State Bank of India (SBI) is giving final touches to its scheme to merge five smaller associate banks with itself as it firms up expansion plans and bolster its balance sheet to take on peers especially in an industry that will see intensified competition with the entry of new domestic and foreign banks.
The government expects to approve the SBI-associate banks' merger proposal in the next three months, said a finance ministry source on the condition of anonymity.
"The merger is a logical step to bring in economies of scale, reduce administrative overheads, redeploy and channelise trained manpower to business development and also reduce avoidable competition from different arms of the same group engaged in the same activity in the same segments and geography," said the source.
Although SBI is the largest bank in India, it ranks only 68th among global peers.
Of the five associate banks, two - State Bank of Patiala and State Bank of Hyderabad- are fully owned. These two banks will be the first ones to be merged with the parent bank. The other three - State Bank of Mysore, State Bank of Travancore and State Bank of Bikaner and Jaipur - are listed on stock exchanges, although SBI holds the majority stake.
The amalgamation exercise began with the merger of State Bank of Saurashtra in 2008, followed by State Bank of Indore in August last year.
The bank will also amend the SBI pension fund rules to bring parity in pension payments of employees of subsidiary banks.