons for merger

Here are major reasons for SBI merger.

  • To be among top 50 banks of the world: As of now, no Indian has been ranked in top 50 banks of the world. The merger of 5 SBI Associates and BMB with SBI will create a banking powerhouse and also place SBI in the list of top 50 banks of the world. SBI alone has approximately 16,500 branches, including 198 foreign offices spread across 36 countries in the world.
  • Widespread network of SBI:  The Chairperson of SBI Arundhati Bhattacharya believes that the merger of SBI and its associate banks is a win-win situation. The network and reach of SBI will increase by leaps and bounds. With this merger, the global economy is also likely to improve.

Benefits of merger

The SBI merger will not only be beneficial to the employees of SBI & its Associates but will strengthen the economy and share market.

Let’s read further and explore various merits of the SBI merger.

  • Creation of banking behemoth: As per the Forbes report, the SBI merger will create a unified body with aggregate deposits of over Rs. 21 lakh crore, net profit of Rs. 11,589 crore and advances of Rs. 18 lakh crore.
  • Among top 50 global banks: After the merger, the State Bank of India will be ranked among top 50 global banks. SBI is likely to be placed on the 45th
  • Drop in the cost-to-income ratio: The cost-to-income ratio is the company’s costs with respect to its income. As per a report from SBI, the cost-to-income ratio will drop by 100 basis points a year.
  • Combined treasury: A combined treasury/treasury pooling will result in lower cost saving and streamlining the audit process.
  • Rationalization: Branch rationalization is likely to be one of the significant results of SBI merger. Post merger, efficient banking system will smoothen the banking system.
  • Economic boost: The merger of SBI Associates & BMB with the State Bank of India will strengthen the Indian economy and banking system across the country.
  • Increase in market share: The Chairperson of SBI Arundhati Bhattacharya expects that the proposed merger will raise our market share exponentially. Further, she added that repetitive cost will also come down.

Challenges post SBI merger

To conclude, let’s glance through a few challenges that SBI is likely to face after the merger.

  • Manpower integration: Integrating 70,000+ employees of the 5 SBI Associates will be a tricky issue for the State Bank of India.
  • Restructuring job profiles: Amalgamating SBI employees and the employees of SBI Associates will be a monumental task for the SBI.
  • Remuneration to staff: SBI employees are entitled to pension, provident fund and gratuity, however, the employees of SBI Associate banks do not receive contributory provident fund.

Current status of SBI merger

The SBI merger is likely to be completed by the end of the current financial year. SBI chairperson Arundhati Bhattacharya looks forward to a combined balance sheet for the financial year 2016-17.