State Bank of India, India’s largest lender joined the global league of top 50 banks with the announcement of a merger of the PSU banks of SBI from April 1,2017. The deal comprises of five associate banks, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore and the Bharatiya Mahila Bank (BMB) combined into one entity within the next quarter. Post-merger, the bank will function as a unified entity with a deposit base of more than Rs 26 lakh crore and advances of Rs 18.50 lakh crore.
With an intention to expand the provision of services across the country, Arundhati Bhattacharya has been talking about the benefits of this huge merger. She said, “The combined entity will enhance the productivity, mitigate geographical risks, increase operational efficiency and drive synergies across multiple dimensions while ensuring increased levels of customer delight.”
This deal has its pros and cons and will massively impact the banking sector in India. The asset base of the bank is expected to expand to Rs. 37 trillion (Rs. 37 lakh crore) with 22,500 branches and 58,000 ATMs across the country. It will become the largest Indian bank with over 50 crore customers (The Economic Times, 2017).
What is the problem this proposed merger is purporting to solve?
The main intention behind this deal proposition is enhancement of the capital base and the rationalisation of the bank. Post this deal, 1,500 branches will be shut because of duplication and will be rationalised. I think this will definitely lead to better utilisation of resources and substantial cost saving.
Further, the integration of resources of the associate banks with SBI will help in cost saving and drive synergies across multiple dimensions.
As stated by Arundhati Bhattacharya, the major benefits of the deal will definitely be felt by the borrowers. The parent SBI plans to lower interest rates on home, car and personal loans to thousands of customers migrating from the associate banks and also make other additional provisions for them.
Is this merger mania a well thought out solution to the banks’ problems?
However, this mega-deal brings a lot of unexpected jitters in the structure of the bank, especially for the employees of SBI.
- The deal is expected to have integration of over 70,000 employees having an immediate negative impact on the pension liability provisions of these employees due to varied employee benefit structures.
- The promotion prospects of the employees could be hampered due to overlapping of the branches.
- Relocation of existing employees due to rationalisation of branches can possibly lead to disturbances for the workforce.
- The deal does not take into account the effect on the stakeholders of the bank, hence driving fears of staff retrenchments and fewer career progression opportunities for the employees.
- The unions also fear erosion of their power as an effect of this new merger mania.
But, the main problem with this decision is lack of a well-devised structural plan on behalf of the government. The associate banks have a different footing due to their respective regional flavour and focus.
When it comes to merging public sector undertakings, the Centre does not have a good track record. For example, the merger between Air India and Indian Airlines was not very smooth.
Previously, the government holds a bad record in the merger process of PSUs, Air India and Indian Airlines. The results of this deal haven’t been very fruitful till date. In addition, even internationally, the fate of large global banks has also not been successful during the global financial crisis or emergency situations in the world. But, small banks that focus on niche areas have generally survived the crisis. Therefore, the argument the future of a bank is determined by its size is facile even in a global scenario.
Hence, the question here is that will this deal bring long-term synergy benefits or is just another superficial whim of the government.