Taking forward the consolidation agenda, State Bank of India (SBI) board today approved share swap ratio to merge five associate banks and Bharatiya Mahila Bank(BMB) with itself.
The board gave approval for scheme of acquisition for five associate banks and BMB, SBI informed stock exchanges. SBI is targeting to consolidate operations and balance sheets March 2017.
Its five associates are State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT). BMB, started in 2013, is a Delhi-based public sector lender.
The swap ratio approved are as follows. SBI will issue 28 shares (face value of Rs 1) for 10 shares (face value of Rs 10) of SBBJ, 22 SBI shares for 10 shares (face value of Rs 10) of SBM and SBT each.
SBI will issue its 44.2 million shares for 1,000 million shares of BMB.
As for two unlisted units – SBP and SBH, where the bank holds 99 per cent stake, it would be line by line merger, its chief financial officer and deputy managing director Anshukla Kant said.
SBI CFO said it would send the merger scheme to Reserve Bank of India for its nod. After scrutiny, RBI would in-turn forward that to the Government of India. She did not specify time required for regulatory and government nod. SBI is targeting to consolidate operations and balance sheets by March 2017.
Domestic brokerage Religare in a note said Barring SBM shareholders, the share allotment ratio is broadly even for all the holders. Even if the allotment ratio is favourable / unfavourable for shareholders of associate banks, it is unlikely to make any difference since SBI holds 75-90% in these banks.
SBI's asset quality is better than its peers. Post merger there is unlikely to be any material improvement in SBI's asset quality since the asset quality of its associate banks is weak, Religare said.
The clean-up exercise would continue for associate banks in Q2FY17 since their AQR list is substantially different from SBI. This would further deteriorate their asset quality.
According to Bloomberg's list of world's top 50 banks (in terms of assets) after consolidation SBI's ($ 550 billion) will move by six notches to 44 positions, overtaking Natixis ($ 544 billion). The top bank in list is the Chinese bank ICBC ($3,423 billion).
About the effect of consolidation, SBI has maintained that besides making group more efficient, it will be of huge value. The group will have the benefit of all synergies. Also, the associate banks have fixed assets of around Rs 4,000 crore, which will add to the capital. After the merger, cost-to-income ratio will come down by 100 basis points in a year. The cost of funds should come down sharply.
SBI group holds 22% market share in business of Indian banking system. The five associate banks of SBI have Indian market share around 5.30% in deposits and 5.33% in advances at end of March 2016. Their net profit was Rs 1,368.7 crore at end of March 2016.
While SBI has highlighted benefits there are challenges in rationalizing branch operations and integrating employees working with associate banks and BMB.
On branch rationalisation, SBI has said that it will corporate finance branches of associates with parent and prepare detailed plan to rationalise retail banking network. Corporate finance branches of associates banking units will be folded up in parent (SBI) as 60-70% accounts are common and can have one relationship manager.
As for retail branch network of group spread over the country, SBI would prepare detailed plan taking in account strengths of each bank. At present SBI group has about 22,000 branches, out of which SBI has 16,800 units.
source business standard
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