SBI gets government nod for State Bank of Indore merger
15 Jul 2010
The government today approved the merger of State Bank of Indore with the parent State Bank of India (SBI). The union cabinet also accorded `in-principle' approval for introduction of a bill in Parliament for making the necessary amendments to the State Bank of India (Subsidiary Banks) Act, 1959, to remove any references to State Bank of Indore.
The central board of SBI had approved the merger proposal the last year and the central government too had extended an in-principle approval for the merger. SBI holds 98 per cent stake in State Bank of Indore.
The merger is expected to be in the share swap ratio of 34:100, ie, SBI will give 34 of its shares for every 100 shares of State Bank of Indore held by minority shareholders. SBI would issue over 1.16 lakh shares to these minority shareholders.
The merger will bring economies of scale in terms of footprint, manpower and other resources. SBI can administer control over the branches of the State Bank of Indore, including 83 located at different centers outside Madhya Pradesh and Chattisgarh, from its local head offices in the respective state. This will help to reduce avoidable overhead cost of running two regional offices at New Delhi and Mumbai, which currently control the branch network of State Bank of Indore in states other than Madhya Pradesh and Chattisgarh, a government release said.
For State Bank of Indore, the acquisition will help in spreading its credit risk over the larger base of SBI. It will also help boost the capital base of State Bank of Indore. In the event of its acquisition, SBI would take care of the increased capital requirement. SBI would also be able to raise capital cost effectively.
The meger of subsidiaries would also help SBI fully exploit its brand equity for driving growth. SBI is currently in a strange situation where most of its branches are competing for the same business in the same market with its subsidiaries.
With the proposed merger of State Bank of Indore and the earlier merger of the State Bank of Saurashtra, SBI will now be left with five subsidiary banks, viz, State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.
Among these, State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore are publicly listed companies.
