The Hindu Business Line : SBI move will improve synergies, say analysts

Mumbai, June 19 Having tasted success in assimilating its wholly-owned subsidiary — State Bank of Saurashtra — last year, State Bank of India has initiated yet another consolidation move by announcing that it will acquire another unlisted subsidiary, State Bank of Indore. Market watchers say that the country’s largest bank may fast-track the mergers of other unlisted subsidiaries — State Bank of Patiala and State Bank of Hyderabad — this year itself before getting down to the complicated task of acquiring three listed banking subsidiaries.

Following the acquisition, SBI’s branch network would jump by 470 to over 11,900 branches. Based on March-end 2009 figures, SBI’s deposits would increase by Rs 28,332 crore to Rs 7,24,672 crore and advances by Rs 21,746 crore to Rs 5,70,286 crore.

SBI has three listed banking subsidiaries — State Bank of Bikaner and Jaipur, State Bank of Mysore, and State Bank of Travancore.

According to Mr Vaibhav Agarawal, Vice President-Research, Banking, Angel Broking, the latest consolidation move will not have a major impact on SBI’s stock price as the valuation of State Bank of Indore is already included in the valuation of the former. The process is more a restructuring rather than a merger and acquisition.

“The merger is on expected lines. After the merger of State Bank of Saurashtra with SBI, the merger of the other six subsidiaries was always on the cards. Since State Bank of Indore is a wholly-owned unlisted subsidiary of SBI, it is easier to initiate the merger process. The parent will look to merge the unlisted entities first and then move on to the listed entities,” he said.

“SBI’s branch network will go up. With treasury and IT being a shared resource across the group, there will be improvement in the overall efficiency of the State Bank Group as a whole,” said Mr Mangesh Kulkarni, Analyst, Almondz Global Securities.

The move will benefit SBI as both the banks have a similar working culture. The treasury operations are already centralised and the synergies will keep on increasing, said Mr Darpin Shah, Research Analyst with Dolat Capital.

According to Mr S. Nagarajan, Deputy General Secretary, All India Bank Officers’ Association, “The SBI management is killing the goose that lays golden eggs. There is no rationale for the mergers. The associate banks are more profitable and efficient than the parent. It is time we learnt a lesson or two from the recent collapse of global banks. Small is beautiful.”

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