National Journal of Multidisciplinary Research and Development

National Journal of Multidisciplinary Research and Development

ISSN: 2455 -9040; Impact Factor: RJIF 5.22
www.nationaljournals.com
Volume 2; Issue 1; January 2017; Page No. 22-25

A case study on mega merger of SBI with its five Subsidaries

1
D Satyanarayana, 2 Dr. GV Subba Raju, 3 Dr. S Krishnamurthy Naidu
1
Research Scholar, Rayalaseema University, Kurnool, Andhra Pradesh, India
2
Professor, Dept. of Management Studies, Sri Vasavi Engg. College, Tadepalligudem, West Godavari, Andhra Pradesh, India
3
Associate Professor, Management Studies, Sri Vasavi Engg. College, Tadepalligudem, West Godavari, Andhra Pradesh, India

Abstract
Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations or their
operating units are transferred or combined. As an aspect of strategic management, M&A can allow enterprises to grow, shrink,
and change the nature of their business or competitive position. From a legal point of view, a merger is a legal consolidation of
two entities into one entity, whereas an acquisition occurs when one entity takes ownership of another entity's stock, equity
interests or assets. However, from a commercial and economic point of view, both types of transactions generally result in the
consolidation of assets and liabilities under one entity, and the distinction between a "merger" and an "acquisition" is less clear. On
15 February 2017, the Union Cabinet approved a proposal to merge five SBI associate banks with SBI. In this present case study,
Merging of five state bank subsidiary banks into the parent bank SBI is named after Mega-merging. The present paper explores the
economic and political pull and push factors cause merger of SBI associate banks into SBI. The paper also attempted to evaluate
prospects and consequences of Mega-merging.

Keywords: Mega-merging, M&A

two "presidency banks" in British India, Bank of Calcutta and

1. Introduction Bank of Bombay, to form the Imperial Bank of India, which in
1.1 Banking industry in India at glance turn became the State Bank of India in 1955. Government of
Indian banking is the lifeline of the nation and its people. India owned the Imperial Bank of India in 1955, with Reserve
Banking has helped in developing the vital sectors of the Bank of India (India's Central Bank) taking a 60% stake, and
economy and usher in a new dawn of progress on the Indian renamed it the State Bank of India. In 2008, the government
horizon. The sector has translated the hopes and aspirations of took over the stake held by the Reserve Bank of India.
millions of people into reality. But to do so, it has had to
control miles and miles of difficult terrain, suffer the 2.1 Key strengths of SBI
indignities of foreign rule and the pangs of partition. Today, State Bank of India is a banking behemoth and has 20%
Indian banks can confidently compete with modern banks of market share in deposits and loans among Indian commercial
the world. Before the 20th century, usury, or lending money at banks.State Bank of India (SBI) is an Indian multinational,
a high rate of interest, was widely prevalent in rural India. public sector banking and financial services company. It is a
Entry of Joint stock banks and development of Cooperative government-owned corporation. As of 2016-17, it had assets
movement have taken over a good deal of business from the of 30.72 trillion (US$460 billion) and more than 14,000
hands of the Indian money lender, who although still exist, branches, including 191 foreign offices spread across 36
have lost his menacing teeth. In the Indian Banking System, countries, making it the largest banking and financial services
Cooperative banks exist side by side with commercial banks company in India by assets. The company is ranked 232nd on
and play a supplementary role in providing need-based the Fortune Global. 500 list of the world's biggest corporations
finance, especially for agricultural and agriculture-based as of 2016.
operations including farming, cattle, milk, hatchery, personal
finance etc. along with some small industries and 3. SBI and its Associate banks
selfemployment driven activities. SBI now has one associate bank, down from the eight that it
originally acquired in 1959. All use the State Bank of India
2. SBI at glance logo, which is a blue circle, and all use the "State Bank of"
The bank traces its ancestry to British India, through the name, followed by the regional headquarters' name:  State
Imperial Bank of India, to the founding, in 1806, of the Bank Bank of Patiala (founded 1917)
of Calcutta, making it the oldest commercial bank in the  State Bank of Mysore (founded 1913)
Indian subcontinent. Bank of Madras merged into the other
National Journal of Multidisciplinary Research and Development

 State Bank of Bikaner & Jaipur (founded 1963) SBI provides a range of banking products through its network
 State Bank of Hyderabad (founded 1941) of branches in India and overseas, including products aimed at
 State Bank of Travancore (founded 1945)  non-resident Indians (NRIs). SBI has 14 regional hubs and 57
Bharatiya Mahila Bank(founded 2013) Zonal Offices that are located at important cities throughout
India.

