SBS successful merger with SBI builds confidence for future M&As

State Bank of India (SBI) will be finalizing the merger of State Bank of Indore with itself in the next twelve months.

Meanwhile the State Bank of India (SBI) Chairman O P Bhatt has received the final approval from the government on the proposal to merge State Bank of Saurashtra (SBS) with the parent bank on August 13 last year.

Precisely a month later, SBI has incorporated the systems of the two banks. Jeevan Das Narayan, general manager in the SBI’s mergers and acquisitions (M&A) cell said, “It was an overnight operation and next morning, when people logged in, no one even realized that we had moved to a common platform”.

The good experience the banks have attained has given the M&A cell the confidence to complete a second merger – with State Bank of Indore -- within the next 12 months.

Bharati Rao while sitting in her 18th floor office at the SBI headquarters, advisor in-charge of the bank’s M&A cell, is closely examining the feedback her team is receiving on the bank’s proposal to acquire State Bank of Indore, its smallest associate bank.

However, bank’s discussion board has received an optimistic feedback from ‘Jai ho’ to ‘Yeh to hona hi tha’. Although the employees union has called for a strike after the two boards have approved the plan 10 days ago, Rao isn’t too disturbed.

After the merger over 6,000 State Bank of Indore employees will get the benefit of pension and better healthcare. Rao stated, “But it’s not just about better facilities. A big benefit is that post-merger; State Bank of Indore employees can also work for a large financial conglomerate that has interests in insurance, mutual fund and pension”.

Similar to SBS case, top executives from SBI and State Bank of Indore will be shortly holding consultations with employees and clients of the Bhopal-headquartered body to explain the rationale and benefits of the merger.

Rao, who was earlier deputy managing director at SBI stated, “Most customers do not like dislocation. We need to tell them that they will have access to all products and services that they use at present and may get some more. A lot of times pricing at SBI is much better”.

The strategy adopted will be simple. The large clients will be common; some of the smaller ones will be serviced by the mid-corporate group. In case of SBS, the only upsetting for clients has been that some of them are now being serviced by SBI’s Ahmedabad office, instead of the SBS head office at Bhavnagar. The helping point in this case was that senior SBI executives led by Bhatt met clients to alleviate whatever fears they had.

But the main focus is on employees, as they are the ones who make a merger a success or a failure. Once more, it is the SBS experience that SBI is banking on, though with minor variations.

In the beginning, some executives from State Bank of Indore will be joining Rao’s team to make sure a smooth merger. Besides, the entire staff will be given training in batches to ensure problem-free system integration. In case of SBS, SBI had given six months training almost the entire 7,000 employees of the former.

Incorporation of employees is something that Rao’s team had worked on very closely since the last public sector bank merger of New Bank of India with Punjab National Bank is still causing heartburns to the employees of both the banks, who are still bitter about delay in promotion.

Therefore SBI examine the data on promotions over a five-year period, worked on nearly half-a-dozen models, hired a consultant and then finalized the policy. And, to fight off any problems later, SBI even got legal opinion to endorse the move.

In smaller bank, the chances of promotion are higher. As, there were only 2,000 officers at SBS, over 90 per cent of whom were in ranks up to AGM. While at SBI, there were nearly 50,000 officers. Although all SBS officers have joined at the same level and their seniority has not been affected, the promotion policy predict that it will take one year extra for an SBS officer to get a promotion. In case an SBI officer is eligible for promotion in four years, it will take a former SBS officer five years.

The other area of focus is to ensure that there is no disturbance at the branch level. At the head office in Bhavnagar, the three zonal offices in Gujarat and at the two regional offices in Mumbai and Delhi, the clerical staff is redeployed. But some 500 officers were shifted to the Ahmedabad branch. But in the zonal and regional offices, it was ensured that officers up to the level of chief manager were not moved outside the state.

A senior executive of SBS, who is at present part of the SBI set-up, said that the policy has worked out well, at least so far. “State Bank of Indore employees know exactly what was given to the SBS staff. So, that part is clear now,” said Rao.

Although she is unwilling to discuss the plan for the remaining five associate banks, SBI’s policies have been worked out carefully over the last two years or so. “The thought was, let’s give it a try. If it works out, it’s wonderful, if it does not, its okay,” said a senior SBI executive.

A merger is right decision as there is too much of duplication. For instance, there are many places where an SBI branch is competing with one of its associates in mobilizing deposits and giving out loans.

“All the seven banks have an establishment cost, which can be one and we can work in unison. They have strong presence in some areas which we can make use of,” Rao said.

If SBI is able to merge all the associate banks, its branch network will increase nearly by 40 per cent, while the profits would be 30 per cent extra. And, to top it up, there will be significant savings. The SBS merger has already led to subsequent savings of a few hundred crore though no firm assessment has been made, bank executives informed.

“Given the common ownership, common technology platform and a common chairman, that should not be tough… At the front-end, there was no change for the customer -- the logo is the same, though there were some changes in the stationery and the boards at the branches,” Rao added.

So, what after State Bank of Indore? No one at SBI is ready to reveal anything. But what makes SBI’s measure unique is the fact that none of the other public sector banks have taken any action beyond giving their support for consolidation. Maybe they might illustrate upon SBI’s experience to pull off mergers, whenever they finalize one.