Thursday, June 23, 2016

A brief insight in to the merger of State Bank Group from Business View




Let’s look in to the merits and demerits of merging of State Bank Group

Merits

1.       Avoid Duplication: This is the one of the main reason the management is putting in favour of merger. A person may have account in both SBI and Associate Bank. Most of people open a secondary account to get government payments like LPG subsidy, kerosene subsidy, MNREGS payments etc. In such cases both banks has to provide Passbook and other banking facilities to such persons. If the banks were merged together and form a single entity, the customer has to depend only on one bank and the operating costs comes down. Also in most areas branches of SBI and Associates functions within a radius of 100 meters. In such cases one branch is enough to serve the customers after merger.

2.       Monopoly: The merging gives SBI monopoly in banking in several states in India. Each of the Associate Banks are enjoying a good market share in corresponding states. When these banks are merged, SBI’s market share will increase considerably and gives monopoly over other banks in formulating products and services.

3.       Research and Development: Even though all banks in State Bank Group use same technological platform, the software and all the technology used in banking has to be customised as per the requirement of each Associate Bank. This creates additional cost for the banks. After merging, this cost can be saved.

4.       Increase Size: As usual the merging increases the size of the SBI to a great extent, as all Associate Banks have more than 500 branches. All these branches adds to SBI to become a giant bank.
5.       Reduces Operational Cost: All Associate Bank has several departments like Core Banking, Tax, Treasury, Vigilance, Personal Administration etc. as all are having business of thousands of crores.  After merger, instead of maintaining individual departments for each bank, departments for a single bank is enough. This reduces staff and other branch related costs.

Demerits

1.       Reduces choices for customers: Since this merging reduces number of banks, the customer dissatisfied with the service of one bank has a little choice to select another bank in his locality. Also SBI is opening branches more in urban areas than the rural areas. So the people of rural areas have to travel long distance to do banking.

2.       Reduction in Employment: Since the number of banks get reduced, the job opportunities also get reduced. After merging, only SBI hire people.


3.        Distress in Employees: The unions have already created a bad image for SBI in the minds of staffs of Associate Banks and also for the public. After merging, the staffs (not all staffs) of Associate Banks will work with less commitment to the new bank than the previous Associate Bank. Some bridging sessions in training will make the conditions better.

A brief evaluation regarding State Bank Group Merger 2016

India’s largest lender State Bank of India has surprised everyone by announcing the merger of its Associates soon on 17th May 2016. After the news of the merger of Associate Banks of SBI with itself has created a shift in share market. The share value of Associate Banks have risen to several heights. The workmen unions are opposing merger through demonstration in various centres as well as by conducting rallies. The management has given a good publicity regarding benefits of merger through various media. As the talks on the mergers was going on, everybody is curiously looking into the pros and cons of merger.


BEFI members protesting against merger
BEFI's protest against Merger
AIBEA conducting two wheeler rally against proposed Merger




The pros and cons of merger can be viewed from three different angles.

1.       Business
2.       Customers
3.       Staff


(*Click on the above links to know more)