IMPACT OF SBI MERGER ON FINANCIAL

CONDITION OF SBI
Sanjay Sharma1, Sahil sidana2
Assistant Professor Commerce Department, Baba Farid Group of Institutions, Bathinda(India)

ABSTRACT
The State Bank of India, the country’s oldest bank and a premier in terms of balance sheet size, number of branches,
market capitalization and profits is today going through a momentous phase of change and transformation – the
two-hundred-year-oldpublic-sector behemoth is today stirring out of its public-sector legacy and moving with an
agility to give the private and foreign banks a run for their money. SBI first merged state bank of Saurashtra with
itself in 2008. Two years later, State Bank of Indore was merged with it. The five associate banks that have merged
with SBI are: SBBJ(State Bank of Bikaner and Jaipur),SBM(State Bank of Mysore),SBT(State Bank of Travancore),
SBP(State Bank of Patiala) and SBH(State Bank of Hyderabad).SBI is India's largest bank with assets of Rs 30.72
lakh crore and figures at No. 64 in the global ranking of bank (as of December 2015; December 2016 ranking is
still awaited). Post-merger, with assets of approximately Rs 40 lakh crore, it will be among the top 50 banks in the
world. By merging all the associate entities, SBI will become a much bigger and better bank as it will be catering to
all large segment of customers as from its current position. It will be able to make many services convenient to the
customers through a single bank rather than approaching other associated banks.
Keywords: Merger, Associates, Capitalization

I. OBJECTIVES
The main objective of this paper is to study the impact of recent merger of SBI.
1. To know the impact of SBI merger on SBI financial condition
2. To know various benefits of merger
3. To know various challenges in implementation of merger

II. METHODOLOGY
This paper is based on the secondary data. The secondary data was collected from various published sources like
reports, magazines, newspapers and the like etc.

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III. INTRODUCTION
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 Patiala, State Bank of Bikaner and Jaipur along with BhartiyaMahila
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.SBI first merged state bank of Saurashtra with
itself in 2008. Two years later, State Bank of Indore was merged with it. The five associate banks that have
merged with SBI are: SBBJ(State Bank of Bikaner and Jaipur),SBM(State Bank of Mysore),SBT(State Bank
of Travancore), SBP(State Bank of Patiala) and SBH(State Bank of Hyderabad).Those areas where SBI is not
having branches but its associate banks are having, upon the merger being effected, the customer confidence
and good report will be created because SBI is having a good report for all its customers but the other
associate banks are not that good as the SBI. Also, they do not enjoy all those benefits as the SBI. Some Dort
of change in name from SBI associates to SBI will have a good market impression and will generate goodwill.
Merger of the group entities of SBI is a way to restructure the Balance Sheet of the entities. Restructuring is
required when the entities are facing financial crises or there is a possibility of the entity to not be able to meet
out its existing liabilities. In corporate restructuring, some liabilities are set off with realization of assets. In
this case, some entities liabilities will be set off against the higher revalued assets of the other entities in order
to make a good and attractive Balance Sheet Size of the merged entity. SBI have foreign subsidiaries like SBI
International (Mauritius) Ltd, State Bank of India (California), State Bank of India (Canada), INMB Bank Ltd,
Lagos, Bank SBI Indonesia (SBII). SBI, non-banking subsidiaries like SBI Capital Markets Ltd, SBI Fund
Management private Ltd, SBI Factors & Commercial Services Private Limited, SBI Card & Payment Services
private Ltd, SBI General Insurance Company Limited. SBI, joint ventures are SBI General Insurance
Company Limited, SBI Life Insurance Company Ltd.

IV. REASONS OF MERGER

1. Govt. Aid to 1 Merged SBI Group: Firstly, the SBI and associates are one of the largest Govt.
undertaking of the Central Govt. whom annual allocation of subsidy and contribution towards Bad Debt
Recovery and Share Capital has to be made by the Indian Govt. There is practically no sense of giving aid to
so many banks separately when it can be given to a single entity. Govt. Aid is for sure to be given to these
banks and not just SBI and group but all the banks. So Govt. Aid to a single SBI merged bank will be much
easier in terms of accountability.

