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SBI chief Arundhati Bhattacharya says merger with associates is ‘not a major worry’
The Financial Express Published on February 17, 2017
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Mumbai, February 17: The merger of five associate banks with State Bank of India (SBI) will result in the capital adequacy ratio of the merged entity falling by about 54 basis points (bps) to 13.19% from 13.73%, chairman Arundhati Bhattacharya said on Thursday.
“We will still be very close to 14% and, therefore, it is not a really major worry for us,” she said, explaining that 79 bps of capital from the fourth-quarter infusion of funds by the government and profit had not been taken into account.
The new entity’s gross non-performing asset (NPA) ratio will rise by 147 bps to 8.7%. Bhattacharya said the gross NPA ratio would not go up too much as the bank has been working to ensure that provisioning levels of the associate banks were raised to SBI’s standards.“ By the time they come in, all of the provisions that they needed to have made will be made, to the extent possible,” the chairman said.
Consolidated deposits of the merged entity will be Rs 26,04,473 crore while gross advances will be Rs 18,76,727 crore. The consolidated balance sheet size will be Rs 32,18,498 crore. Bhattacharya added that the real estate assets of the associates have already been revalued and accounted for in their books after taking the stipulated haircut.
Addressing concerns about wage expenses, Bhattacharya said, “All of the associate bank people will be offered the wage package that our people have for the relevant grades. It’s up to them to either accept that or retain whatever package they have right now. They actually have a choice to do that. So I do not think there will be any wage-related changes.”
The bank expects the merger to lead to synergies in terms of treasury operations, the reorganisation of some head offices and the consequent redeployment of some administrative staff in direct operations. For large advances, where the associates are part of consortia, their limits will get taken over by SBI and people managing those accounts would also be released for looking after other businesses, Bhattacharya said. Other functions related to account management, such as audit and information technology, will also become consolidated. Bhattacharya refused to put a value on these synergies and said that it there will be more clarity on this once the merger is completed.
Anshula Kant, chief financial officer at SBI, had earlier said that the terms of the merger are such that for every 10 shares of State Bank of Bikaner and Jaipur, shareholders will get 28 equity shares of SBI. For every 10 shares State Bank of Mysore, shareholders will get 22 shares of SBI and for every 10 shares of State Bank of Travancore, they will get 22 shares of SBI. The other two associates, State Bank of Hyderabad and State Bank of Patiala, are fully-owned, unlisted subsidiaries of SBI.
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From E-Group, Banking-News
Merger to be completed by FY 2018: SBI
Sangita Mehta The Economic Times Published on February 17, 2017
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Mumbai, February 16: The merger of five associate banks with State Bank of India will be completed in the fiscal year 2018 even as the cabinet has given a green signal for it on Wednesday.
Speaking to media, chairman Arundhati Bhattacharya said, “We would not like to merger associate with parent bank close to the year end. The merger will be completed in fiscal year 2018.”
She said that the merger of associate bank with SBI will raise SBI’s ranking among global banks. “We would be among the top 50 banks globally,” she said.
Bhattacharya said that post-merger the bank will have 25% market share in deposits and advances.
Earlier, the bank had planned to merge the five associate bank and Bhartiya Mahila Bank with itself by the end of this fiscal year. However, it was delayed due to demonetisation exercise that started in November involving scrapping of Rs 500 and 1000 notes.
The combined entity will have a mammoth network of nearly 23,000 branches and 21000 ATMs, further increasing the dominance of the nation’s largest bank. Two of the five associate banks — State Bank of Patiala and State Bank of Hyderabad — are unlisted. Among the other three, Mumbai-based SBI holds a 75% stake in State Bank of Bikaner & Jaipur, 90% in State Bank of Mysore and 79% in State Bank of Travancore.
“We are quite ready for the associate banks merger and as soon as the government notifies the final order we will be ready to kick it off. We had planned to do it by March and we were quite ready for it well, again demonetisation effect that has got deferred. So it will probably be a deferment of a quarter,” Bhattacharya told media soon after announcing results.
