An Empirical Study of Bank Merger Influence Bank Performance in US
Merger of State Bank of India WITH State
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Transcript of Merger of State Bank of India WITH State
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MERGER OF STATE
B ANK OF INDORE WITHSTATE B ANK OF INDIA
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INTRODUCTION
State Bank of India
State Bank of India (SBI) a premium and the largest
bank in India which is a Government sponsored
agency, being a PSU bank also it has earned name and
fame across the globe specially standing firmly in
subprime crisis in America and melt down inequity
market globally.
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The bank traces its ancestry back through the
Imperial Bank of India to the founding in 1806 of the
Bank of Calcutta, making it the oldest commercialbank in the Indian Subcontinent.
The Government of India nationalized the Imperial
Bank of India in 1955, with the Reserve Bank of India
taking a 60% stake, and renamed it the State Bank ofIndia.
In 2008, the Government took over the stake held by
the Reserve Bank of India.
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FINANCIALS
Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
CapitalAdequacyRatio
13.39 14.25 13.47 12.34 11.88
PROFITABLITY
RATIOS
Net ProfitMargin 10.54 12.03 11.65 10.12 11.21
ReportedReturn On NetWorth
13.89 15.74 13.72 14.50 15.94
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BORROWINGRATIOS Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Borrowings from RBI as% to Total Borrowings 0.00 0.00 2.51 2.51 0.00
Borrowings from otherbanks as a % to Total
Borrowings
7.93 1.71 15.18 3.16 3.26
Borrowings from othersas a % to TotalBorrowings
29.57 5.13 7.05 8.97 18.41
Borrowings within
Indiaas a % to Total
Borrowings37.51 6.84 24.75 14.65 21.67
Borrowings from outsideIndia as a % to TotalBorrowings
62.48 93.15 75.24 85.34 78.32
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DEPOSITRATIOS Mar ' 10 Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06
Demand Deposit ofTotal Deposits
15.24 14.92 18.26 18.82 17.89
Saving Deposit of TotalDeposits
52.73 26.71 28.69 29.65 29.66
Time Deposit of TotalDeposits
32.01 58.36 53.04 51.52 52.44
Deposits within India as% to Total Deposits
95.10 95.68 95.77 96.42 96.36
Deposits Outside Indiaas % to Total Deposits
4.89 4.31 4.22 3.57 3.63
PERBRANCH
RATIOS
Operating Income PerBranch
6.80 6.49 5.53 4.57 4.10
Operating Profit PerBranch 1.15 1.27 1.07 0.81 0.71
Net Profit PerBranch -3.02 0.79 0.65 0.47 0.48
Borrowings PerBranch 8.15 4.65 5.04 4.14 3.31
Deposits PerBranch 63.63 64.30 52.33 45.37 41.10
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GROWTH
With 11,448 branches and a further6500+associate bank branches, the SBI hasextensive coverage.
State Bank of India has electronically networkedall of its branches under Core BankingSystem(CBS).
The bank has one of the largest ATM networks inthe region. More than 8500 ATMs across India.
The State Bank of India has had steady growthover its history, though it was marred by theHarshad Mehta scam in 1992.
In recent years, the bank has sought to expand itsoverseas operations by buying foreign banks. It isthe only Indian bank to feature in the top 100world banks in the Fortune Global 500 rating andvarious other rankings
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STATE BANK OF INDORE
One of the nationalized banks in India, State Bank of Indore wasformerly named as Bank of Indore Ltd. It became a subsidiary of
State Bank of India on 1 January 1960, under the State Bank of
India Subsidiary Banks Act, 1959. Bank of Indore Ltd. and came
to be known as State Bank of Indore, after its association with
SBI.
In 1965, State Bank of Indore took over The Dewas Senior Bank
Ltd. as well. The business turnover of the Bank crossed Rs.47000
Crore at the end of December 2008.
Apart from general banking operations, State Bank of Indore has
undertaken multi-faceted banking activities too. It has also
succeeded to great extent in reaching the rural sectors, especiallyagricultural segment in the country.
The State Bank of Indore was initially known as the Bank of
Indore Ltd. From January 1, 1962, this bank became a subsidiary
of the State Bank and thus, it came to derive its name.
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FINANCIALS
Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Per share
ratios
Reported EPS
(Rs) 1,593.82 1,337.19 1,085.47 794.89 761.01
Dividend per
share 150.00 150.00 150.00 125.00 100.00
Operating profit
per share (Rs) 1,708.58 1,009.45 1,893.86 1,136.23 -112.95
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Profitability
ratios
Operating
margin (%) 11.02 7.93 17.63 14.80 -1.78
Gross profit
margin (%) 10.08 6.32 15.77 11.90 -4.06
Net profit
margin (%) 9.10 9.22 9.92 9.97 10.33
Reported
return on net
worth (%) 17.82 17.77 16.13 13.66 14.73
Return on
long termfunds (%) 144.35 143.42 121.18 94.92 81.98
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Leverage
ratios
Total
debt/equity 18.11 18.76 16.97 16.37 15.28
Owners fund
as % of total
source 5.23 5.05 5.56 5.75 6.14
Fixed assets
turnover
ratio 25.94 21.72 6.56 5.17 14.40
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Payout
ratios
Dividend
payout ratio(net profit) 11.01 13.12 16.16 17.93 14.85
Earning
retention ratio 88.99 86.88 84.62 77.82 85.15
Liquidity
ratios
Current ratio 9.93 8.44 0.48 0.67 0.51
Quick ratio 10.70 9.17 9.39 6.33 7.83
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WHY MERGE?
Social culture became cut-throat, and shifted from
social to commercial compulsions.
Spirit of competition,
The situation became farcical with SBI having
two/three branches on a street, with bank fully or
largely owned by SBI.
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Other reasons:
Saving of staff cost.
Saving on infrastructural cost like premises,
Encashing surplus real estate,
Will rise in clout of SBI (monopoly aspect) .
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STEPS FOLLOWED:
The main legal steps involved in the merger were asunder:
Passage of resolution by Boards of acquirer and
acquiree banks proposing merger.
Passage of Scheme of merger
RBI (i.e. regulator) permission
Fixing of swap ratio
Inviting objections to swap ratio from share-holders
Govt. (i.e. majority owner) permission followed byGazette notification.
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INTERNATIONAL PRESENCE
Regional office of the State Bank of India (SBI),
in Mumbai.
It has branches in many countries as Colombo,Dhaka, Frankfurt, Hong Kong, Johannesburg,
London and environs, Los Angeles, Male in the
Maldives, Muscat, New York, Osaka, Sydney,
and Tokyo.
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In 1990 it established an offshore bank, State
Bank of India (Mauritius). It has two subsidiaries
in North America, State Bank of India
(California), and State Bank of India (Canada).
In 1982, the bank established its California
subsidiary, which now has seven branches. The
Canadian subsidiary was also established in1982 and also has seven branches, four in the
greater Toronto area, and three in British
Columbia.
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BENEFITS
1. Growth and diversification.2. Synergism.
3. Complementary internal fund flow.
4. Efficient financial leverage.
5. Knowledge sharing.6. Tax and strategic advantage.
7. Asset class increase and diversification.
8. Introduction and adaption of new technology.
9. Sharing and market dynamics.
10. Reduction in marketing cost.
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Business Implications:
Administrative setups have to be closed
Branches in close proximity in each other merged
Specialized branches already in SBI will take upbranches of state bank of Indore.
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THANK YOU