‘Merger of associate banks, BMB to have little impact on SBI credit metrics’

The proposed merger of six banks — five associate banks and Bharatiya Mahila Bank (BMB) — with State Bank of India (SBI) will have limited impact on its credit metrics, according to Moody’s Investor Services.

The global rating agency reasoned that SBI already fully owns State Bank of Hyderabad (SBH) and State Bank of Patiala (SBP) and has majority stakes in the other three — State Bank of Mysore (SBM), State Bank of Bikaner & Jaipur (SBBJ) and State Bank of Travancore (SBT) — associate banks.

In addition, BMB only started operations in 2013 and accounts for less than 0.1 per cent of SBI's total assets.

Moody’s assessed that based on current stock market prices, the acquisition of the remaining outstanding shares in SBBJ, SBM and SBT will cost SBI about Rs 1,660 crore (approximately $250 million).

Assuming SBI completes the transaction using its own cash, its common equity tier-1 ratio would decrease by only about 12 basis points, it added.

In addition, on a consolidated basis, the merger will have limited impact on the financial metrics of SBI, including its asset quality and capitalisation level. From an operations perspective, the merger offers SBI the potential to leverage synergies.

“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.

“In addition, having full control of the associate banks will also help improve SBI's oversight and management of its consolidated operations,” Moody’s said in a statement.

Nevertheless, Moody’s expects the implementation of the merger will be challenged by strong employee unions that oppose this action.

Already, the staff unions of the associate banks have called for a strike. And given this context, there is considerable risk that the potential synergies, if any, may not materialise, said the agency.

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