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From E-Group, Banking-News
SBI Merger: Bank Unions question need for ‘Big Bank’
Beena Parmar The CNBC-TV18 Published on February 16, 2017
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Mumbai, February 16: The Union Cabinet on Wednesday paved way for State Bank of India to become a banking powerhouse making it to the top 50 banks globally. But is it important to be big, ask the bank employee unions. Since it was first proposed in May last year, bank unions have strongly opposed the merger and have done multiple strikes against the proposal.
Under the banner United Forum of Bank Unions (UFBU), nine bank unions including All India Bank Employees Association (AIBEA) and All India Bank Officers’ Association (AIBOA) have questioned the government and SBI management’s need for creating a large bank.
CH Venkatachalam, General Secretary, AIBEA said, “What we need is not big but strong banks. Big banks also mean bigger risks. The SBI associates have been doing quite well in their own geographies, making good operational profits, what was the need for them to be merged?" he asked.
"Bad loan problem is a universal problem. Will merging the banks help recovery of bad loans, will it improve their efficiencies?” Venkatachalam questioned further before replying with a stern "No." The UFBU gathered about one-lakh employees across the country on Thursday to stage rallies and demonstrations opposing the big move yet again. After the merger, SBI will have additional 70,000 employees making the total headcount to 2.71 lakh.
There is also a difference in the way wages are structured at SBI and the subsidiary banks. The SBI management will need to have a dialogue with the subsidiary banks’ employees and many of them will get a huge lump-sum take home right now, while some may have the option to take it in future, the bank’s senior management had said in the past. SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged with it, which the bank says was done smoothly.
Venkatachalam does not believe in creating “too big to fail” banks. “Lehman Brothers was too big to fail. We know what happened to it. At present, India needs more rural banking services and big banks cannot do that. Economies of scale cannot be a good reason for a merger. We are not against reforms but the system cannot be monopolised,” he said.
According to him, future recruitments will be stopped as the bank plans to not hire in the posts that will see retiring officers in the next 3-4 years. “Banking is the only sector creating jobs and the biggest bank will not recruit. It will lead to reduction of jobs up to 2 lakh,” Venkatachalam said.
Since 2013, SBI has been consistently reducing its headcount by about 6,000-7,000 employees every year. This shows they are recruiting less people than those retiring each year. The SBI Chief had once also said that technology will require the bank to recruit less people. As on December end 2016, the total staff strength stood at 2,00,820.
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From E-Group, Banking-News
SBI Merger: Test case for public sector bank consolidation
Anand Adhikari The Business Today Published on February 16, 2017
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New Delhi, February 16: After the board approval, the government has now also put its stamp on the merger of five associate banks with the State Bank of India (SBI). The SBI - associates merger would be a test case for bigger consolidation to follow in the public sector bank space, which the government is planning. In fact, there are challenges, too. SBI's merger with five associate banks is coming at a time when the banks are facing challenges from digital players like peer to peer (P2P) lenders, digital wallet companies, payments bank and small finance banks. There is also a fear that the management bandwidth would go on resolving the merger pangs. Here are the key challenges.
i) Branches overlap
SBI today runs the largest bank in the country in terms of assets as well as branch network. They have branches in every nook and corner of the country. The associate banks are regional with good branch network in the place they are headquartered. There is going to be a huge overlap of branches in the five states of Rajasthan, Bengaluru, Andhra Pradesh, Punjab and Kerala.
ii) Too big to handle
The merger is the biggest in the Indian banking industry. We haven't seen a merger of this size. The bank is merging five associate banks with combined assets of over Rs 6.0 lakh crore, which is almost equal to the size of the two largest private banks HDFC Bank and ICICI Bank Ltd. The merged SBI entity would have 24,000 plus branches, 58,000 ATMs and 2.7 lakh employees. ICICI Bank has 4,450 branches, 14,295 and 97,132 employees. In a digital era, many banks are not even talking of setting up branches. The digital wallets, too, will make ATMs irrelevant in the future.
iii) Associates are mirror image of parent
SBI associate banks are a mirror image of the parent. SBI chairman also sits on their board and MD & CEOs came from other associate banks. The product basket has many similarities with focus on infrastructure, Agri , Home and Auto loans.
