Cabinet okays State Bank of Indore's merger with SBI

The Cabinet on Thursday cleared the merger of State Bank of Indore with its parent State Bank of India (SBI), a move that would help the country’s largest lender scale up operations and cut costs.

“The Cabinet gave its nod to the merger of State Bank of Indore with SBI. Acquisition of State Bank of Indore by SBI will allow economies of scale in terms of footprint, manpower and other resources,” Information and Broadcasting Minister Ambika Soni told reporters after the Cabinet meeting.

State Bank of Indore had a large number of branches outside Madhya Pradesh and Chhattisgarh and all of them would be controlled conveniently from SBI’s local head offices in various states, leading to substantial savings, she added.

The merger would also avoid competition between the two entities and lead to access to funds at competitive rates, compared to what State Bank of Indore would have managed for its growing balance sheet.

“SBI is facing a situation where most of its branches and those of State Bank of Indore are competing for the same business, in the same market, under he same brand. This has prevented SBI from fully exploiting its brand equity for driving business growth,” she said.

SBI holds 98 per cent in State Bank of Indore. The merger proposal was approved by the central board of SBI last year. Following this, the Centre had given its in-principle approval.

To facilitate the merger, the Cabinet also gave an in-principle approval to introduce a Bill in Parliament for amending the State Bank of India (Subsidiary Banks) Act of 1959 to remove references of State Bank of Indore. This will be the second merger of an associate bank with SBI after a similar exercise with State Bank of Saurashtra in August 2008.

SBI has already announced a share swap ratio of 34:100 for the merger. It has agreed to give 34 SBI shares for every 100 shares of State Bank of Indore held by minority shareholders. For this, SBI would issue up to over 1.16 lakh shares of face value of Rs 10 each to minority shareholders of State Bank of Indore.

SBI had also said the issued capital of SBI would rise from Rs 634.96 crore to a maximum of Rs 635.08 crore after the merger.

Following the merger, SBI will be left with five associate banks—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, State Banks of Bikaner and Jaipur, Mysore and Travancore are publicly listed companies.