Monday, July 24, 2017

Bill introduced in LS to repeal law on SBI’s subsidiary banks

FM Arun Jaitley
FINANCE Minister Arun Jaitley on July 21 introduced a Bill in the Lok Sabha that will pave the way for the repeal of the State Bank of India (Subsidiary Banks) Act, 1959 and the State Bank of Hyderabad Act, 1956.
The repeal of these two laws became necessary in the wake...
of all the subsidiary banks of SBI and State Bank of Hyderabad (SBH) getting consolidated into State Bank of India from April 1 this year.
“After the acquisition of the subsidiary banks by SBI, the subsidiary banks have ceased to exist and, therefore, it is necessary to repeal the State Bank of India (Subsidiary Banks) Act, 1959 and the State Bank of Hyderabad Act, 1956,” said the statement of objects and reasons to the Bill, which has been named the State Banks (Repeal and Amendment) Bill 2017. According to the Bill, the consolidation exercise aims to rationalise resources, reduce costs, enhance profitability, lower the cost of funds leading to better rate of interest for the public, and improve productivity and customer service.
The State Bank of Bikaner and Jaipur, State Bank of Mysore and State Bank of Travancore were constituted under the State Bank of India (Subsidiary Banks) Act, 1959. SBH was originally constituted as Hyderabad State Bank and later renamed as State Bank of Hyderabad under the State Bank of Hyderabad Act, 1956.
Both SBH and State Bank of Patiala were wholly-owned by SBI.
SBI had a 90 per cent shareholding in State Bank of Mysore, 75.07 per cent in State Bank of Bikaner & Jaipur and 79.09 per cent in State Bank of Travancore.
The Centre had issued orders on the scheme of acquisition of State Bank of Bikaner & Jaipur, State Bank of Mysore, State Bank of Travancore and State Bank of Hyderabad by SBI.
After the successful merger of five associates with SBI, the government is looking to consolidate more public banks going forward, with an aim to create only a few lenders of global size and scale.
The finance ministry is likely to undertake a broad study on further consolidation and look at various options for merger among the remaining 21 public sector banks.
Regional balance, geographical reach, financial burden and smooth human resource transition are some of the factors that have to be looked into while taking a merger decision.
Thus, Punjab and Sind Bank can be merged into Punjab National Bank. Bank of Baroda can take over some turnaround banks in the southern region such as Indian Overseas Bank. Dena Bank could be merged with some large South Indian bank.
The merger process will get a boost with the likely improvement in the NPA (non-Performing Asset) situation over the next two quarters.
Bad loans of public sector banks rose by over Rs 1 lakh crore to Rs 6.06 lakh crore during April-December of 2016-17, the bulk of which came from power, steel, road infrastructure and textile sectors.
RBI Governor Urjit Patel also said Indian banking system could be better off if some public sector banks are consolidated to have a fewer but healthier entities as it would help in dealing with the problem of stressed assets.
"As many have pointed out, it is not clear that we need so many public sector banks. The system could be better off if they are consolidated into fewer but healthier banks," Patel said.
Five associates and BMB became part of SBI on April 1, 2017, catapulting the country's largest lender to among the top 50 banks in the world.
State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT), besides BMB, were merged with SBI.
With the merger, the total customer base of the SBI reached around 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country.
The merged entity began operation with deposit base of more than Rs 26 lakh crore and advances level of Rs 18.50 lakh crore.
The government in February had approved the merger of these five associate banks with SBI. Later in March, the Cabinet approved merger of BMB as well.
SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged with it.

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