SBI consolidation plans hit roadblock, merger put on hold by govt

17 Sep 2009 Evaluate

The collapse of major financial institutions in the US has taken its toll on the banks' consolidation process in India. Weeks after the boards of State Bank of India and State Bank of Indore approved the merger of the two banks, and the finance ministry sent the proposal to the Cabinet, the government has put the proposal on hold and sought more clarifications before giving a final go ahead.

 

India's largest bank, the State Bank of India (SBI), had initiated merger talks with its associates last year. While State Bank of Saurashtra has been completely absorbed by SBI, its latest proposal to merge State Bank of Indore with itself has hit a road block. SBI has plans to absorb six other associates banks as well. The government may be taking more cautious approach and probably wants the recovery to set in before allowing banks to merge.

 

SBI chairman OP Bhatt had recently emphasised the need for bigger banks in the country that can fund the needs of a globalising Indian industry. India needs at least four banks of the size of SBI, and two banks that will have global scale. One way of getting size is to push for consolidation as fast as possible, Bhatt had said in Mumbai a few weeks back.

 

According to a survey by PricewaterhouseCoopers on the banking sector, India is likely to emerge as the third largest domestic market in the world by 2040. Indian banks are strong but do not have noticeable size and share in the global economy. Consolidation in this space will help banks leverage their balance sheets to grow their global assets and get larger exposure.

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