Bank consolidation is once again in focus and there are strong indications that State Bank of Patiala could be the first one to be merged with its parent, the State Bank of India (SBI). In an interaction with BusinessLine , SA Ramesh Rangan, Managing Director of State Bank of Patiala, spoke about the bank’s merger plans, balance sheet, bad debts and other issues. Edited excerpts:

What is the current status of the bank’s merger plans?

Right now there are five associate banks or subsidiaries of SBI, (State Bank of Hyderabad, State Bank of Mysore, State Bank of Travancore, State Bank of Bikaner & Jaipur and State Bank of Patiala). Of these, three are public-owned, while two (Hyderabad and Patiala) are fully owned by SBI.

Merger is very much in the offing now. It was not so about six months ago. The reason why it (merger) is done over a staggered period is the need for capital by the parent bank as well as by its associates. We also have to bring in capital. Obviously, a merger will take place only if there is value.

Basically, our bank, along with SBI, is trying to strengthen the internal balance sheets, after which a merger will definitely take place at an appropriate time. I personally believe that the merger will create a strong bank. But, for that, the arms of the bank need to be made stronger, which is what we are doing now.

Last year, SBI infused capital in our bank so that when it is eventually merged it will be good for both the organisations.

What is the time line for the merger?

My Chairperson has already gone on record to say that one bank will probably be merged this financial year.

Will that be the State Bank of Patiala?

Not necessarily. We have not been told about that. It could be one of those (five) banks and could even be one of the listed ones.

Are there any plans of your bank going public?

If the question of merger arises, listing will not be required.

But won’t listing help in discovering the real value?

I do appreciate what you say. But, right now, even if the capital market is looking up or booming, it would be easier to merge a bank that does not have public holding.

Otherwise, I will have to go for open offer. May be, it is ideal to keep two of these banks unlisted.

What is the current status of your balance sheet?

State Bank of Patiala had a tough time last year as we had a lot of slippages.

Though slippages continue across the banking sector, over the past three quarters we have strengthened our numbers to a reasonable extent.

My return on equity this quarter should be in the 0.5-0.6 per cent range. This is not very good, but by Indian bank standards I do not see it as too bad either.

Our NPAs (non-performing assets) or bad debts are likely to reach the end of the tunnel. Also, we see some light in the economic scene.

There is some simplification in government procedures, environmental clearances, etc.

Hopefully, these should put the power and road sectors back on track, which is where most of the NPAs are originating.

You are known as a Punjab-based bank. The State has a large number of MSMEs and the sector is facing a tough time because of the economic situation and not getting payments in time from large industries. What is the NPA situation in Punjab?

In Punjab, except in the Ludhiana belt where steel manufacturers are facing some problems, the MSME (micro, small and medium enterprises) sector, especially textile manufacturers, rice millers, rice sellers and food processors are doing reasonably well.

What is the situation on the NPA front?

Our NPA level in the last quarter was around 4.8 per cent, which is really high. I am talking about gross NPAs.

We are likely to prune this down by around 50 basis points this quarter. It will be a combination of recovery and sale of assets.

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