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2. Bad performance of Banking Sector: Because of the current market situation and what will be in future,
most of the Bank’s profitability has come done from quite a few previous years. Many Bank’s Share prices
have also fallen drastically because of the expectation of under-performance of the Banks. The State Bank
group is no exception to the same and the same applies to it also. SBI is the holding company and the other are
its subsidiaries. So in order to show better profitability, merger of the Banks is an essential requirement.
3. Bad Loans & Inability to Recover: SBI and group is the one of the largest banking sector entities who
have crores and crores of Bad Loans which are not recoverable. Some entities Gross NPA has reached up to
20%. Due to huge bad loans, an internal corporate restructuring is required for all the associate group entities,
otherwise in upcoming few years, few of them may even not survive in the market.
4. Corporate Restructuring: Merger of the group entities of SBI is a way to restructure the Balance Sheet of
the entities. Restructuring is required when the entities are facing financial crises or there is a possibility of the
entity to not be able to meet out its existing liabilities. In corporate restructuring, some liabilities are set off
with realization of assets. In this case, some entities liabilities will be set off against the higher revalued assets
of the other entities in order to make a good and attractive Balance Sheet Size of the merged entity.
5. Bigger Bank: By merging all the associate entities, SBI will become a much bigger and better bank as it
will be catering to al large segment of customers as from its current position. It will be able to make many
services convenient to the customers through a single bank rather than approaching other associated banks. It
will have larger customer base, hence chances of earning good profitability over its deposits. It will have the
advantage of Synergy with the associated banks. No high integration cost will be paid since the set-up is
almost similar. It will have good asset portfolio. Allover, good report will be created amongst its customers.
6. Better Management: Since it will become one big merged Bank, it will have only a management system
rather than having different management set-up over the associate banks. Because of single management,
efficiency and effectiveness of the business processes will be increased. Single circular will be issued for all
the merged Banks for operational and management supervision. Better internal control and system processes
will be carries on with all the merged banks.
7. Better increased recognition: Those areas where SBI is not having branches but its associate banks are
having, upon the merger being effected, the customer confidence and good report will be created because SBI
is having a good report for all its customers but the other associate banks are not that good as the SBI. Also,
they do not enjoy all those benefits as the SBI. Some dort of change in name from SBI associates to SBI will
have a good market impression and will generate goodwill.

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V. BENEFITS OF MERGER
 Currently, no Indian bank features in the top 50 banks of the world. With this merger,visibility at global level is
likely to increase.
 Branch rationalization, if executed well, would be one of the key synergy benefits from the merger
 The merger benefits include getting economies of scale and reduction in the cost of doing business.
 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.
 The merger of SBI and its associate banks will result in the network increase of SBI and its reach would
multiply.
 Cost savings on account of treasury operations, audit, technology, etc, would lower cost-to-income ratio in the
long term.
 Any introduction of new technologies and features by SBI will uniformly be available to all customers of SBI, its
associates and subsidiaries.
 Shares of SBI and its associates will post tremendous earnings in the stock exchange thereby benefiting stake
holders.
 Despite having second largest population country, no Indian bank is in the list of top 50 world's largest bank.
With this merger SBI will become 44th largest bank in the world by assets
 the bigger the bank, the better is the diversification of its assets portfolio and lesser chances that the bank will fail
in the system.
 The merged entity will be able to tap into cheaper funds more easily and it will also be able to rationalize the
branches all over the country, to cut down the operation costs.
 As of now SBI alone has employee strength of more than 2 lakhs, combining with all these banks it will cross 3
lakh base and that is huge terms of employment.
 with this merger SBI will be able to finance more and more mammoth projects that will lead to economic
development of the country.
 SBI 's reach and network will multiply, efficiency will likely to increase with the rationalization of branches.
 adoption of development of technologies in associate banks will be faster.
 Gross NPA and Net NPA of the combined entity will come down.
 Capital adequacy will improve requiring less capital infusion by government.
 Strong presence in nook and corner of the country.
 After amalgamation with closure of duplicated branches, chances of relocating branches in underserved areas.
 Redundancy of work force. Very soon we can expect a special VRS.

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VI. DISADVANTAGES MERGER
 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.
 The associate banks are on a totally different footing as they have regional flavor and regional focus compared to
nationalistic SBI culture.
 Various internal conflicts and disputes may arise with regard to promotion,pension and other potential issues.
 Post the merger, SBI's employee costs could rise by Rs 23 crore a month.
 There are currently 550 SBI offices while its associate banks have 259. The target for the number of controlling
offices after the merger is 687 -- a reduction of 122 offices
 Out of the five head offices of the associate banks, we will retain only two. Three head offices of the
associate banks will be unbound along with 27 zonal offices, 81 regional offices and 11 network offices of the
associate banks,” SBI Managing Director Dinesh Kumar Khara told IANS in an interview.
 Along with the winding-up of these offices, a number of merger processes will come into effect simultaneously,
including the data merger of the five entities.

