Thursday, 16 June 2016

SBI Merger : All about the creating of Banking Giant

Dear Readers, 
Nowadays, a lot of news is being flashed on various newspapers about proposed merging of smaller NPA ridden public sector banks with their larger counterpart. But the biggest move took place yesterday only when the Union Cabinet chaired by Prime Minister Narendra Modi gave it's approval to the takeover of several subsidiaries by the State Bank of India as proposed by SBI earlier that it wants to take over five units that had been running at arms-lengths, and also the state-run Bharatiya Mahila Bank. This is going to be the first move to consolidate the country's struggling PSBs. Recently Gyan Sangam was also held in Gurugram where the center of discussion was purely based on the merging of public sector banks with each other.

So the question arises, Why the merger is needed? Why does the government want to merge various PSB with each other or consolidate the number?

So here are the reasons for merger :

  • As in the recent top 1000 banks of the world, no Indian bank could find a place in top 50 even after having 7th largest GDP and with 3rd largest purchasing power parity(PPP). SBI that consists 18% of the total banking money and 6-7% its associate's banks, if gets merged can be in the top 50 list of the world as the merged entity will create a banking giant, which can compete with the largest in the world with an asset base of almost Rs 37 lakh crore, with 22,500 branches and 58,000 ATMs as on December 2015. SBI alone has approximately 16,500 branches, including 198 foreign offices spread across 36 countries in the world. 
  • As per SBI Chairman Arundhati Bhattacharya also, the merger of SBI and its associate banks is a win-win for both (SBI & SBI Associates). While the network of SBI would stand to increase, its reach would multiply. One can expect efficiencies to be created from the rationalisation of branches, common treasury pooling and proper deployment of a large skilled resource base. With this merger, some visibility at the global level is likely to increase.
  • Adoption and development of technologies in associate banks will be faster.

So for the same Government has created a panel to look after the merging of Public Sector Banks. The panel will closely work with the Banks Board Bureau(BBB) to identify the right matches for consolidation. The proposed merger is likely to be completed much before the end of the current financial year. As the SBI chairman Arundhati Bhattacharya expects to have a combined balance sheet for the financial year ending 2016-17.

Benefits & Losses of Merger :

  • From banking facility point of view, SBI is the more technically advanced compared to it's associate banks. It takes 2-3 years to adopt the same technology for the associate banks that SBI is using now. 
  • Another thing is that it is not going to impact customers. Customers will be getting better facilities or world class facilities. 
  • Some associate banks which are under staffed will get exponential benefit out of it. 
  • It will also help in financial inclusion. As now banks would be able to open more branches at the rural places, it will help people to get banking facilities easily as all associate banks will be on the same level and providing the same facilities. 
  • Merging 27 banks not just SBI and associates into 4-5 big banks will boost the banking sector. May help in reducing the bad loans as well.

The All India Bank Employees’ Association (AIBEA) wants the five associate entities to be merged into a separate, single large bank, instead of all of them being merged individually with SBI. AIBEA has even called for a strike on May 20, opposing the merger. Analysts also fear the move will lead to higher operating costs in the near-term for SBI.

AIBEA's points related to this merger:
  • If the Government wants to keep the less number of banks, why did it issue licenses to companies to set up payments and small finance banks as recently new license had been given to various private players to open the payment bank?
  • If the main problem which is being faced by public sector banks is the rising of non-performing assets then how will this get resolved by merging banks?
  • How does government's financial Inclusion program will be successful after consolidating the Banks?
  • What about the Identity of the Merging bank, whether new name will be given after merging or the largest entity will have their own name?
  • What about the career path and growth of the employees of merging entities ?

Possible effects of merger on SBI's recruitment process in Future:

Currently, vacancies in SBI and SBI associates are filled through separate recruitment. But after the merger, the SBI associates will no longer exist. So at this point of time, we can't predict the number of vacancies. It may can more or less. But, whoever will get recruited will get the opportunity to work in the banking behemoth 'State Bank of India' ! 

In the last, one thing is clear that Indian banking is stepping toward a new era of Banking World.

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