iv) Too big to fail
In the post 2008 scenario, the world saw the government bailing out large banks from tax payers money. SBI though is identified by the RBI as a systemically important bank, requiring additional capital in its book for absorbing any future shock. But SBI's size is not comparable with other banks. SBI, with close to Rs 30 lakh crore assets, is way ahead of the two largest private banks - HDFC Bank and ICICI Bank, which are in the region of Rs 7-8 lakh crore. Managing a bank of SBI's size will require more oversight by the regulator.
v) A bad bank within a bank
This huge portfolio of bad loan makes it a bad bank within a bank. The five associate banks for instance have stressed loans (gross NPAs and restructured loans) at a staggering Rs 35,396 crore level. This amount is almost half of SBI's Rs 66,117 crore stressed loans in 2015-16. It would be a huge task to resolve the bad loans given the challenging operating environment.
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From E-Group, Banking-News
SBI-Merger: Good to have a global sized bank, but are we creating too big a monopoly?
Dinesh Unnikrishnan The Firstpost Online Published on February 16, 2017
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New Delhi, February 16: With the cabinet clearing a proposal to merge the five remaining subsidiaries of State Bank of India (SBI) with the parent, the stage is set for the birth of a banking behemoth that’ll possibly finding place amongst the top 50 banks in the world.
The five associates are-- State Bank of Travancore (SBT), State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Hyderabad (SBH).
SBI merged two of its subsidiaries State Bank of Saurashtra and State Bank of Indore during Bhatt’s time, in 2008 and 2010, respectively. Once this merger happens, SBI’s asset size should go up to Rs 28.6 lakh crore as on March. It will then be seen in the club of banking giants from developed countries and take part in bigger deals flaunting its size. SBI gaining global size is a good thing for Indian banking sector in relation to the global industry.
But, back home, this would also mean SBI will grow in size at least four times bigger than its nearest competitor—HDFC bank---which has assets of Rs 7.4 lakh crore as on March 2016. The third largest bank will be ICICI with asset size of Rs7.2 lakh crore. Beyond HDFC Bank and ICICI, most other lenders will look too tiny in comparison to State Bank. The combined entity will have over 23,000 branches and two and half lakh employees.
The question here is this: Is SBI, often dubbed as the elephant among Indian banks, growing too big in relation to its competitors in the domestic market creating a monopolistic situation and a too-big-to-fail banking institution? Such a big difference in the asset sizes of the largest bank and other competitors have worried the banking regulator in the past.
For instance way back in 2013, the then RBI governor, D Subbarao, had highlighted this issue. “Presently, (there is) significant skewness in the size of banks. The second largest bank in the system is almost one-third the size of the biggest bank. This creates a monopolistic situation,’ Subbarao said.
The problem has grown even bigger since then. Instead of creating one big giant among several relatively tiny rivals, it is good if we have 3-4 large sized banks so that the spirit of competition will be sustained, experts have suggested in the past.
The concern of policymakers worldwide about 'oversized' financial institutions is justified since if something goes wrong with them, this can have serious ramifications on the whole financial system. This is something that prompted the US federal reserve to finalise a rule in November 2014 that prohibited any financial company from acquiring another, if the resultant entity's liabilities exceeded 10 percent of the total liabilities of the financial services system.
The rule - Section 622 of the Dodd-Frank Wall Street Reform and Consumer Protection Act - says once a particular entity reaches the specified concentration limit, that bank cannot acquire control of another entity. Logically, the new rule intends to shield the US financial system from the foibles of 'too big to fail' banks, which could then spark a crisis like the one in 2008 following the collapse of Lehman Brothers, which triggered a global financial meltdown. That meltdown showed that when banks become too big, they can bring down the whole financial system when they lend or invest imprudently.
True, there is no comparison between US and Indian banking systems in terms of size. But, the concerns apply here as well. In July, 2014, the central bank released a framework to identify domestic systemically important banks (D-SIBs) and later classified both SBI and ICICI as systemically important banks. In SBI’s case, given the enormous size of the bank compared to its domestic peers, there is an obvious concentration risk that is building up. This is what the RBI has to monitor.
