State Bank mergers to go ahead as planned
By Ankit Sharma
Sep 30, 2008
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No matter how many times the banks union strike, the government has decided to move on with its plans on merging the state-run banks. However it insisted on following strict prudential norms.

The idea follows that a weaker entity should not emerged from the merger of a weaker bank and a stronger one.

Following the sub prime crisis in US, the finance ministry would be more attentive in calculating the cost and benefits of a merger before giving approval to state-run banks.

Recently, State Bank of Saurashtra (SBS), an associate bank of State Bank of India (SBI) has been merged with the parent bank. SBI is expected to merge more of its unlisted subsidiaries in future. However no merger will take place in the current calendar year as the government would like to evaluate pros and cons of merging the state banks of Hyderabad, Patiala and Indore with SBI more minutely.

The government along with the banks is becoming more cautious because they think that simply creating large entities may not benefit Indian banks in handling global competition.

Last week, the largest US savings and loan bank Washington Mutual Inc. was shut down by the US government in a move that marks the largest failure of a US bank, with JPMorgan Chase & Co. acquiring its banking assets through a bidding process for a mere $1.9 billion. "Naturally such figures are sobering facts," admitted the officials.

However the officials feel that Indian banks are unlikely to face such a danger as they are following far stricter prudential norms. On the other hand, real estate and housing loan segment are likely to see a fall in their growth rates. Any decline in the housing market is going to create adverse effects for some banks.

"We have been monitoring both the loan portfolio of banks and the possible future NPA rate and feel we have no cause for alarm," the officials said. These are only two features that will be looked carefully while revising the proposals for bank mergers.

Currently, SBI has deposits worth USD 126 billion.

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