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The Union Cabinet on Wednesday gave its final nod for State Bank of India (SBI) to acquire its five subsidiary banks, paving the way for the parent to turn into a global sized banking behemoth.
It also approved the introduction of a Bill in Parliament to repeal the State Bank of India (Subsidiary Banks) Act, 1959 and the State Bank of Hyderabad Act 1956.
Briefing reporters on this decision, Finance Minister Arun Jaitley said that the five subsidiary banks are State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore and State Bank of Patiala
“This merger will certainly lead to far greater operational efficiency and obviously as it will lead to lower cost of operations, the cost of funds will come down”, Jaitley said.
Post this transaction, State Bank of India will become a very large bank not only from domestic point of view but also a “global player in its size”, Jaitley added.
Jaitley highlighted that the Cabinet had earlier given in-principle approval for this transaction (merger) and after which the proposal went to the banks for their respective Board approval.
Assurance to staff Jaitley said that the specified date of the transaction will be informed in due course and also highlighted that employees’ service conditions will not be disturbed on account of this decision.
Meanwhile, an official release said that the merger is likely to result in recurring savings, estimated at more than ₹1,000 crore in the first year, through a combination of enhanced operational efficiency and reduced cost of funds.
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 instead of separate monitoring by six different banks.
The acquisition under Section 35 of the State Bank of India Act, 1955 will result in the creation of a stronger merged entity.
This will minimise vulnerability to any geographic concentration risks faced by subsidiary banks. It will create improved operational efficiency and economies of scale. It will also result in improved risk management and unified treasury operations.
Srivats.kr@thehindu.co.in
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