Credit rating agency Moody's Investors Service has said that merger idea by State Bank of India (SBI) of six banks with itself would cost around Rs. 16.6 billion ($250 million) and will have less impact on its credit metrics.
It also said the opposition to the merger by the employee unions also poses considerable risk that potential synergies of the merger may not materialise.
The six banks comprise five associate banks, namely State Bank of Bikaner and Jaipur (SBJJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP) and State Bank of Travancore (SBT), plus Bharatiya Mahila Bank Limited (BMB).
"Based on current stock market prices, the acquisition of the remaining outstanding shares in SBJJ, SBM and SBT will cost SBI about Rs.16.6 billion ($250 million)," Moody's said.
"The merger will have limited impact on SBI's credit metrics, given that SBI already fully owns SBH and SBP and has majority stakes in the other three associate banks," Moody's added.
Assuming SBI completes the transaction using own cash, its common equity tier 1 ratio would decrease by only about 12 basis points.
As per agency, on a consolidated basis, the merger will have limited impact on the financial metrics of SBI, including its asset quality and capitalisation level.
As of now, the five associate banks operate as standalone banks with their own financials, board and management team, with oversight from SBI. In addition, SBJJ, SBM and SBP are also listed with the presence of minority shareholders.
SBI and its associate banks share similar branding elements, including the logo.
"From an operations perspective, the merger offers SBI the potential to leverage synergies. While the merged banks have different geographic areas of focus, they do have some overlap in their branch networks, particularly in the larger and mid-tier cities, which offer scope for streamlining," Moody's added.