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3 (a). State Bank Of Hyderabad (SBH) Hyderabad State This bank has 976 branches and 10627 employees (June 2014)
Bank was established on 8 August 1941 under the Hyderabad and the Bank has 772 branches (79%) in Karnataka State. The
State Bank Act, by last Nizam of bank's turnover in the year 2013-2014 was around US$19
Hyderabad, Mir Osman Ali Khan now the new state of Billion and Profit about US$46 Million.
Telangana. It is one of the five associate banks of State Bank
of India and is one of the scheduled banks in India. In 1956, 3 (d). State Bank of Patiala (SBP)
the Reserve Bank of India took over the bank as its first Bhupinder Singh, Maharaja of Patiala State, founded the
subsidiary and renamed it as State Bank of Hyderabad. Since Patiala State Bank on 17 November 1917 to foster growth of
1956 it has been a subsidiary and largest associate bank of agriculture, trade and industry. The bank combined the
SBI. The bank has performed well in the past decades, functions of a commercial bank and those of a central bank for
winning several awards for its banking practices. SBH has the princely state of Patiala. The bank had one branch at
over 2,000 branches and about 18,000 employees. The Bank's Chowk Fort, Patiala, undivided India.
business has crossed Rs. 2.4 trillion as on 31.12.2015 with a The formation of the Patiala and East Punjab States Union in
net profit of Rs. 8.12 billion. The bank has performed well in 1948 led to the bank being reorganized, being brought under
the past decades, winning several awards for its banking the control of the Reserve Bank of India, and being renamed
practices. Bank of Patiala. On 1 April 1960 Bank of Patiala became a
subsidiary of State Bank of India and was renamed State Bank
3 (b). State bank of Travancore (SBT) of Patiala. Presently, State Bank of Patiala has a network of
SBT was established in 1945 as the Travancore Bank Ltd, at 1445 service outlets, including 1314 branches, in all major
the initiative of Travancore Divan C. P. Ram swami Iyer. cities of India, Particularly in north India.
Following popular resentment against his dictatorial rule, the
bank no longer credits his role. Instead, the Bank now 3 (e). State Bank of Bikaner & Jaipur
considers the Maharaja of Travancore as the founder, though SBBJ came into existence on 1963 when two banks, namely,
the king had little to do with the founding. Although the State Bank of Bikaner (established in 1944) and State Bank of
Travancore government put up only 25% of the capital, the Jaipur (established in 1943), were merged. Both these banks
bank undertook government treasury work and foreign were subsidiaries of the State Bank of India under the State
exchange business, apart from its general banking business. Its Bank of India (Subsidiary Bank) Act, 1959. On 25 April 1966
registered office was at Madras. In 1960, it became a SBBJ took over Govind Bank (Private) Ltd., Mathura,
subsidiary of State Bank of India under the SBI Subsidiary established on 8 February 1963.
Banks Act, 1959, enacted by the Parliament of India. In 1984 SBBJ sponsored and established Ganganagar
Kshetriya Gramin Bank as a Regional Rural Bank. Thereafter,
3 (c). State Bank of Mysore (SBM) in 1985 SBBJ opened the Bikaner Kshetriya Gramin Bank, the
State Bank of Mysore was established in the year 1913 as The second Regional Rural Bank sponsored by it. The third
Bank of Mysore Ltd. under the patronage of Regional Rural Bank, sponsored by SBBJ was Marwar
Maharaja Krishna Raja Wadiyar IV, at the instance of the Gramin Bank, which covered the districts of Pali, Jalore and
banking committee headed by the great EngineerStatesman, Sirohi. On 12 June 2006, SBBJ merged all three regional rural
Bharat Ratna Sir M.Visvesvaray. During 1953, "Mysore banks that it sponsored under the name MGB Gramin Bank,
Bank" was appointed as an agent of Reserve Bank of India to with headquarters in Jodhpur.
undertake Government business and treasury operations, and It is an associated bank of State Bank of India. As of 2015,
in March 1960, it became a subsidiary of the State Bank of SBBJ had 1,360 branches, mostly located in the state of
India under the State Bank of India (subsidiary Banks) Act Rajasthan, India. Its branch network out of Rajasthan covers
1959. Now the bank is an Associate Bank under State Bank all the major business centres of India. In 1997, the bank
Group and the State Bank of India holds 92.33% of shares. entered the capital market with an Initial Public Offering of
The Bank's shares are listed in Bangalore, Chennai, and 13, 60,000 shares at a premium of Rs 440 per share. For the
Mumbai stock exchanges. year 2015-16 the net profit of the company was 850.60 Crore.

