Banking

More Theory Than Practice Behind SBI’s Takeover of Associate Banks

Leaving aside the historical traditions of each princely state bank, and the imminent implementation obstacles, the few advantages of this merger deserve closer scrutiny.

Auto rickshaws wait in front of the head office of State Bank of India (SBI) in New Delhi August 12, 2013. REUTERS/Anindito Mukherjee/Files

Auto rickshaws wait in front a State Bank of India branch. Credit: Reuters/Anindito Mukherjee/Files

On April 1, the government announced the merger of five associates of State Bank Of India (SBI) with it. These are State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Hyderabad (SBH), State Bank of Travancore (SBT) and State Bank of Mysore. Earlier, two other associates, State Bank of Saurashtra and State Bank of Indore were taken over by  SBI. A small, inconsequential bank, the Bharatiya Mahila Bank, was also merged with SBI.

The merger of SBI with its associates has been suggested for a long time. Indeed as part of an overall restructuring of the largely government-owned banking system, such a merger seemed to be a logical first step, except, apart from conferring an undetermined benefit, such consolidation has faced a number of difficulties in the past and has thus been shelved many times before. 

Associate not subsidiary

The seven banks that have now come under SBI’s fold were at first, quite explicitly, called subsidiaries and only later became associates. The point is this: each of the banks had a tradition going back to the princely states in whose environment they were formed and thrived. While associateship seemed to suggest a greater measure of equality with the parent than subsidiary status (with SBI), in practice, there has been an implicit hierarchical superiority enjoyed by SBI.

This implicit superiority begins from the phase of officer/staff recruitment. Though going through the same selection procedure as an SBI probationary officer, those comparatively lower down in the merit list are often allotted to an associate bank. There are of course several exceptions to this, depending on regional preferences and so on.

More fundamental, however, are the cultural differences among associate banks and SBI. These banks were the creation of princely states and their nomenclatures reflected their ownership. Merely prefixing SBI to their names does not change their deep-rooted historical traditions.

Each of these was supreme in its own domain. Quite consciously, SBI did not venture aggressively into these princely states. For instance, in the Nizam’s territory – present-day Telangana and the Marathwada regions of Maharashtra – SBH occupied a prime place for a long time. Only later did SBI move in, in an uncharacteristically low-key manner.

The same goes for the erstwhile Mysore and Travancore states. It may come as surprise, but SBI did not have a branch in the city of Mysore for a long time out of respect for the hegemony of its associate in the former princely state. In Trivandrum, the SBI branch has played second fiddle to SBT, which was headquartered there.

Whatever movement there was between SBI and its associate was invariably one-sided– from SBI to the associate. After all, the chairperson of SBI was the ex-officio chairman of the associate. Often, key positions in the associates were filled in by SBI officers.

Associates of SBI, in short, had their own territory although it was never clearly defined. At the end of the day, regional specialisation was at the core of such banks. It served them well and quite obviously, particular regions preferred to have their own “State Bank” over a pan-India bank. Nowhere was this articulated more forcefully than in Kerala. Its legislature passed a unanimous resolution urging the Centre to keep the SBT independent. 

What now?

Now that a decision has been taken, what does the road ahead look like? Integration of staff, it has been pointed out, is going to be a thankless task. For SBI, the problem has been a surfeit of trained manpower, which no amount of voluntary retirement schemes will help alleviate.

In fact, on a larger canvas, one of the key axioms behind a bank merger – the synergic strengths of staff and branch network – gets whittled down as a dominant SBI takes charge of its associate banks. While the above merits a more detailed debate later, the few plus points in support of this merger deserve a scrutiny.

The combined entity will almost certainly leapfrog into the list of the world’s top 50 banks in terms of assets. It now boasts of a balance sheet size of Rs 41 lakh crore, 2,77,000 employees and more than 22,500 branches. These figures are not automatic advantages. In fact, they could be minuses. It can be argued that it is not the size but the quality of assets that matters – a principle that rings very true in the current Indian context.

Likewise, it is not the number of employees but their productively that should be the key factor. And in these days of technology, a large number of bank branches by itself is hardly a positive. There are other fundamental issues that need to be raked up but in these early days after the merger of SBI with its five associates one waits with bated breath the outcome of a decision that appears to be rooted in theoretical considerations.