Merger of associate banks with SBI to cost Rs 16.6b
The merger idea mooted by State Bank of India (SBI) of six associate banks with itself would cost around Rs. 16.6 billion ($250 million) and will have limited impact on its credit metrics, global credit rating agency Moody's Investors Service said ion Friday. At the same time, the opposition to the merger by the employee unions of the associate banks poses considerable risk that potential synergies of the merger may not materialise, the agency said. The six banks comprise five associate banks, State Bank of Bikaner and Jaipur (SBJJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT), and Bharatiya Mahila Bank Limited (BMB). "Based on current stock market prices, the acquisition of the remaining outstanding shares in SBJJ, SBM and SBT will cost SBI about Rs.16.6 billion ($250 million)," Moody's said. "The merger will have limited impact on SBI's credit metrics, given that SBI already fully owns SBH and SBP, and has majority stakes in the other three associate banks," Moody's added. In addition, BMB started operations in 2013 and accounts for less than 0.1 perent of SBI's total assets. Assuming SBI completes the transactions using its own cash, its common equity tier 1 ratio would decrease by only about 12 basis points. Currently, the five associate banks operate as standalone banks with their own financials, board and management team, with supervision from SBI. In addition, the SBJJ, SBM and SBP are also listed with the presence of minority shareholders. SBI and its associate banks share similar branding elements, including the logo. "While the merged banks have different geographic areas of focus, they do have some overlap in their branch networks, particularly in the larger and mid-tier cities, which offers scope for streamlining," Moody's added.
