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Bank consolidation: SBI shares rise on merger talk

Shares of State Bank of India, State Bank of Travancore (SBT) and State Bank of Bikaner and Jaipur (SBBJ) rose 2-6% on Friday, after the central board of India’s largest lender approved the merger of five SBI associates and Bharatiya Mahila Bank.

business Updated: Aug 19, 2016 19:18 IST
HT Correspondent
The central board of India’s largest lender approved the merger of five SBI associates and Bharatiya Mahila Bank.  (HT Archive)
The central board of India’s largest lender approved the merger of five SBI associates and Bharatiya Mahila Bank. (HT Archive)

Shares of State Bank of India, State Bank of Travancore (SBT) and State Bank of Bikaner and Jaipur (SBBJ) rose 2-6% on Friday, after the central board of India’s largest lender approved the merger of five SBI associates and Bharatiya Mahila Bank.

However, State Bank of Mysore (SBM) slumped over 10% on disappointment with the swap ratio.

In morning trade, SBI was up 3.3% at Rs 256.30, SBT jumped 6.5% to Rs 538.95 and State Bank of Bikaner and Jaipur (SBBJ) gained 2% at Rs 687.10. But SBM was down 10.2% at Rs 558.10.

“Barring SBM shareholders, the share allotment ratio is broadly even for all the holders,” said Parag Jariwala, VP - Institutional Research at Religare Capital Markets.

According to the merger proposal, SBBJ shareholders will get 28 equity shares of Re 1 each of SBI for every 10 SBBJ shares of Rs 10 each. SBM and SBT shareholders will get 22 equity shares of SBI for every 10 of SBM and SBT respectively.

For the merger of Bharatiya Mahila Bank, the swap ratio has been set at 4,42,31,510 shares of Re 1 each of SBI for every 100 crore shares of Rs 10 each of BMB.

“The merger valuation is higher than the current market price of SBBJ and SBT, but lower than the current market price for SBM. Subsequent to the merger announcement in May, shares of SBI SBT, SBBJ rose 37-40%. However, SBM rose more sharply by 65%, which is why the merger price appears to be lower for SBM and higher for other banks,” said Mahrukh Adajania, analyst at IDFC Securities.

The merger of SBI with its associates will create a banking giant with an asset base of Rs 37 lakh crore.

Analysts say, the key challenge for SBI will be to integrate human resources and rationalise branch network and operations. However, the short-term negatives will be more than offset by long-term positives.

“Branch rationalisation, if executed well, would be one of the key synergy benefits from the merger. High networth post-merger makes SBI a default bank for corporate India. Further, strong branch network and SBI brand will increase retail and SME (small and medium enterprises) business,” said Alpesh Mehta, analyst at Motilal Oswal.