Merger of SBI, associates fair and logical: Experts

The only exception could be State Bank of Mysore as its stock could see some correction given the swap ratio for its shareholders

Market experts have given a thumbs-up to the merger plan of State Bank of India (SBI) and its associates, with most saying the swap ratio is fair and logical.

“Due diligence has been done with a single focus, the asset quality of the associate banks,” says Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services. “All the items in the balance sheet have been valued within this framework and correction to valuation has been made accordingly,” he adds.

Rahul Shah, associate vice-president at Motilal Oswal Securities. “Ratios have been worked out fairly and the smaller associate banks will be immediately benefited,” he says.

According to analysts, the Street has begun to digest the issue of asset quality in a mature manner. “While the level of pain may remain elevated for SBI’s associates for the next few quarters, they only account for 25 per cent of SBI’s loan book,” says Siddharth Purohit of Angel Broking. “Therefore, on a consolidated basis, I don’t see material asset quality pain for the merged entity.” he adds.

As the Street appears contended with the merger details, analysts expect the stocks of SBI and its associates to react positively on Friday.

“While the market was expecting this merger in FY17, since it is happening sooner than expected, the stocks will react positively to the swap ratio,” says Purohit. A few analysts are of the view that stocks of other public sector banks might also react positively in Friday’s trade as the merger of SBI’s associates is viewed as a constructive step towards consolidation of state-owned banks.

However, the only exception could be State Bank of Mysore (SBM) as its stock could see some correction given swap ratio for its shareholders.

A note by Religare Capital Markets suggests that loss of shareholders in case of SBM could be around 12 per cent (given the swap ratio and current market price of SBM and SBI). While SBI holds 90 per cent in SBM, the rest is held by some 27,660 shareholders. While they may see some impact in the near-term, it is more than offset by the 65 per cent rally in the stock since mid-May this year.