Thu, Jul 24 06:16 PM
By Rajkumar Ray
NEW DELHI (Reuters) - India has approved the merger of State Bank of Saurashtra with its parent, State Bank of India, to help the smaller bank face challenges better, a cabinet minister said on Thursday.
"It would enable (State Bank of Saurashtra) to face competition arising from globalisation of the economy, apart from augmenting efficiency and enabling better management of risk," Priyaranjan Dasmunshi told reporters after a cabinet meeting.
The government would issue an order sanctioning the merger and move a bill in parliament to repeal State Bank of Saurashtra Act and amend State Bank of India (subsidiary banks) Act for the merger to take effect.
SBI's Chairman O.P. Bhatt earlier this month said the merger could be done within three months of the government approving it.
Anticipating job cuts, the officers unions of both the banks have opposed the cabinet decision.
The All India State Bank Officers' Federation in a statement threatened to launch a "country-wide strike" in case the government and the banks' managements go ahead with the merger.
In 1959, the government passed a legislation to help SBI acquire seven regional banks, including State Bank of Saurashtra.
But stiff competition from private players like ICICI Bank, HDFC Bank and Axis Bank, tight capital adequacy rules and pressure on profit margins have prompted smaller banks to think of merger with bigger entities.
SBI's subsidiaries have so far retained their own identity but SBI was merging some operations like treasury management, cross-selling of retail products, and sharing ATMs to cut costs.
SBI, India's largest lender controlling more than one-fourth of banking assets, also has plans to merge its associate banks with itself to better face competition from private rivals.
State Bank of Saurashtra, whose net profit fell 40.5 percent to 519.85 million rupees in 2007/08 from a year earlier, had expressed interest to merge with the parent earlier this year.
But others of SBI are yet to decide on such a move.
State Bank of Saurashtra is the smallest of its associate banks and operates in regions where SBI does not have a large presence.
SBI shares fell 4.24 percent to 1,478.35 rupees in a weak Mumbai market.
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