Jump 20% as Cabinet clears decks for merger; SBI sees up to a year for process to complete; brokerages expect cost to top Rs 3,500-4,000 crore
The Union Cabinet on Wednesday approved the merger of five associate banks of State Bank of India (SBI) and Bharatiya Mahila Bank with the SBI, leading to spike in stock prices of SBI and its associates. While SBI stock rose 3.90% to Rs 215.65, the share price of State Bank of Travancore rose 19.99% to Rs 478.90, State Bank of Bikaner & Jaipur jumped 19.99% to Rs 599.60 while that of State Bank of Mysore leaped 20% to Rs 547.90.
Arundhati Bhattacharya, chairman, SBI, told dna, "The mergers would have a timeframe of six months to one year depending on the time required for each step. There will be no job losses as the retirements are at the rate of 13,000 each year. Any overflow will be quickly adjusted and besides these are trained resources who can be deployed anywhere in the bank."
The merger of SBI associates is part of a grand plan of the government to create a one large Indian lender in the league of global banking giants. With the merger the global ranking of SBI, based on its balance-sheet size, will move six notches up to 44. On standalone basis the bank has a balance-sheet of Rs 28 lakh crore and this will grow to Rs 37 lakh crore after consolidation.
But the merger will have cost implication for SBI. The past mergers of State Bank of Indore and State Bank of Saurashtra caused losses of Rs 890 crore and Rs 610 crore, respectively largely on account of the pension liability. This was due to certain perks and pension benefits that the SBI employees enjoy, which will have to be extended to the employees of the five associate banks as well.
Religare Securities said in a note, "We believe the impact due to one-time pension cost will be Rs 3,500 crore-4,500 crore, translating into 15-17% of pre-tax consolidated profit for SBI."
Bhattacharya, said in a release, "The merger of SBI and its associate banks is a win-win for both. While the network of SBI would stand to increase its reach would multiply. One can expect efficiencies to be created from rationalisation of branches, common treasury pooling and proper deployment of a large skilled resource base. Currently, no Indian bank features in the top 50 banks of the world. With this merger, some visibility at global level is likely to increase.
Customers of associates and subsidiaries of the bank will also be beneficiaries. Any introduction of new technology by SBI would simultaneously be available uniformly. The scale of operations and common cost would get rationalised. Overall, the synergies being pooled at one place are going to be a big positive."
The country's largest lender has five associate banks - State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad. Among these, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are listed. SBI first merged associate State Bank of Saurashtra with itself in 2008. Two years later in 2010, State Bank of Indore was merged.
Alpesh Mehta, deputy head of research - institutional equities, Motilal Oswal Securities, said "Branch rationalisation, if executed well, would be one of the key synergy benefits from the merger. Cost savings on account of treasury operations, audit, technology, etc, would lower 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 NPA recognition."