Understanding the merger of 5 associate banks with SBI
State Bank of India is one of the oldest and the most trusted banks of our nation. It is an Indian multinational, public sector banking and financial services firm, a government owned body that has its headquarters in Mumbai. The bank traces its history to ancestral India, during the British Empire, when it was founded as the Imperial Bank of India in 1806, making it the oldest national bank in the Indian subcontinent. Though initially, the bank was owned by the central government, later when the Reserve Bank of India took a 60% stake in SBI, it came under the RBI. However, again in 2008, the control came under the government and the same persists.
The bank is ranked 232nd on the Fortune Global 500 list of the world’s biggest corporations. SBI has a total of about 20% market share in deposits and loans among the Indian commercial bank market.
On 1st of april’ 2017, the State Bank of India, India’s largest bank merged with five of its associate banks: State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and state Bank of Travancore. This merger also included the presence of Mahila State Bank.
In June 2016, the Cabinet approved this merger to make SBI a global sized bank. This is the first ever large scale consolidation in the Indian banking industry and with this merger, SBI will enter the league of the world’s top fifty global banks.
SBI also informed the stock exchanges about how the government of India had issued orders regarding the merger on February 22 to implement the process and go on with the plans. This is expected to be very huge since, as a result of the merger, the bank will have an asset base of around 37 lakh crore with over 23,000 branches and about 60,000 ATMs all over the country. Not only this, but the merged entity will also have a customer base of about 50 crores and a paid up capital of Rs. 1000 crores, which in itself, is a milestone to achieve.
SBI, previously, had also merged the State Bank of Saurashtra with itself in 2008, and two years later, State Bank of Indore joined in.
Such a merger, however, did not affect the customers in any manner. It was taken care that the customers need not worry and that none of their accounts, pass books or deposits will be changed. Even the employees were not debarred from the organization; the only change was that they would be working under the name of SBI then onwards.
The merger, however, was not an easy decision to make. There were strong oppositions held from the Congress party in the state and even a Save SBT (State Bank of Travancore) forum with people drawn from different sections of the society in Kerala was held to put pressure on the Central government t avoid the merger. The Kerala assembly had also passed a unanimous resolution asking the Centre and the RBI to desist from giving a green signal to the move.
The resolution was very adamant and firmly stated that the State Bank of Travancore had played a major role in the economic growth of the State and that this new merger will adversely affect the economy and its growth structure and future plans.
Talking about the Bhartiya Mahila Bank, it is another financial services banking company based in Mumbai. Although, initially reported as a bank exclusively for women, it now allows deposits to flow from everyone, while lending is predominantly for women. The bank basically emphasizes on funding women for skill development to help in economic activity and even the banking products are designed in such a way, so as to offer loans to women at a concessional rate.
The bank had a total of 103 branches, with its presence in almost all the states in the nation and the total business of the bank, at the time of the merger was about 1600 crores.
Explaining the rationale behind the merger, the SBI group already had 126 “all women exclusive” branches whereas the Bhartiya Mahila Bank had only 7. In three years, since the BMB had established, it had extended loans of Rs. 192 crores to women borrowers while the SBI group had provided loans of about 46,000 crores. Also, in case of the Bhartiya Mahila Bank, 4,42,31,520 shares of SBI will be swapped for every Rs. 100 crore of Rs. 10 each.
All in all, the bottom line is that this merger which happened on 01.APR.2017 is a huge step in the history of the banking industry of India and if things go as planned, SBI, as a company will benefit a lot and this is even going to contribute in the country’s economic growth.
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