If anything goes wrong with SBI, it would have repercussions not only for the bank, but the whole financial system. In a worst case scenario, if a major crisis grips the domestic banking system, a fiscally-constrained government may find it difficult to capitalize SBI. Considering its size and appetite, the elephant is not easy to feed. It is a matter of pride for India to have a global sized bank but it brings with itself ominous challenges.
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From E-Group, Banking-News
Merger will lower operating costs for combined entity: SBI MD
The Business Standard Published on February 17, 2017
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New Delhi, February 16 (IANS): With the Union Cabinet granting approval to the merger into the State Bank of India (SBI) of its five associate banks, the public lender on Thursday said the combined entity would have lower management costs resulting in savings on operating costs.
"Once merger is complete, we will be in a position to save costs of these associate banks, because the structure of the five head offices will fold into one corporate office of the SBI. The zonal offices will also get integrated into our operations," SBI Managing Director D K Khara told BTVi in an interview.
"Lesser management costs of these offices will get reflected in saving operating costs of banks. CASA (Current Account, Savings Account) will go up. Lots of cost efficiency and capital efficiency will come into play. It will save costs for banks, which will save resource cost and prove advantageous," Khara said.
He said that though there are no plans to shut down branches, rationalisation of branches would take place -- meaning dedicated branches for small and medium enterprise (SME) lending, servicing high net worth individuals (HNIs), among others.
"It will create much more value for customers," he added.
The merged entity with the one-fourth of the market share would have a balance sheet of about Rs 40 lakh crore, 23,000 physical branches and 22,000 ATMs, Khara said.
Post-merger, a shareholder will get 28 shares of SBI for every 10 shares of State Bank of Bikaner and Jaipur (SBBJ).
The legal entity of the associate banks will cease to exist from the effective date of merger.
"From the effective date, the merger will come into effect. The data integration will start soon after that and in a month, we should be able to complete all the data integration," he said.
The SBI MD said that the losses posted by the associate banks was transitory and a result of realigning of their asset classes with the SBI.
"The loss concerned in associate banks is more transitory in nature. It essentially happened when we tried to realign the asset classes of all associate banks with the SBI. All banks have significant operating profits... That's not much of an issue," he said.
"It was transitory two-quarter loss, because prior to that they never had such kind of losses. Once asset re-classification is complete, they will be back to normal," he added.
The Cabinet on Wednesday approved the merger into SBI of its five subsidiaries, namely, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore and State Bank of Patiala.
The proposed merger of the Bhartiya Mahila Bank into the SBI is still under consideration.
Last year, the SBI had announced that it would merge its five subsidiaries and the Bharatiya Mahila Bank on getting government approval for the same.
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From E-Group, Banking-News
Final notification will carry the effective date of merger: Dinesh K Khara, SBI
The Economic Times Published on February 17, 2017
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New Delhi, February 16: In a chat with ET Now, Dinesh K Khara, MD & Group Executive, SBI, says For all purposes, the effective date will be the date when all associate banks will be known as State Bank of India. Edited excerpts:
The cabinet has now okayed the merger of associate banks with SBI. What will be the next steps and when can the merger be expected to be completed?
We will be waiting for the final notification which will carry the effective date. The merger will de facto effective from that date. Once the notification comes in, we will initiate the process relating to book closure, etc, and from the effective date all the five banks will merge into State Bank of India.
Can we expect the merger to be completed in FY17 or can we expect it to be completed over the course of the next six to eight months?
For all purposes, the effective date will be the date of the merger. Much of it will depend upon what will be the effective date stated in the notification which will be issued.
Will the finance ministry be giving a further notification of the merger or will the timeline be decided by SBI then?
It will come from the Government of India, Ministry of Finance.
Will all the five associate bank merger happen at the same time or will it all happen in a particular sequence?
For all purposes, the effective date will be the date when all associate banks will be known as State Bank of India. The data integration will happen and I do not expect a very long gap between that also. I expect that maybe within a month or so all the data will get integrated into our data base.