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National Journal of Multidisciplinary Research and Development

of State Bank of Bikaner and Jaipur, shareholders will get 28

4. Economic and Political factors trigger Mega-merger The equity shares of SBI. For every 10 shares State Bank of
present chairman of SBI, Arundhati Bhattacharya has earlier Mysore, shareholders will get 22 shares of SBI and for every
gone on record that the merger of associate banks is not a 1Oshares of State Bank of Travancore they will get 22 shares
priority at the current juncture. It is the cabinet approval to of SBI. The other two associates. State Bank of Hyderabad
merge five SBI associate banks with SBI. There are a few and State Bank of Patiala, are fully-owned, unlisted
economic factors trigger the Mega-merging. The merger of subsidiaries of SBI.
five associate banks with State Bank of India (SBI) will result Table1 shows the Financial position of SBI and its associate
in the capital adequacy ratio of the merged entity falling by banks at glance. About 1,500 branches of State Bank of India
about 54 basis points (bps) to 13.19% from 13.73%, chairman and its five associate banks will be merged following
Arundhati Bhattacharya said on Thursday “ We will still be amalgamation of the latter with their parent bank, said a top
very close to 14% and, therefore, it is not a really major worry official. According to government orders issued on February
for us,” she said, explaining that 79 bps of capital from the 22 under the State Bank of India Act, 1955, the entire
fourth-quarter infusion of funds by the government and profit undertaking of State Bank of Bikaner & Jaipur, State Bank of
had not been taken into account. The new entity’s gross Mysore, State Bank of Travancore, State Bank of Patiala, and
nonperforming asset (NPA) ratio will rise by 147 bps to 8.7 State Bank of Hyderabad will stand transferred to and vested
%. Bhattacharya said the gross NPA ratio would not go up too in State Bank of India from April 1, 2017. The branch
much as the bank has been working to ensure that rationalisation will happen in the second half of the next
provisioning levels of the associate banks were raised to SBI’s financial year, said Rajnish Kumar, Managing Director
standards. “By the time they come in, all of the provisions that (National Banking Group), State Bank of India. “Branch
they needed to have made will be made, to the extent rationalisation will happen wherever the retail branches are in
possible,” the chairman said. close proximity. We don’t need two outfits in one building or
The bank expects the merger to lead to synergies in terms of in close proximity,” said Kumar. To expand network But, at
treasury operations, the reorganisation of some head offices the same time, the bank, which is India’s largest, has plans to
and the consequent redeployment of some administrative staff expand its network because the country’s population is
in direct operations. For large advances, where the associates increasing, newer localities are coming up, and newer
are part of consortia heir limits will get taken over by SBI and demands arising, explained Kumar. He elaborated: “So, what
people managing those accounts would also be released for will happen is some of these branches will get merged and
looking after other businesses, Bhattacharya said. Other new branches will be opened. Post-merger, we will have
functions related to account management, such as audit and 24,000 branches. “And what I believe is that in the next two
information technology, will also become consolidated. years, new branches will be opened and some of the existing
Bhattacharya refused to put a value on these synergies and branches will be merged.
said that it there will be more clarity on this once the merger is But the overall number of branches would remain around the
completed. current level.” Emphasising that customer experience will be
Table 1: Financial position of SBI and its associate banks at glance better and
a lot of
SBI: Scaling Up Tobe In The Global League
The merge of five associate banks and BHM with SBI is a step towards creating fewer but much larger banks
Select the business parameters of SBI’ associate After The Merger Combined
Banks Asset Base 37.Lakh Cr.
Total Branches 24000
Total ATMs 58700
Total Customers 50 Cr.

