Will State Banks Merger Lead To Job Losses?

19 Aug, 2016 13:59 IST|Sakshi
After the merger, SBI will have 70,000 more employees from the five associate banks and this will slow down the recruitment pace.

Mumbai: With the State Bank of India’s (SBI) board approving the merger of three associate banks and one Bharatiya Mahila Bank with itself, senior officials said that there wouldn’t by any job loss after the merger. However, the recruitment pace may not be the same as it’s expected to slowdown in the days to come.

After the board’s meeting, a senior official said: “After the merger, SBI will have 70,000 more employees from the five associate banks and this will slow down the recruitment pace. It’ll also impact promotions within the bank also. We have five Managing Directors (MDs) from five associate banks. after the merger, these posts cease to exist. Rationalization of departments is another major advantage of the merger. SBI will also make use of services of technical experts from associate banks as the parent bank is focusing on strengthening the IT department.”

The merger is expected to benefit investors as valuations of associate banks-- SBBJ, SBM and SBT-- expected to be attractive. This is because, at the time of announcement of merger in May, the associate banks traded at about 0.4-0.5 times price to book (trailing 12-month), while SBI traded at a premium at about 0.8 times.

The merger will narrow the valuation gap between the parent and the associate banks. As a result, investors of associate banks will be benefited from narrowing down the gap with SBI.

Based on the current market capitalisation of the associate banks and the swap ratio, each of the associates has been valued at 0.5-0.7 times book value (FY16), close to their current valuations, give or take a few basis points. SBBJ’s shareholders will get 28 shares in SBI for every 10 shares. For instance, it has been valued at 0.72 times its FY16 book value, close to its current valuation, leaving little upside in the stock from current levels.

SBT’s shareholders will get 22 shares in SBI for every 10 and it’s been valued higher than its current valuation registering eight per cent up. SBM, on the other hand, appears to have been valued lower than its current valuation (12 per cent down), which makes it vulnerable to a fall in the coming days.

However, the asset quality has become a cause of concerns that are emerging in the associate banks. The significant deterioration in asset quality of associate banks in the recent June quarter has been worrying the top management. The gross non-performing assets (GNPA) of all associate banks put together shot up to 9.1 per cent in the June quarter from 5.98 per cent in the March quarter.

However, the asset quality has become a cause of concerns that are emerging in the associate banks. The significant deterioration in asset quality of associate banks in the recent June quarter has been worrying the top management. The gross non-performing assets (GNPA) of all associate banks put together shot up to 9.1 per cent in the June quarter from 5.98 per cent in the March quarter.

For SBBJ, bad loans went up to 6.2 per cent of loans in the June quarter from 4.8 per cent in the March quarter, whereas for SBM it went up to 7.8 per cent from 6.5 per cent during the same period. For SBT too, GNPAs have shot up to 9.38 per cent in the June quarter from 4.7 per cent in March.

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