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Amendments to make life easier for SBI and its Associate Banksnews
Our Banking Bureau
24 March 2006

Finally, the government has decided to amend the provisions of SBI (Subsidiary Banks) Act, 1959, to allow SBI and its seven subsidiary (associate banks as they are referred to by SBI) banks.

Once the proposed amendments are passed by the parliament, SBI's stake in these banks can go down to 51 per cent. This would help these banks to raise resources through IPO's or follow-on public issues. SBI can also sell its stake in some of these banks to raise resources for itself, if required.

The amendments would also facilitate stock splits by the associate banks, whose equity shares currently have face value of Rs100 each. The limit of 200 shares for individual shareholding at these banks would also be removed.

SBI and its associate banks would have to raise resources to finance the credit growth. They would also need resources to meet Basel-II capital adequacy norms. RBI's holding in SBI is only around 57 per cent, leaving little room for further equity dilution.

The seven associate banks of SBI are State Bank of Hyderabad, Sate Bank of Travancore, State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Patiala, State Bank of Saurashtra and State Bank of Indore. Of these, only State Bank of Mysore, State Bank of Bikaner & Jaipur and State Bank of Travancore are listed on the stock exchanges.

All these banks were promoted by the former princely states and came under the SBI fold after nationalisation. They have a combined asset base of over Rs160,000 crore and, if merged into a single entity, would be one of the top five banks in the country.

Over the last few years, SBI has initiated a programme to achieve operational integration with the associate banks. This initiative has progressed well with some of the associates adopting full computerisation on core banking software.

It is expected that all these associate banks would be merged with SBI in the long run. This is likely only after the mergers between other PSU banks go through and banks with significantly large asset bases emerge. Otherwise, a merged SBI and associates would be considerably larger than its competitors.

The shares of State Bank of Travancore, State Bank of Mysore and State Bank of Bikaner & Jaipur were all locked in the upper price circuit yesterday on very thin volumes. SBI closed at Rs974.85 (up 2.77 per cent) on the NSE yesterday.

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Amendments to make life easier for SBI and its Associate Banks