Merging Banks: Dos And Donts

But there still is one good potential candidate for consolidation, the seven subsidiaries of the State Bank group. Their merger into a single bank, which is then disengaged from the State Bank of India, has been proposed in the study of the group by McKinsey. Several of these SBI subsidiaries are highly profitable banks in their own right in the league table of nationalised banks. They would indeed prosper if they were able to pursue their own course independently. But by themselves they would be too small; together, they could challenge the might of SBI, whose dominance of the market is unhealthy.

 

But such a merger needs to be carefully constructed. The successful ones have a very good presence in their respective regions, with a sound idea of the credit realities and the dynamics of the respective regional economies. What they need is balance sheet support with enhanced autonomy. The best way to serve these two ends is to first create a consolidated balance sheet which will be obviously very strong. But care has to be taken to ensure that the new corporate office really functions like a holding company whose major interest is in monitoring profitability and ensuring prudential norms. The worst case scenario would be for the setup of the successful State Bank of Travancore to have over its head a chief executive from, say, State Bank of Saurashtra who brings to his job neither sound knowledge of the region nor a tradition of prudent management. In the age of flatted organisations, it is crucial to ensure that operating profit centres do not have less autonomy while seeking to benefit from balance sheet restructuring.