The first large-scale banking consolidation is underway, with the merger of six banks with the State Bank of India (SBI). The SBI, India’s largest lender, has approved the merger of its operations with five of its associate banks.
After the merger the SBI is expected to have 24,000 branches. The six banks in question include the State Bank of Mysore, the State Bank of Travancore, State Bank of Patiala, State Bank of Hyderabad, State Bank of Bikaner and Jaipur. The government also gave the go ahead to the merger of 5 associate banks of SBI and Bharatiya Mahila Bank. The merger is set to create a banking behemoth with assets amounting to over one-fourth of the Indian banking system.
A fairness opinion was also sought from JM Financial and ICICI Securities.
The merger is expected to take less than a year to implement and all the employees will be absorbed in the merged entity. However, the efforts for this merger of small banks are at a very initial state, the official informed. SBI and its associate banks share similar branding elements, including the logo.
The government is said to be even considering a mega merger of 26 banks, which will create six big lenders. The proposal envisages major banks like State Bank of India, Punjab National Bank, Canara Bank, Union Bank, Bank of Baroda and Bank of India leading the merger. As a part of the proposal, Syndicate Bank, IOB and UCO Bank will be merged with Canara bank. Meanwhile, Central Bank and Dena Bank will be merged with Union Bank, the official said. Other banks like Andhra Bank, Bank of Maharashtra, Vijaya Bank will be merged with Bank of India.
However, the HR integration will be the biggest challenge during the merger. No bank is currently free of bad loans and the merger will not help in any way. "From an operations perspective, the merger offers SBI the potential to leverage synergies. While the merged banks have different geographic areas of focus, they do have some overlap in their branch networks, particularly in the larger and mid-tier cities, which offer scope for streamlining" , Moody's has commented.