In a move that can potentially trigger a major consolidation in India's state-run financial services space, the board of the State Bank of India (SBI) on Thursday approved the acquisition of four other entities in the industry subject to a host of approvals.
The entities are: State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT) and the Bharatiya Mahila Bank (BMB).
The news of this development came after the close of trading hours of Indian bourses.
According to Religare Capital Markets, barring SBM shareholders, the share allotment ratio is broadly even for all the holders. "In our view, even if the allotment ratio is favourable / unfavourable for shareholders of associate banks, it is unlikely to make any difference since SBI holds 75-90% in these banks," it said in a research note.
Religare says asset quality of SBI is better than its peers. "However," it added, "we do not see any material improvement in SBI's asset quality upon merger since the asset quality of its associate banks is weak. In addition, the clean-up exercise should continue for associate banks in Q2FY17 since their AQR list is substantially different from SBI. This would further deteriorate their asset quality."
In mid-June, the government gave an in-principle approval to the proposal for the merger of six banking entities with the country's largest lender, which State Bank of India chairperson Arundhati Bhattacharya hailed as a "win-win" for all.
The other two banks that have not figured in Thursday's list are: State Bank of Hyderabad and the State Bank of Patiala.
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