State Bank of India Merger (Advantages & Disadvantages)

As you know, after good talks for months, the union cabinet approved the merger of the state bank of India with its associates on 15th  June, 2016. Besides it, the newly formed Bhartiya Mahila Bank is also to be acquired by the SBI. Before the merger, SBI has seven associates namely:

1. State Bank of Hyderabad

2. State Bank of Patiala

3. State Bank of Mysore

4. State Bank of Travancore

5. State bank of Bikaner & Jaipur

6. State Bank of Saurashtra

7. State bank of Indore

In 2008, SBI had witnessed its first merger with state bank of saurashtra and later in 2010, state bank of indor was also merged. Now after the approval of union cabinet, rest of subsidiaries also merge with SBI.  

Main Reason Behind for Merger:

The merger has been required on account of change in banking environment due to emergence of new area for compliance like Basel III, risk management, which require heavy investment on technology.

Further, it is quiet difficult for smaller institutions to sustain the pace of competition with other institutions, so the merger will decrease unhealthy competition among the public sector banks.

Advantages and Disadvantages Because of Merger:

Advantages:

• Because of merger, banking powerhouse SBI will enter the list of top 50 banks in the world.
• Any introduction in new technology by SBI will be uniformly available to all the customers including customers of associates and subsidiaries.
• After the merger, there will be more than 40 crore customers who will be able to access 24,000 branches and 60,000 ATMs. 
• After merger, SBI can stand against the strong competition getting by private sector banks and can accumulate more resources to channelize trained manpower across its branches.
• There will be common account for pooling resources and appropriate deployment of resources.
• It would help SBI to reach largest asset base more than 35 lakh crore ( Rs. 35 trillion ) across the nation.
• SBI shares along with its subsidiaries will post tremendous earning in stock exchange, thus it will benefits all the stake holders.
• The merger benefits include getting economics of scale and reduction in the cost of doing business.
• More over it will result in the network increase of SBI and its reach would multiply.

Disadvantages:

• The associate banks has totally different culture as they have regional flavor and regional focus as compared to nationalistic SBI culture.
• Various internal conflicts and disputes may arises with regards to promotion, pension and other important issues like staff integration and rationalization of branches for the top management.
• Further, employees are feeling unsecured because of technical glitches which can be roadblock in their operation.
• It would lead negative impact on pension liability provisions and harmonization of accounting policies for NPA recognition.

At the End, Status of SBI Merger:      

After the merger, SBI will now in top 50 banks in world having around 24000 branches and more than 40 crore customer base. Its employee strength will be more than three lakh.