Mergers, Acquisitions and Takeovers Case Study

Consolidation in Indian Banking Industry: A Case on State Bank of India

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Abstract:
The State Bank of India (SBI) is ruling the Indian banking sector with its largest market share. In order to further consolidate its position, the bank laid down the proposal of merging all its associate banks. The expansion strategies pursued earlier by SBI had been jettisoned and the group had to initiate consolidation strategies for a bigger fit. With the completion of the proposed merger, SBI's asset base will become more than double that of ICICI Bank, its closest competitor. But, the strategy of consolidation took a major set-back when the employees of the Bangalore-headquartered State Bank of Mysore (SBM), one of the oldest banks of India, resorted to a nationwide agitation. The protest eventually spread to the rest of the associates with more than 35,000 employees of the associate banks deciding to observe a day-long strike on 27 September 2007 in protest against the proposed merger. The employees perceived that the merger would only lead SBI to be a monolithic bank that would slowly shed its social responsibility. Moreover, there are some internal factors, which could be a major set-back for its consolidation strategy. This case intends to make a study on different financial and behavioural issues in this proposed merger. Moreover, this case endeavours to provide a futuristic study of the effect of this merger in the Indian banking scenario.

Pedagogical Objectives:

• To an overview of the transformation that took place in the Indian banking industry through a series of reforms.
• To identify the need for consolidation in the Indian banking industry.
• To analyse the reason for consolidation of the State Bank of India (SBI) with its associate banks.
• To analyse whether SBI would be able to cope with the various internal and external challenges arising out of the consolidation proposition.

Keywords : India, Banks, State Bank of India (SBI), Consolidation, Non-performing assets (NPA), Reserve Bank of India, Basel II Accord, Debt Recovery Tribunal (DRT), All India Bank Employees Association (AIBEA), Voluntary retirement scheme (golden handshake), Parivartan, Asset reconstruction companies (ARC), Bombay Stock Exchange (BSE), Prime lending rate (PLR), Urban Co-operative Bank (UCB)

Contents : 
Indian Banking Sector: The Need for Consolidation
Reforms in the Indian Banking Sector
State Bank Group: Ruling the Indian Banking Sector
Consolidation of SBI: Will It Pay Off?