The Union Cabinet today approved the acquisition of State Bank of Indore by State Bank of India (SBI) and also accorded `in-principle’ approval to introduce a Bill in the Parliament for making consequential amendments in the State Bank of India (Subsidiary Banks) Act, 1959, to remove references of State Bank of Indore.
Acquisition of State Bank of Indore by SBI would allow economies of scale in terms of footprint, manpower and other resources. The branches of the State Bank of Indore, including 83 located at different centers outside Madhya Pradesh and Chattisgarh, can be conveniently controlled from the Local Head Offices controlling SBI branches in the respective States. This will result in substantial cost savings, as it will cut the avoidable overhead cost of running two Regional Offices at New Delhi and Mumbai, which presently control the branch network of State Bank of Indore in the States other than Madhya Pradesh and Chattisgarh.
Acquisition of State Bank of Indore will also help in spreading its credit risk as the concentration risk to which the Bank is exposed, can be spread over larger base of SBI. Besides, keeping in view the growing economy, State Bank of Indore would require larger equity capital to support a growing balance sheet. In the event of its acquisition, the increased capital requirement can be taken care of by SBI. Capital can be raised cost effectively by SBI instead of capital to be raised by State Bank of Indore at higher rates.
BACKGROUND: After acquisition of State Bank of Saurashtra by SBI, the issue of acquisition of Associate Banks of State Bank of India by SBI has been engaging the attention of SBI. SBI is facing a situation where most of the branches of SBI and those of State Bank of Indore are competing for the same business in the same market, under the same brand. This has prevented SBI from fully exploiting its brand equity for driving business growth.