Thursday, 8 January 2015

Merger of banks burdens SBI

Pune : Jan 05 2015.

At the two-day Gyan Sangam of public sector banks (PSBs) held in Pune over the weekend, chiefs of large banks, probably for the first time, conveyed to finance ministry officials that they are not in a position to take over smaller banks, because they face the same problems as their potential targets. Thus, any acquisition will only bring more stress to their balance sheet and lead to a situation of the blind leading the blind.
Industry officials said that even SBI has conceded merger of associate banks with itself is not possible immediately. According to them, in a closed-door meeting between bankers and finance ministry officials in Pune, Arundhati Bhattacharya, chairman, SBI, said merger can happen only after the performance of an associate bank matches SBI's standard.
When contacted by ET, Bhattacharya declined to comment on this issue. SBI's net non-performing assets, at 2.57% as of March 2013, are lower than its associates. Also, SBI's ability to absorb shock measured by way of capital adequacy ratio stood at 12.44%, higher than its associates.
Besides, pension benefits of SBI employees are better than associate banks —which means it will have to increase pension benefits of the associate bank from the day of merger.
SBI had provided Rs 900 crore towards pension benefits of State Bank of Indore and State Bank of Saurashtra that it acquired. It is estimated that, if merged, it will have to spend around Rs 4,000 crore for pension benefits of its remaining five associate banks.
At the Pune conference, the finance ministry had formed six different groups comprising bankers, bureaucrats and RBI officials to propose strategies for banking reforms.

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