Chaudhuri leaves SBI merger for successor

Says groundwork ready but incoming team should decide

State Bank of India chairman Pratip Chaudhuri, retiring by the end of this month, has left the decision on more merger of associate banks to his successor.

Earlier, SBI was to announce in this month the name of the associate bank it would be next merging with itself.

"I think it is right for me to leave that (name of the bank) decision to my successor," Chaudhuri told Business Standard.. "I would have liked to merge at least one bank but the capital position was so precarious that I couldn't," he said.

He said as there would be a shuffle of top management jobs after his retirement, it was appropriate to leave the decision to his successor. SBI's top management consists of the chairman and four managing directors, one each looking after the balance sheet, international operations, domestic operations and subsidiaries & associate banks.

Chaudhuri said he'd prepared the groundwork, economic logic and momentum for the system to pick up. "The report is ready…the factors which are to be considered are ready but which one to pick... I think there is generally a unanimity in this view but I should leave it to my successor."

He reiterated that at this stage, State Bank of Hyderabad seems difficult to merge with (due to the uncertainty on Telangana). "Between the other four, I shouldn't force the hands of my successor and the team."

SBI has five associate banks - State Bank of Hyderabad, State Bank of Bikaner and Jaipur (SBBJ), State Bank of Travancore (SBT), State Bank of Mysore and State Bank of Patiala. Two others, State Bank of Indore and State Bank of Saurashtra, were merged with SBI in 2008 and 2010, respectively.

Patiala likely
Among the five associates, State Bank of Patiala (SBP) seems the most likely candidate for the next merger. Chaudhuri when asked if SBP was most probable candidate, he said it would be next chairman who will take the call. The most important factor is SBP's retail deposits.

Chaudhuri has said that as SBI's own retail deposits are strong, it would prefer to take on an associate with a weak retail deposit base - the low-cost current account and savings account (Casa) deposits. SBP's Casa is the weakest among all the associate banks. As of March 2013, this was about 21 per cent (about 25 per cent in June) of all deposits; other associate banks have a Casa ratio well above 30 per cent.

According to a senior SBI group executive, SBP has been consistently seeking capital from SBI to strengthen its capital adequacy ratio over the past year. However, SBI hasn't provided any capital support for more than a year.

Another factor is that SBP is already, legally, fully owned by SBI; technically, its merger would be the easiest. Being fully owned saves SBI a number of formalities, such as permission from the Securities and Exchange Board of India and from, stock exchanges, beside shareholder approval. Another point is the network.

SBP has 1,121 branches but only 44 per cent of these are in its home area of Punjab and Chandigarh. SBBJ and SBT also have over 1,000 branches but their network is largely concentrated in their home states. SBP also has a large number of branches in Haryana and Himachal Pradesh, part of the erstwhile Punjab state.