Wednesday, May 25, 2011

SBI Triplets - Update

This is just an update and a FYI kinda post...
Yesterday, I had posted some stuff on SBI and possible merger of its subsidiaries. SBI Chairman Pratip Chaudhuri has given an interview in ET today. Link for the same.. (Wish I had waited one more day before posting!) :-)

Some relevant stuff from the interview...

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 Travancoreare 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. 

Its now abundantly clear that there ain't gona be no merger in a hurry! Merger of unlisted subsidiaries will happen in second half of CY 2012. Merger of listed subsidiaries will happen much after that!! One should take a buy/sell decision and view the triplets accordingly!!

Cheers and happy investing!!!

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