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Big bank merger, bigger expectations

On 01 April 2017, the State Bank of India (SBI), Indias oldest and largest bank, merged five of its associate banks and another small bank. While the bigger five were in existence for decades, the sixth was floated only four years ago.

In 1955, when the SBI came into being, the mandate given to it was to open branches in unbanked areas. And that's what happened. Now, when the bank aspires to find a place among international banks, the inevitability of some of the small branches closing down cannot be ruled out.


Bank mergers in the past

Mergers are not new to India. The oldest bank merger took place in 1921 when three banks controlled and owned by the British government – Bank of Bengal, Bank of Bombay and Bank of Madras – were merged to form the Imperial Bank of India. In 1955, it was renamed State Bank of India.

In the private sector, a number of small banks were promoted by local patronage. The financial condition of many of them was precarious and failures became common. Before the implementation of bank mergers, the depositors and shareholders were the losers. In the 1960s, in order to reduce bank failures, the Reserve Bank advised the weaker loss-making banks to merge with bigger banks. 

Several mergers took place in the 1960s, as mergers were found to be a win-win solution for the banks. While the medium-sized banks were trying to take over smaller banks, they were taken over by bigger banks, in some cases. There were some cases of predators becoming preys in the jungle of mergers and acquisitions. One of the major alliances in Tamil Nadu was the merger of 

Madurai-based Pandyan Bank with Canara Bank in 1963, which gave Canara Bank a significant number of branches in Tamil Nadu.


Some successful mergers

Since 1975, the Government of India promoted gramin banks for extending banking facilities to rural India.  By 1987, their number increased to 196, covering almost all districts. Some of them could not become viable, because of their operations, confined to single districts or two or three districts. The government of India, the major shareholder, therefore, decided to implement ‘directed mergers.’ As a result, their number came down to 56 at present.  Almost all the gramin banks turned well and no bank was closed. There were neither closures of branches nor retrenchment of staff.

Bank staff never welcomed bank mergers for fear of job loss. There were cases filed in courts by the union questioning the mergers. Despite that mergers have happened.  The process of merging SBI and its subsidiaries has faced resistance from employee unions fearful of job losses. The Andhra Pradesh High Court recently ordered stay on the assimilation of staff until June this year. To prevent the retrenchment of staff, SBI has already offered Voluntary Retirement Scheme. The data relating to the exact of reduction in the staff strength is not readily available.


Operational size of the big bank 

The big Bank now finds a place among the top 50 banks at the international level. It would have 24,000 branches in India and abroad and the number of ATMs is 59,000. The Bank would have its presence in all states and in most of the districts at home; its asset size may rise to Rs.28.6 lakh crore. Its total volume of business would be Rs.39.47 lakh crore. 

The total staff of the Bank rises to 270,000. With the merger of many branches of the associated banks operating in smaller places, retrenchment of some employees may be unavoidable in the process. Small branches of the big bank are likely to become the speed-breakers.

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