Apparently under pressure from the government to assimilate six banks almost in one go, State Bank of India will bank on its experience of acquiring State Bank of Saurashtra (in 2008) and State Bank of Indore (in 2010) to push through the exercise.
India’s largest bank will face a Herculean task, integrating the five associate banks — State Bank of Mysore (SBM), State Bank of Patiala (SBP), State Bank of Hyderabad (SBH), State Bank of Bikaner and Jaipur (SBBJ), and State Bank of Travancore (SBT) — and the Bharatiya Mahila Bank (BMB) — in view of concerns among employees of these banks that they may get a raw deal.
The employees are worried that their promotion prospects may be hampered due to curtailment of seniority. Further, rationalisation of branches due to overlap may lead to their relocation.
A director of one of the associate banks (ABs), who attended his bank’s board meeting on May 17, said, “The manner in which the merger is being attempted, just bringing it in as a table item at the board meeting and without discussing what is in it for all the stakeholders, it is not the right thing to do.
“How can you expect the directors to apply their minds when suddenly such an important issue is brought to the board? First of all, they should have circulated background papers on the advantages/ disadvantages of merger, the economies of scale that could be derived, etc. All these should have been presented in black and white.”
If the merger of the five associate banks with the SBI goes through, the latter’s assets will jump from about ₹21.50 lakh crore to ₹28.25 lakh crore (numbers as of December-end 2015). The number of branches will increase from 16,500 to over 21,500. If one takes into account the branches of BMB, then the total number of branches will go up by another 100. The mergers are expected to go through in the current fiscal.
A senior SBI official said given that the country is taking a quantum leap, there is a necessity to consolidate within the group itself. “The merger benefits include getting economies of scale and reduction in the cost of doing business,” he added.
An associate bank officers’ union functionary said the government is trying to bulldoze the merger process. “The associate banks are on a totally different footing as they have regional flavour and regional focus. Remember the fate of large global banks, which collapsed during the global financial crisis? Therefore, the argument that size is going to determine the future of the bank in a globalised scenario is facile. On the contrary, small banks have survived the crisis due to their nimbleness and the niche areas they operate in,” he said.
Long-term benefitsBrokerage firm Motilal Oswal, in a report said, long-term synergy benefits (of the merger) will outweigh near-term challenges. However, integration of over 70,000 employees (34 per cent of the parent’s workforce; size of business is 25 per cent of the parent’s) will be a key challenge. Cost savings on account of treasury operations, audit, and technology, among others, will lower the cost-to-income ratio in the long term.
Immediate negative impact would be from pension liability provisions (due to different employee benefit structures) and harmonisation of accounting policies for bad loans recognition, it added.
PSU mergersWhen it comes to merging public sector undertakings, the Centre does not have a good track record. For example, the merger between Air India and Indian Airlines was not very smooth.
Interestingly, while the merged entity is yet to report a profit, the individual airlines made profits before their merger into one entity. In 2003-04, the then Indian Airlines was able to come out of the red and reported a net profit ₹44 crore.
The merger has not really led to the combined entity gaining market share either.
The proposed merger between telecom firms BSNL and MTNL is another sore point. Differences between the two labour unions and complexities related to pay scale and promotions have delayed the merger by over five years.