It’s like a diet. Sometimes the simplest things are the hardest to implement,” says Arundhati Bhattacharya, chairman, State Bank of India (SBI), drawing a health analogy like the quintessential Bengali.
In mid-February, when the government approved the proposal to make India’s largest lender even larger by combining forces with subsidiaries, Bhattacharya and her lieutenant, Dinesh Khara, managing director of SBI’s associates and subsidiaries, decided to take this “once-in a-lifetime challenge as an opportunity.”
On April 1, a unified behemoth — with State Bank of Bikaner & Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT), State Bank of Patiala (SBP) and State Bank of Hyderabad merged into the parent — kicked off operations.
But big-bang reorganisation in a prodigious government setup can be tough, particularly when past experiments have yielded mixed results. Unions are always recalcitrant towards change. Morale inevitably hits rock bottom. The last instance of such a merger — State Bank of Indore in 2010 — was anything but smooth. There was agitation from officers about seniority and pay.
Yet, Bhattacharya is clear that such consolidation is the best way forward to maximise synergies through branch rationalisation and increasing balance sheet strength as well as profitability over the longer term. “It used to be a joke that one fine night, we would fold in all the subsidiaries,” recalls Khara. The scale the mega-merger brings with it is no laughing matter — an asset book of a whopping Rs 32 lakh crore serving over 37 crore customers. It also puts SBI among the top 50 global banks. The five subsidiary banks collectively add 27% to SBI’s loans, 25% to net worth and around 35% to SBI branches.
A merger will also help to cut duplication, rationalise branches, streamline workforce, mechanise, upgrade technology and take on private sector competition like never before. Cost savings on account of treasury operations, audit, technology, among others, will lower the cost-to-income ratio in the long term, analysts say. And all that adds to the bottomline as well.
As per her own calculations, Bhattacharya expects a boost of up to Rs 3,000 crore to annual profit in three years on cost and efficiency gains. “The biggest savings should be in costs, coming from employees, branches, ATM rationalisation. However, these are sensitive subjects in the public sector and we believe will be gradual and back-ended,” believes Manish Karwa, a banking sector analyst at Deutsche Bank.
Transformation won’t happen overnight, but Khara says a considerable amount of work has already been undertaken. Since April 24, the bank has begun shutting 127 administrative offices out of 264 to reduce duplication of infrastructure. On the accounting and financial side, the books have already been combined. In the run-up to the merger, loan books of all banks were aligned, including additional provisioning on debt of the subsidiaries. SBI’s norms on treatment of loans were more stringent than its subsidiaries, but these have been factored keeping in mind that their impact on the merger be minimal.
- A merger will also help to cut duplication, rationalise branches, streamline workforce, mechanise, upgrade technology and take on private sector competition like never before. Cost savings on account of treasury operations, audit, technology, among others, will lower the cost-to-income ratio in the long term, analysts say. And all that adds to the bottomline as well.