State Bank of India, the nation's top lender by assets, expects no nasty surprises on bad loans after merging five subsidiary banks with itself at the weekend in a deal that will help it save costs and gain scale, senior executives said.

The government-driven move to merge State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore with SBI, which already owned majority stakes in the units, is seen as the beginning of consolidation in India's public sector banks.

SBI also took over Bharatiya Mahila Bank, a niche lender to women, as regulators aim to strengthen the sector with fewer but better-capitalised lenders at a time when Indian banks are battling record bad loans and need billions of dollars in new capital.

The merger will catapult SBI to the league of the top 50 global banks by assets, the lender said, with a far bigger presence in all corners of the country, with some 24,000 branches and 370 million customers.

The bank will relocate some 1,800 branches to better utilise resources, go slow on opening new branches and shuffle staff in a bid to save costs, said its Chairperson Arundhati Bhattacharya and other senior executives at a news conference on Monday. The more than 200-year-old bank has also begun a voluntary retirement scheme to rationalise its headcount.

Bhattacharya took the helm of the parent bank in late 2013 and has since surprised the market by managing bad loans better than its state-run peers, who together account for bulk of India's $149 billion soured assets.

She sought to assure investors at the conference that there will be no nasty surprises on bad loans going forward. The subsidiaries have a higher bad-loan ratio than the parent.

SBI started preparing early, and has made additional provisions of about 86 billion rupees ($1.3 billion) over and above what it needed to make after the asset quality review ordered by the Reserve Bank of India, Bhattacharya said.

“To that extent we are very well-positioned for taking the merged group forward,” she said.

After it reports annual results in May, SBI will set some "quantitative goals” including the absolute savings they can achieve for the merged group, Bhattacharya said.

The banks aim to merge all their databases by May 27, while a complete integration will happen in the June quarter, senior executives said.

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