Aggressive mergers to take a back seat at SBI under New Chief Mr Pratip Chaudhuri
Sangita Mehta, May 25, 2011, ECONOMIC TIMES MUMBAI:
State Bank of India Chairman Mr. PratipChaudhuri's voluntary baptism by fire was the first step in his journey to make the 205-year-old behemoth enter the top-50 in global rankings without future earnings shocks. Prudence and caution will take precedence over aggression and innovation.
Mergers and acquisitions, including those of associate banks, will be on the back burner as the nation's largest lender sets its house in order with higher provisions to smoothen out bumps in the form of bad loans and pension liabilities.
It is also amply clear that Chaudhuri has had a rethink on the strategy relating to the merger of associate banks of the SBI. He said there will be a pause on such mergers until July 2012;
It is also amply clear that Chaudhuri has had a rethink on the strategy relating to the merger of associate banks of the SBI. He said there will be a pause on such mergers until July 2012;
Chaudhuri spoke to ET's Sangita Mehta, Shaji Vikraman and Bodhisatva Ganguli on what to expect from India's largest bank in the year ahead. Edited Excerpts:
Is there a rethinking on the merger of your associate banks?
We have already absorbed two of them. Now, the dilemma is that subsidiary absorption requires lot of capital (which is) a cost. At the same time, we are more worried about the future of subsidiaries. Most of the subsidiaries are relatively small and have a small geographical presence.
Banks like State Bank of Travancore are not known in the eastern, western and northern parts of India. Therefore, they are limited by their name, culture and history to a particular geography . They can't grow beyond a certain size, and banking is a business which requires capital. Now, how long can you pump in capital? And there is lot of duplication. So, theoretically, merger is a desirable thing.
But then you have to recognise operational issues because you have to harmonise and make uniform service conditions and there will be a lot of branch overlap. So, another subsidiary absorption or merger does not happen two or three years before the first one has happened .
So, let us first digest State Bank of Indore. With Indore merger, our Bhopal circle alone has 1,100 branches. Now there is an issue of size in the Bhopal circle itself. Now if we merge the other subsidiary, what happens to the related circle of the bank? So we are in the process of rationalising and making the national banking structure more robust. Now, from 10,000 branches, we have grown to 13,000 branches, but the number of circles has remained constant at 14. So we need to increase the span of management.
Does that mean you will not pursue the merger now?
Associate bank merger is not happening in a hurry. It is not because we are not convinced that merger is the right thing but it is because it requires capital and operational efficiencies.
So you are pressing the pause button on the merger of associate banks?
At least for the next one year. We need to give good performance at the end of March 2012 and be on a strong wicket ourselves. It (further merger) will be only in June-July 2012.