The Union Cabinet chaired by the Prime Minister Narendra Modi has approved the merger of State Bank of India (SBI) with five of its associate/subsidiary banks.
These five subsidiary banks are State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore.
The Union Cabinet 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.
- The acquisition under Section 35 of the SBI Act, 1955 will result in the creation of a stronger merged entity. It will minimize vulnerability faced by subsidiary banks to any geographic concentration risks.
- It will improve operational efficiency and economies of scale resulting into in improved risk management and unified treasury operations. Existing customers of associate banks will benefit from SBI’s global network.
- The merger will lead to better management of high value credit exposures through focused monitoring and control over cash flows rather than separate monitoring by six different banks.
- The merger will also result in recurring savings, estimated at more than Rs. 1,000 crore in first year, because of reduced cost of funds and enhanced operational efficiency.
The acquisition of subsidiary banks of SBI is considered an important step towards strengthening the banking sector through consolidation of public sector banks (PSBs). It is in pursuance of the Indradhanush action plan of the Central Government. In 2015, SBI was ranked 52 in the world in terms of assets, however the merger will allow its entry un top 50. The merger does not include Bharatiya Mahila Bank (BMB) and its proposal is still under consideration.