SBI MERGER WITH ITS ASSOCIATES Merger is a form of Corporate Restructuring which was recently done at SBI when it get merged with its 5 associate banks in the year 2017.

1. SBI MERGER WITH ITS
ASSOCIATES
Corporate Restructuring
By: Pranjali Srivastava

2. MERGER
The Combination of two or more companies
which can be merged together either by way
of amalgamation or absorption.

3. By offering the stockholders of one company securities in
the acquiring company in exchange for the surrender of
their stock.
One company looses its corporate existence and other
survives.
Shareholders of the transferor company receive shares in
the merge company in exchange for shares held by them
in the transferor company as per the agreed exchange
ratio.

4. Reasons for Merger
Industry Consolidation.
Improve Competitive position.
Defensive Move.
Synergies
Market/ Business/ Product line issues.
Acquire resources and skill.

5. Procedure for Merger
Stage 1: Application to the court
Application to the court made by company accompanied by a
scheme of compromise.
 Stage 2: Direction by the court
Direction by the court for holding the meeting if the scheme of
arrangement is workable and reasonable.
Stage 3: Notice of compromise and arrangement
Notice shall be given by the court to CG which has right to make
a representation in respect of compromise and arrangement.
Notice shall contain
Terms and effect of compromise of arrangement.
Material interest of directors or managers.
Interest of debenture trustees.

6. Stage 3: Approval of the Scheme by
creditors/members-conditions.
Scheme should be approved by majority of members by
their voting.
Stage 4: Court to be satisfied that the scheme is
bonafide.
Stage 5: Sanction of the scheme
It is discretion of the court to sanction or reject the scheme.
Stage 6: Filing of the order of the court with the
registrar

7. Types of Merger
Horizontal Merger:
Occurs when two companies sells similar product to the
same market.
Vertical Merger:
Two companies that may not compete with each other but
exist in the same market.
Co-generic Merger:
Two companies exist in the same or related industry but do
not offer the same product.
Conglomerate Merger:
Mergers of two unrelated companies.

8. Case Study of SBI merger with its Five
Associate Banks:
Merger of SBI with its 5 associate banks and Bharatiya Mahila
Bank which took place on 1 April, 2017 is the largest merger in
history of Indian Banking Industry
The associate banks are State Bank of Bikaner and Jaipur
(SBBJ), State Bank of Mysore (SBM), State Bank of
Travancore (SBT), State Bank of Hyderabad (SBH) and State
Bank of Patiala (SBP).
 The government said that all shares of these associate banks
would cease to exist as individual entities and would stand
transferred to SBI.
After the merger, SBI is set to be among the top 50 large banks
of the world. SBI was ranked 52 in the world in terms of assets
in 2015, according to Bloomberg, and a merger will see it break
into the top 50.

9. In the case of SBP and SBH, which are not listed on the
stock exchanges, the notification said that the entire share
capital would, without any further act, deed or instrument,
stand cancelled. Also, the share certificates representing
such shares would also, without any further act, deed or
instrument, be deemed to be automatically extinguished.
In case of the other three associate banks, the notification
states that the shares would be delisted on 1 April. The
shares would be converted to those of SBI, according to
the swap ratio approved by the bank’s board and the
government.

10. Reasons for SBI Merger with its
Associates:
Govt. Aid to 1 Merged SBI Group: There is practically
no sense of giving aid to so many banks separately when
it can be given to a single entity. Govt. Aid is for sure to be
given to these banks and not just SBI and group but all
the banks. So Govt. Aid to a single SBI merged bank will
be much easier in terms of accountability.
Bad performance of Banking Sector: Because of the
current market situation and what will be in future, most of
the Bank’s profitability has come done from quite a few
previous years. The State Bank group is no exception to
the same and the same applies to it also. So in order to
show better profitability, merger of the Banks is an
essential requirement.

11. Bad Loans & Inability to Recover
Corporate Restructuring
Bigger Bank
Better Management
Better increased recognition

12. Advantages of SBI Merger:
Post-merger, banking powerhouse SBI will enter the list of Top
50 banks in the world.
There will be common treasury for pooling resources and
appropriate deployment of a large skilled resource base.
Any introduction in new technology by SBI will be uniformly
available to all the customers including customers of
associates and subsidiaries of the Bank.
SBI shares along with its subsidiaries will post tremendous
earnings in stock exchanges. Thus it will benefit all the stake
holders.
The banking colossus would be able to match itself with the
largest in the world as the asset base will reach up to Rs 37
lakh crore (Rs 37 trillion) spreading across the length and
breadth of the nation.
There will be more than 50 crore customer who will be able to
access 22,500 branches and 58,000 ATMs

13. Conclusion:
In view that profitability of SBI was going down, and it
needed reconstruction, this step of merger seems to be a
smart step. It has brought SBI in list of top 50 banks in the
world which is a big deal. However, profitability of the bank
after merger has fallen by approximately Rs. 3000 crore.
This was mainly because of accumulated losses of
associate banks which were shown in balance sheet of the
amalgamated entity and it reduced the enthusiasm of
investors. Still, investors should not lose hopes as such
bold steps have effects in long run and they take time to
become visible.