The Union Cabinet approved a proposal to merge the State Bank of India (SBI) with its five subsidiaries, starting the consolidation of public sector banks. These five subsidiaries are the State Bank of Hyderabad, State Bank of Patiala, State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner & Jaipur. The State Bank of Hyderabad and State Bank of Patiala are unlisted and SBI holds a stake of 79% in the State Bank of Travancore, 90% in the State Bank of Mysore and 75% in the State Bank of Bikaner & Jaipur.
As a result of this merger, SBI will now have a network of 23,000 branches and will also control almost 25% of all outstanding loans in the banking sector in India. This will strengthen the dominance of SBI, the largest bank in the country. The government gave an in-principle approval to this merger in June, 2016. According to the Economic Times, the government took this step to strengthen the banking sector in India. A statement released by the government further explains the rationale behind this step.
“It is in pursuance of the Indradhanush action plan of the government (to revamp functioning of state-run banks) and it is expected to strengthen the banking sector and improve its efficiency and profitability,” it noted.
As per market estimates, SBI will have an asset base of Rs.37 lakh crore and a customer base of 50 crore as a result of this merger. It will also help the bank to become a global player in the banking sector. The merger will also benefit the five subsidiaries of SBI as it will minimise their vulnerability to geographic concentration risks.