Soni: Major announcement

New Delhi, July 15: The Union cabinet today approved the merger of the State Bank of India with its Indore associate.

“The cabinet gave its nod to the merger of the State Bank of Indore with the SBI,” information and broadcasting minister Ambika Soni said, adding that a bill would be introduced in the Lok Sabha making changes to the State Bank of India’s (subsidiary banks) Act, 1959.

At present, the SBI holds a 98 per cent stake in its Indore subsidiary, which has around 500 branches and deposits plus advances of around Rs 50,000 crore.

The merger proposal was cleared by the central board of the SBI last year. This is the second merger of an associate bank with the SBI after a similar exercise with the State Bank of Saurashtra in August 2008.

SBI officials said the government also wanted to merge the two other unlisted SBI associates — the State Bank of Hyderabad and the State Bank of Patiala — with the parent company.

The country’s largest lender has already announced a share swap ratio of 34:100. It has agreed to give 34 shares of the SBI for every 100 shares of the State Bank of Indore held by the minority shareholders. For this purpose, the SBI will issue over 1.16 lakh shares of a face value of Rs 10 each to the minority shareholders of the State Bank of Indore.

Following the merger, the SBI will be left with five associate banks — the State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad. Among these, the Bikaner and Jaipur, Mysore and Travancore entities are listed.

The SBI needs to increase its size as the country gears up to open its banking sector to foreign entities in a bigger way in the next few years.

According to finance ministry officials, the acquisition of the State Bank of Indore will allow the parent to achieve economies of scale in terms of branches and manpower.

Officials said the SBI had already taken steps towards an eventual merger of all subsidiaries.