Proxy advisory firm Stakeholders Empowerment Services (SES) has given the thumbs up to the proposed merger of State Bank of India with six associate banks and the Bharatiya Mahila Bank.

The deal envisages allotment of 28 shares of SBI (of ₹1 each) for every 10 shares in State Bank of Bikaner & Jaipur (₹10 each) and 22 shares of SBI for every 10 shares held in State Bank of Mysore and State Bank of Travancore.

State Bank of Hyderabad and State Bank of Patiala are unlisted entities and are fully owned by SBI.

For Bharatiya Mahila Bank, which too is an unlisted entity but owned by the government, SBI fixed the swap ratio at 4.42 crore shares of SBI for every 100 crore shares of BMB.

SES said it found the merger terms positive for shareholders of the listed subsidiaries given the favourable ratios based on market price. “Although, SBI’s shareholders are paying a premium (now), they will gain due to the removal of holding company discount and future cost reduction, cost rationalisation and better operational efficiency,” the report found. Instead, they get a bigger bank, with a well-connected network, which will be beneficial to them in the long-term.

The swap ratio provided to the shareholders of the three listed associate banks is at a premium to the swap ratio based on the daily share price of the associate banks with SBI for a one-year period, SES noted. It arrived at this conclusion by independently plotting swap ratios based on the daily historic prices of the SBI, SBBJ, SBT & SBM for one year.

Procedural infirmity

However, the proxy advisory firm found fault with the SBI Act of 1955, according to which mergers involving SBI only the need the permission of the Central Government, not of the capital market regulator SEBI or the stock exchanges or of shareholders.

“This is an age-old law (formed) when nobody even thought of computers and e-voting facilities,” the report concluded. “However, with changing times, the Act should have been amended and shareholders’ approval sought through a shareholders meeting as well as e-voting. SES is of the opinion that for good governance, shareholders’ approval should have been taken.”

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