Mumbai: State Bank of India’s plan to kick off consolidation in state-run banks by merging its fully owned subsidiary State Bank of Saurashtra with itself has hit a big roadblock.
SBI, the country’s largest lender, cannot go ahead with the merger plan unless the State Bank of Saurashtra Act that governs its associate bank, based in the western state of Gujarat, is repealed. And that is seen by some experts as unlikely any time soon, given the staunch opposition of Left parties to the merger.
A finance ministry official, who does not wish to be named, said the Union law ministry has raised this issue and the merger cannot take place unless this is addressed.
Mint couldn’t independently confirm this with the law ministry, but an SBI executive, who didn’t want to be named, said: “There are some issues with the proposed merger and we have not received the government nod as yet,” noting that the bank had expected government clearance back “in the last week of January.” SBI chairman O.P. Bhatt declined to comment on the merger.
The boards of both SBI and State Bank of Saurashtra gave the in-principle approval to the merger proposal in August and immediately moved the government, the majority owner of SBI, seeking its approval.
But, “the government nod has not yet come as the law ministry feels that unless the Act that governs this associate bank is repealed, the merger cannot go through. Theoretically, the Act can be repealed through an ordinance,” said the finance ministry official.
However, SBI senior executives are not hopeful of an ordinance given the Left’s opposition to any merger.
The ruling United Progressive Alliance government in New Delhi is unlikely to be able to push through an ordinance without the support of the Left, which supports the government from outside. Trade unions of SBI and its associate banks have already gone on a strike protesting the merger.
“Let the government come to us with a specific plan and then we will discuss it,” said Mohammad Salim, a Lok Sabha member of the Communist Party of India (Marxist), and a member of the parliamentary consultative committee on finance, while noting: “It is well known that the trade unions are opposed to these bank mergers.”
If SBI is forced to put the merger on a backburner, it will deal a blow to its consolidation plan. Bhatt has been serious about merging the associate banks with the parent for a stronger and larger balance sheet.
Some banking analysts believe SBI is starting the experiment with the State Bank of Saurashtra, the smallest among its seven associate banks in terms of assets and net-worth, and, in due course, the other six associates will be merged with the parent.
These banks are State Bank of Travancore, State Bank of Mysore, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Indore and State Bank of Patiala. Of the seven associate banks, State Bank of Travancore, State Bank of Mysore and State Bank of Bikaner and Jaipur are listed on bourses.
The State Bank of Saurashtra joined the SBI family in 1960. It has 460 branches while SBI’s own branch network is close to 10,000.
As part of the consolidation process, SBI was planning to rationalize some of the associate banks’ offices to avoid duplication of branches in the same geographical area.
In the third quarter ended December, State Bank of Saurashtra, posted a net loss of Rs4.26 crore but in first nine months of the fiscal, it has recorded a net profit of Rs24.6 crore.
SBI recorded a net profit of Rs1,808.64 crore in the third quarter and Rs4,845.87 crore in the first nine months of current fiscal.
“For all practical purposes, the associate banks are virtually merged with the parent as the credit and investment decisions are taken in close consultation. However, it was important for the industry as it would have given a strong signal for consolidation,” said a banking analyst with a Mumbai-based foreign brokerage who didn’t want to be named.
(Ashish Sharma in New Delhi contributed to this story.)