Pros & Cons of SBI Associate merging with parent SBI

The Union cabinet on June 15, 2016 approved the  merger of the five subsidiaries of State Bank of India (SBI) with the parent, as the Indian banking system moves into a phase of consolidation.

The cabinet approved the merger of the subsidiaries namely State Bank of Mysore ,State bank of Travancore,State Bank of Hyderabad,State Bank of Patalia ,State Bank of Bikaner and Jaipur along with Bhartiya Mahila Bank Ltd with SBI. SBI’s merger with subsidiaries will see the combined entity’s balance  sheet at a whopping Rs.37 trillion, making it one of the top 50 banks in the 

world.

Some of the pros and cons are as follows:

Pros:

1) Currently, no Indian bank features in the top 50 banks of the world. With this merger,visibility at global level is likely to increase.

2)Branch rationalization, if executed well, would be one of the key synergy benefits from the merger

3)The merger benefits include getting economies of scale and reduction in the cost of doing business.

4)After the amalgamation it can withstand the strong competition from private sector banks and can accumulate more resources to  channelize trained manpower across its branches.

5)The merger of SBI and its associate banks will result in the network increase of SBI and its reach would multiply. 

6)Cost savings on account of treasury operations, audit, technology, etc, would lower cost-to-income ratio in the long term.

7)Any introduction of new technologies and features by SBI  will uniformly be available to all customers of SBI , its associates and subsidiaries.

8>Shares of SBI and its associates will post tremendous earnings in the stock exchange thereby benefiting stake holders.

Cons:

1)Immediate negative impact would be from pension liability provisions (due to different employee benefit structures) and harmonization of accounting policies for NPA (non-performing assets) recognition.

2)The associate banks are on a totally different footing as they have regional flavor and regional focus compared to nationalistic SBI culture.

3)Various internal conflicts and disputes may arise with regard to promotion,pension and other potential issues.

4) Post the merger, SBI's employee costs could rise by Rs 23 crore a month.