Centre wants SBI to list arms before merger
The government is of the view that the State Bank of India (SBI) should first list its unlisted subsidiaries for greater unlocking of value before merging them with the parent bank. This, it says, will drive up valuation for the bank.
The bank has communicated to its associates that they must put their listing plans on hold. The unlisted entities include State Bank of Hyderabad (SBH) and State Bank of Patiala (SBP). However, top officials in the SBI group feel that allowing associates to list will increase the cost of acquisition for the parent bank.
“We feel that it makes sense to let them list first. It will add to the valuation of SBI later. After all, these are as big as several state-owned banks,” a government official said. Both SBP and SBH have a balance sheet size more of than Rs 50,000 crore.
He said that the merging the unlisted associates will take longer. It has already set the ball rolling with its move to acquire State Bank of Saurashtra (SBS), its smallest subsidiary bank. “SBS has an asset size of over Rs 16,000 crore, which may be comparable to the business of a main branch of SBI in a metro,” the official added. SBH has put its plan to go in for an initial public offering (IPO) on hold until December. If the merger gets delayed by 12 to 18 months, the bank might go for an IPO, top officials of SBH had said.
“SBI needs to meet its capital requirement by divesting its stake in its larger subsidiaries of Patiala and Hyderabad,” a senior SBI official said. The minister of state for finance Pawan Kumar Bansal had told the Lok Sabha that according to the capital augmentation programme of SBI, the bank envisages raising about Rs 89,600 crore as capital funds during the next five years.
Merging these associates will also increase the capital adequacy requirements (CAR) for SBI. The bank is expected come up with a road map for its subsidiaries before the end of this year. Merging the listed subsidiaries, including State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner and Jaipur, will follow later, sources said. “It does not make economic sense for SBI to list its associates first and then acquire them at a higher price. Besides, there will be procedural hassles,” a top official in the SBI group said.
Members of the unions said that the consent for merger with SBS was smooth, with unions agreeing to the terms and conditions put forth by SBI management. But this does not mean that merging other associate banks will be as trouble-free. The merger of SBH and SBP with SBI would not be easy, as there would be issues related to human resources and branch rationalisation.
Moreover, while the unions of SBI employees are affiliated to the National Confederation of Bank Employees, the employees unions of SBH and SBP are affiliated to the All India Bank Employees Association.
