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« Mergers and Acquisitions »
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FM signals green for banks M&A
June, 11th 2009

The much-awaited consolidation in the banking sector may just get a boost. In his first meeting with the heads of public sector banks, finance minister Pranab Mukherjee on Wednesday gave a green signal to merger and acquisition of banks, albeit with a rider.

The government will support mergers and acquisitions in the banking industry only when both the suitors agree to such a consolidation, the finance minister said.

Most merger plans in the banking space were either dropped or put in the cold storage, following resistance from the Left parties in the past five years.

The government is ready to play the facilitators role for consolidation of the banking industry. But the initiative has to come from bank managements themselves after taking views of all parties concerned, including the employees, finance minister Pranab Mukherjee told reporters after the meeting.

The first bank to set the merger process rolling will be the countrys largest commercial bank, State Bank of India. This will pave the way for realising the dream of having a world-class bank in terms of size and reach.

We will be formalising our plans for the merger of the associate banks with SBI by the July-end. We will approach the managements of these banks thereafter. We will also approach the government once a concrete proposal is formalised, SBI chairman and managing director O P Bhatt said.

Asked if SBI is looking for consolidation with any other bank apart from its seven associates, Bhatt responded in the negative.

SBI has already merged one of its associates, the State Bank of Saurashtra (SBS), with it. Incidentally, SBS is the
smallest among the seven associate banks of SBI in terms of net worth. At the time of announcement of the merger in 2007-08, SBS had total assets of Rs 18,845 crore. The deposit of SBS stood at Rs 15,800 crore and advances at Rs 11,080 crore.
Out of the other six associates, three State Bank of Travancore, State Bank of Mysore and State Bank of Bikaner and Jaipur are listed while State Bank of Hyderabad, State Bank of Indore and State Bank of Patiala are unlisted. SBIs controlling interests in the associate banks range from 75 to 100 per cent.

However, any plan for consolidation with other banks may not be smooth. At present, not many banks are keen on merger and acquisition. For the smooth merger process, managements of two banks have to agree. The job is very tedious and no major merger within the banking sector may materialise soon, said J M Garg, chairman and managing director of Corporation Bank.
Chairman and managing directors of other banks, too, spoke in the same line. Which bank should we acquire? Nobody is keen at the moment, asked AC Mahajan, chairman and managing director of Canara Bank.

Meanwhile, finance minister Pranab Mukherjee said the government will continue to recapitalise banks in order to help them achieve a capital adequacy of more than 12 per cent.

To make sure that credit growth of PSBs does not suffer, we will recapitalise the banks with lower capital adequacy ratio, said Pranab Mukherjee.

The government is already negotiating with the World Bank for funds, which will be used for the re-capitalisation purpose.

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