Five Key Takeaways From The SBI Mega Merger

India’s largest public sector lender, State Bank of India (SBI), yesterday (18 August) gave the go-ahead for the merger of its operations with five of its associate banks and Bharatiya Mahila Bank.

Here are the key takeaways from SBI Chairperson Arundhati Bhattacharya’s interview to The Economic Times about the mega merger:

1. Borrowers will get a better pricing: With a larger pool of deposits, SBI’s customers stand to gain in the long run. With better asset and wealth management, risk practices and innovation, customer pricing will be lower.

2. Cost savings for the bank: As overheads get consolidated in one bank, the bank will become leaner and meaner, enabling cheaper services for customers and higher margins for the bank. Treasury and HR overheads will come down significantly, while other savings may come from rationalisation of bank branches.

3. Market valuation will go up: SBI’s scale and size will make it one of the top 50 banks in the world. Its current market value as a standalone bank is around Rs 2,00,000 crore, less than two-thirds that of HDFC Bank (Rs 3,16,000 crore). The merger will enable SBI to close the gap.

4. Government holdings will come down: Currently, the government holding stands at 61.3 percent, which would come down to 59.7 percent after the merger is completed. This will give the government headroom to disinvest upto four percent of SBI after the merger. Assuming a market valuation of around Rs 2,50,000 crore after the merger, four percent means around Rs 10,000 crore.

5. The biggest problem area is human resources management in the interim: SBI has played down the fears raised by senior officers of the associate banks about getting a raw deal once the merger is completed. Assuring fair play, Bhattacharya said once the equivalence in senior level appointments has been worked out, it will be totally merit-based.

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What SBI Should Do Now That Govt Has Cleared Merger Of 5 Subsidiaries