VII. FINANCIAL ANALYSIS

 Q1FY17 OVER Q1FY16Interest Income on Advances increased from Rs. 28,582 Crores in Q1FY16 to Rs.
29,884Crores in Q1FY17 (4.56% growth)
 Interest Income on Resources Operations increased from Rs. 10,254 Crores in Q1FY16
to Rs. 10,887 Crores in Q1FY17 (6.18% growth).
 Total Interest Income increased from Rs. 39,643 Crores in Q1FY16 to Rs. 41,594 Crores in
Q1FY17 (4.92% growth).
 Interest Expenses on Deposits increased from Rs. 24,097 Crores in Q1FY16 to
Rs. 25,169 Crores in Q1FY17 (4.45% growth).
 Total Interest Expenses increased from Rs. 25,911 Crores in Q1FY16 to Rs. 27,281
Crores in Q1FY17 (5.29% growth).
 Net Interest Income increased from Rs.13,732 Crores in Q1FY16 to Rs.14,312 Crores in
Q1FY17 (4.23% growth).
 Non Interest Income increased from Rs.5,088 Crores in Q1FY16 to Rs.7,335 Crores in
Q1FY17 , an increase of 44.16% YoY, driven by increase in Profit on Sale of Investments by
212.15%, increase of 22.30% in Recovery in Written Off accounts, increase of 21.93% in
Forex Income and 6.08% in Fee Income.

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 Operating Income increased by 15.02% from Rs.18,820 Crores in Q1FY16 to Rs.21,647
Crores in Q1FY17.
 Staff Expenses increase was contained at 5.93%, from Rs.5,906 Crores in Q1FY16 to
Rs.6,257 Crores in Q1FY17
 Operating Expenses increased by 10.14% from Rs.9,618 Crores in Q1FY16 to Rs.10,594
Crores in Q1FY17.
 Operating Profit increased by 20.12% from Rs.9,202 Crores in Q1FY16 to Rs.11,054
Crores in Q1FY17.
 Net Profit in Q1FY17 was Rs. 2,521 Crores, lower than the Net Profit of Rs.3,692 Crores in
Q1FY16 by Rs. 1,171 Crores(-31.73%) as loan loss provisions increased by Rs.2,981
Crores from Rs 3,359 Crores as on 30th June 2015 to Rs. 6,340 Crores as on 30th June
2016.
ASSET QUALITY
 Gross NPAs went up by 44 bps at 6.94% in Q1 FY17 as against 6.50% in Q4 FY16 and by
265 bps from Q1 FY16.
 Net NPAs went up by 24 bps at 4.05% in Q1 FY17 as against 3.81% in Q4 FY16 and by
181 bps from Q1 FY16.

VIII. CONCLUSIONS
Those areas where SBI is not having branches but its associate banks are having, upon the merger being effected, the
customer confidence and good report will be created because SBI is having a good report for all its customers. the
bigger the bank, the better is the diversification of its assets portfolio and lesser chances that the bank will fail in the
system. Gross NPA and Net NPA of the combined entity will come down. Since it will become one big merged
Bank, it will have only a management system rather than having different management set-up over the associate
banks. Because of single management, efficiency and effectiveness of the business processes will be increased.
Single circular will be issued for all the merged Banks for operational and management supervision. Better internal
control and system processes will be carries on with all the merged banks

IX. BIBLIOGRAPHY
 http://www.thehindu.com/business/Industry/sbi-five-associate-banks-bmb-merge-with-sbi/article17757316.ece
 http://profit.ndtv.com/stock/state-bank-of-india_sbin/reports
 : http://www.caclubindia.com/forum/role-of-auditors-in-creation-of-black-money-and-bad-assets-171395.asp

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 https://www.quora.com/What-is-the-reason-behind-SBI-associate-banks-merger-What-could-be-its-pros-and-
cons
 https://allaboutdescriptive.blogspot.in/2016/07/pros-cons-of-sbi-associate-merging-with.html#!
 https://www.sbi.co.in/portal/web/investor-relations/results
 http://www.dnaindia.com/money/report-state-bank-to-merge-up-to-1500-branches-2339608

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