How will the merger impact the capital needs of State Bank of India and what would the impact on your capital ratios?
As of now, we had done some kind of simulation and based upon that, we were in a very comfortable position even post merger as far as the capital piece is concerned.
How much will the provisioning rise post the merger?
As far as the asset quality is concerned, from the September quarter onwards, we had started converging. In fact, we had identified all the accounts which were NPA within the banks. So we had started providing for all of them, so that piece is also adjusted.
Most of the associate banks have been reporting a high rise in NPAs. Have all the associate banks completed the clean-up of their balance sheet before this merger takes place?
As far as identification is concerned, it is all identified and accordingly provisions are being made.
What will be the key advantages of the merger on the cost, the treasury operations, etc, and of course its impact on margins as well?
Post merger, five head offices will not be there. So the administrative setup of these associate banks will be rationalised to a greater extent. It will help in cost rationalisation and in improving the cost to income ratio for the merged entity. Apart from that, the treasury should be integrated and because of the larger treasuries, it will lead to an improvement in treasuries also. All this will eventually lead to reduced cost of resources which in turn will help the merged entity to probably improve its NIM and also improve its lending rates also.
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From E-Group, Banking-News
A bad, good idea A bank for bad loans can address the NPA mess
Balamurali Radhakrishnan The Business Line Published on February 17, 2017
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The Indian economy today faces weak loan growth and high NPAs; a nexus between the banking system and stressed borrowers is mostly blamed for this crisis.
How do we tide this over? Recapitalisation of public sector banks (PSBs) alone will not result in a rise in bank lending, especially when banks are not sure of the extent of losses that existing bad loans would inflict. Stressed borrowers won’t commit fresh investments unless their financial positions improve.
So, there is a pressing need to swiftly address the NPA problem, both to revive private investment and to boost credit growth.
India has already attempted to get around this problem through Strategic Debt Restructuring (SDR), which allows banks to convert their loans to stressed firms into equity, and Scheme for Sustainable Structuring of Stressed Assets — which allows banks to bifurcate their debt to a stressed account into sustainable and unsustainable portions — but with little success. So the time is ripe for thinking about an out-of-box solution.
The bad bank route
Here, the idea of creating a government-backed bad bank gains significance. Such a bank would absorb impaired assets from banks, freeing up their books for fresh lending. Importantly, it does not need to exist perpetually and, after the sale of impaired assets, it would essentially be wound down, weakening the argument that it would create the problem of moral hazard.
Will instituting a bad bank alone offer a permanent solution to the NPA problem? That this problem has exacerbated means a single instrument might not be able to overcome it. So what we need now is a holistic approach: apart from creating a bad bank, progressing further on three more initiatives is tantamount to such an approach.
First, once banks transfer their stressed loans to the bad bank, the latter will have to recover dues from such assets to the maximum extent possible. To enable this, an ecosystem facilitating speedy asset disposal must be in place.
The new bankruptcy code is unprecedented and is expected to transform stressed assets recovery landscape. However, for this to be distinct from earlier attempts, the National Company Law Tribunal must have adequate administrative and judicial staff.
Second, banks should be ready to take receipt of steep haircuts while transferring bad loans. Nevertheless, the participation of a government-backed bad bank in the stressed asset sale process might lower the extent of losses.
Three, once banks have taken haircuts, they will have to be recapitalised in order to facilitate smooth credit flows. This investment might fetch greater returns, as removing the NPA-related uncertainty itself could add a substantial value to stocks of PSBs.
But it must be ensured that the current stressed asset problem does not repeat. This calls for concurrently strengthening governance of PSBs and gradually reducing the government’s role in its operations.
Already, there is an institution, Bank Bureau Board, to achieve the former, and the proposal to set up a bank holding company, transfer of all government holdings in PSBs to it and lower government holdings below 50 per cent must be expedited.
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From E-Group, Banking-News
Rs 2,000 notes printed when Rajan was RBI governor but bear Patel’s signature
Jeevan Prakash Sharma The Hindustan Times Published on February 17, 2017
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New Delhi, February 17: The newly launched 2,000-rupee banknotes carry the signature of present cent
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