Merger of SBI associate banks to cost Rs 3,000 cr: Bhattacharya

However, benefits from merger including Bharatiya Mahila Bank will outweigh costs

The proposed merger of State Bank of India (SBI) with its five associate banks and the Bharatiya Mahila Bank (BMB) will cost it around Rs 3,000 crore, said SBI chairman Arundhati Bhattacharya, while announcing the bank’s fourth-quarter results here on Friday.

However, the benefits from the merger will outweigh the costs, she added. “We have sought the government’s permission to begin negotiations. We hope the permission will be forthcoming... We have tried to assess what a merged entity would look like, and I can assure you that there will not be any impact either on capital or NPA (non-performing asset) position, and we are well positioned for the merger.”

The five associate banks of SBI are State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore.

Much of the cost of the merger will accrue from the provident fund liabilities of employees. “On account of provident fund, the maximum amount we are anticipating is Rs 3,000 crore,” she said.

In the last financial year, of the five associate banks, only State Bank of Patiala posted a loss, while all others were in profit. State Bank of Patiala had posted a net loss of Rs 972 crore in FY16, against a net profit of Rs 362 crore in FY15. The highest profit came from State Bank of Hyderabad, which posted a net profit of Rs 1,065 crore in FY16, against Rs 1,317 crore in FY15 -- a fall of 19.15 per cent.

While the overall costs of the bank after the merger will come down, the consolidation would also lead to higher treasury gains, she said. “In treasury, the portfolio return of our bank is almost 92 basis points higher than associate banks. Even if you improve the return by 50 basis points, there is a pretty large amount to be garnered,” she said.

According to her, there are a lot of redundancies to be taken care of. “Currently, there are six treasuries. So if you look at the cost cuts, there would be a lot of efficiency that can come.”

This apart, BMB will add about Rs 1,000 crore of capital. The revaluation of the fixed assets of associate banks would add another Rs 700-750 crore, she added.

Earlier, ratings agency Moody’s Investors Service had said the proposed merger would cost $250 million (Rs 1,660 crore) and have limited impact on the lender’s credit metrics.

“Assuming that SBI complete the transaction using its own cash, its common equity tier-1 ratio would decrease by only 12 basis points," Moody’s had said.