SBBJ SBT SBM SBP SBH

Net Profit (cr.) 851 338 358 (972) loss 1065
Total Business Lakh.Cr. 1.69 1.68 1.25 1.89 2.5
Gross NPAs (%) 4.82 4.78 6.56 7.89 5.75
Branches 1316 1177 1037 1300 1964
Source: Banks; Compiled by: Manojit Saha (Published in The Hindu daily-Thursday, June16, 2016)
inefficiencies will be removed as a result of the amalgamation,
4 (a). Merge Sharing ratio of SBI with subsidiaries Kumar said SBI’s retail book will go up to about Rs.10 lakh
Anshula Kant, chief financial officer at SBI, had earlier said crore (post-merger retail portfolio) from about Rs.6.75 lakh
that the terms of the merger are such that for every 10 shares crore (the bank’s standalone retail portfolio now). On retail

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loan growth, the SBI MD said, “Retail loan growth has been
good in February. I think, the retail growth story still remains 5 (d). People-side issues
intact; people are buying cars, there is activity in the housing In mergers it is not the two economic entities joining together,
loan market.” Rajnish Kumar, but also people with so much of career aspirations and
MD, SBI expectations must join together. People’s concerns and their
willingness to work with others are mostly ignored during a
typical merger. SBI must address the issues like employee
delight, morale and career.

6. Conclusion
The union cabinet has approved the merger of SBI, the
country’s largest lender, and its associate banks- a move
which is expected to bring the state-owned entity at paer with
global lender. The merged entity will have an asset base of
about Rs. 37 lakh crore, with nearly 24,000 branches and
about 58,700 ATMs across the country. The merger is seen as
win-win for both SBI and its associate banks. There are
several economic and strategic advantage to the merged entity.
However, the new entity is not free from challenges. It must
gear up to face new challenges that are to come.

7. References
1. Rajinder S et al., Mergers and Acquisitions, Oxford
University, New Delhi. 2014. 2. https://www.rbi.org.in/ 3.
Fig 1 https://www.sbi.co.in/.
4. http://thehindu.com-The Hindu daily-Thursday, June16,
5. Challenges of Mega-merging 2016)
The mega-merger has several economic, strategic and 5. www.livemint.com
structural advantages. However, this strategic move is not free
from challenges. SBI must face several challenges at times
ahead. The important challenges to address are;

5 (a). Overlap of branches

SBI today runs the largest bank in the country in terms of
assets as well as branch network. They have branches in every
nook and corner of the country. At many places SBI group has
more than sufficient branches. For example, in Tirupati, in a
single building there is State Bank of India on the first floor
and State Bank of Hyderabad on the second floor.

5 (b). Too big to manage

SBI is going to become the largest bank in India. The merged
SBI entity would have 24,000 plus branches, 58,000 ATMs
and 2.7 lakh employees. This is going to become another
challenge to the top management.

5 (c). Huge bad loans

This huge portfolio of bad loan makes the bank suffer from
bad debts. The five associate banks for instance have stressed
loans at a staggering Rs 35,396 crore level. This amount is
almost half of SBI's Rs 66,117 crore stressed loans in 201516.
It would be a huge task to resolve the bad loans given the
challenging operating environment.
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