SBI's merger with associate bank may be put on hold

The State Bank of India is likely to put on hold the merger of its associate bank with itself due to the sustained resistance from the workers union. However, the upcoming rights issue is on track and will be launched this fiscal despite the recent bout of volatility in the capital markets, said SBI chairman OP Bhatt. Talking to the media on the sidelines of a CII seminar on Wednesday, he said: “The unions’ concerns are valid and need to be addressed. The concerns are mainly on the issues like promotions, movement of people and salary. Concerns expressed by the associate banks’ unions have forced SBI to defer Thursday’s meeting with six associate banks. The bank is awaiting the government’s approval to merge State Bank of Saurashtra (SBS) with itself. Mr Bhatt went on to add that the consolidation of SBS will act as a precedent for the further consolidation moves. “If we have a bad experience with the SBS consolidation, the rest of the consolidations could be put off,” he said.

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“Consolidation is the prime need of the day. Even though SBI is the country’s largest bank, we are unable to provide for some of our large clients because of our size compared to other international banks,” Mr Bhatt said. No decision emerged from the meeting between the chief labour commissioner, SBI’s United Forum of Bank Unions and senior SBI officials held on Wednesday. The workers’ union has decided to go ahead with a strike on January 25. On the right issue, Mr Bhatt said that the bank will not postpone the issue despite the recent volatility in the markets. “At a discount of 35% and a price of Rs 1,590, it’s an absolute steal,” he said. The bank plans to raise Rs 16,736.3 crore through a rights issue. The chairman said that his bank is not forgoing any money by offering the discount. “We had decided that we will raise a fixed sum of money, and it is just a matter of how many shares we want to put up for sale. The discount is keeping in mind the possibility of any volatility in the markets, so as to protect investor interest,” he explained. He said that there will not be any interest rate hike, though he said that it would be difficult to predict how the RBI would react to US Fed’s move to cut rates. “In case a status-quo is maintained by the regulator, it would mean that the rise in interest rates has been arrested. All banks, including SBI, will take a positive cue from that,” he added. According to Mr Bhatt the factors that influence such policy decisions vary in the US and India. Although he did not rule out rate cuts, he said that “just because something is happening there, it doesn’t mean it will be replicated here.” Mr Bhatt attributed the strong growth in the Indian economy largely to domestic factors. “The recent volatility is not because of weak fundamentals, but an activity that is confined to the stock market. This correction was expected by the majority of the market,” he said. – www.economictimes.com