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Associate Banks-Merger: SBI and ABCD of Customer Retention The Union Cabinet in June 2016 cleared the plan to merge State Bank of Bikaner & Jaipur, State Bank of Maharashtra, State Bank of Hyderabad, State Bank of Patiala and State Bank of Travancore with the SBI, whose chairman Arundhati Bhattacharya said that the exercise may be over by March 2017. It might be a coincidence that the SBI has formed ABCD or the Associate Banks Consolidation Department to deal with all premerger issues and also to draft a business continuity plan after the effective merger date. SBI has realized that customers of associate banks might not necessarily feel comfortable to bank with gigantic lender. A major task for the department is to address all the woes these customers might have. SBI fears that depositors in associate banks, used to communicating with officers in their mother tongue might also leave. Ganesh Sankara, executive director at Federal Bank, Kerala said that it was an opportunity for them. Local customers of State Bank of Travancore might miss the local touch that the bank offered in all these years, he added. He further continued that the customers also had no idea about what would be their pecking order in the SBI. Several of its loan clients had approached them. There was a fair possibility, he concluded, that lots of them might gravitate to local banks.

What is SBI doing for customer retention? However, SBI is firing on all cylinders to retain customers. The top management of the SBI and associate banks has been meeting important customers in person to remove numerous apprehensions regarding their relationship with the bank. The senior team is meeting customers to assure them best services. ABCD has co-ordination committees in 5 circles, where head offices of associate banks are situated. Another important aspect of the SBI merger is to eradicate the overlap of branches of itself and subsidiaries where there are over 4 group branches in a 100 m radius. Post-

merger, the SBI would have around 22,500 branches, 58,000 ATMs and over 50 cr customers. As on 30th September, the associate banks cumulatively have Rs.5,21,344 cr of deposits and Rs.3,92,436 cr of advances. This will get added to SBI’s Rs.18,58,999 cr of deposits and Rs.14,81,832 cr of advances, making the group’s total business nearly 5 times of ICICI Bank’s total business of Rs.9,03,371 cr.

Is merging the associates a costly affair? Credit Suisse Securities (India) believes that the cost of merging the associates would outweigh the benefits in the short-term. The pension obligations might be higher than earlier estimates of Rs.3,500 cr while the doubling of NPA ratios in associate banks over the past few quarters may put added pressure on the parent after merger. The gross NPAs at SBI’s associate banks have more than doubled to 13.8 per cent as on September end from 6 per cent in March, with 57 per cent rise in NPAs in the early half of the fiscal as they’ve been aligning their bad loan recognition in line with the parent. This translates to a 23 per cent rise in SBI’s consolidated NPAs just from the associates. Over the last 6 months, all associate banks have posted Rs.4,300-cr loss between them, resulting in associate banks’ tier-1 capital ratio falling 120-150 bps to 8.67 per cent. On the flip side, there are long-term benefits that the SBI can derive from the merger. For example, the total market share of the entire group put together is 22-23 per cent while that of the SBI is 17-18 per cent. The merger adds 400-500 bps to the market share of the SBI. Currently, SBI share price is trading 1.23 per cent higher on the NSE.

Bharatiya Mahila Bank merger with SBI cleared: The Competition Commission of India has approved the amalgamation of Bharatiya Mahila Bank into SBI. The Competition Commission of India stated in its order that both the banks offer numerous banking products to both their retail and corporate customers. However, while the SBI has made deep inroads into the interiors of the nation, Bharatiya Mahila Bank has only token presence with 4-5 branches in each State.

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Article Written by Salman Hashmi

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