Strengthen SBI associates first, then merge: SBP MD

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Rangan says losing cultural identity is a tough thing for a lender

The government is said to have set the ball rolling for merger of a few public sector banks, but the managing director of one of the lenders being talked about as potential merger candidates warned that it would not be an easy task.

“Losing cultural identity is a very tough thing. It is like two states merging. Can that happen?” asked Ramesh Rangan, managing director of State Bank of Patiala (SBP). “Mergers have to come from within, as merging of two different cultures is not easy.”

There have been reports suggesting that SBP will be the first of the associate banks to be merged with the nation’s biggest lender, State Bank of India, in this round.

Two associates — State Bank of Saurashtra and State Bank of Indore — have already been merged with SBI. One more may be merged this financial year.

“The work culture varies from bank to bank, making merger of staff very difficult,” Rangan told Financial Chronicle. He said technology is the least of the worries, but even that might cost a bit.

Rangan said he was not aware of the process to merge SBP with SBI. “I have not been approached for merger of our bank with SBI so far,” he said, but clarified that he had no issue if SBP was taken up for merger.

Rangan said the bank has to be recapitalised in the first step. Last year SBP was provided about Rs 500-odd crore for recapitalisation by State Bank of India, and it is expecting an equal amount this year.

“My bank does not require Rs 2,000 crore or Rs 3,000 crore for recapitalisation, and the money required is peanuts for SBI,” Rangan said. He insisted that any merger must happen from a position of strength. “We have to strengthen associates first and then merge.”

The plan is to merge all the associate banks with SBI over the next few years to create a banking giant, whose market share would rise to 35 per cent from 25 per cent at present. Along with State Bank of Patiala, others in the line are State Bank of Hyderabad, State Bank of Jaipur and Bikaner, State Bank of Travancore and State Bank of Mysore.

“SBI will become a big bank, but it will still be nowhere near large Japanese or Chinese banks, which have huge capital. India needs large banks,” Rangan said.

The central bank last week said it would start announcing too-big-to-fail banks in August 2015 and SBI, ICICI Bank, HDFC Bank, Axis Bank, Punjab National Bank and Bank of Baroda are in the reckoning to be declared systemically important.

On the challenges for the banking system, Rangan said non-performing assets were an industry-wide problem and it was partly due to the large infrastructure projects. “Once these projects are put on track, supporting industries like steel, petroleum, plastics would pick up and revive the slowing economy,” he felt.

Domestic banks’ exposure to the infrastructure sector stands at 40 per cent of total lending, which is too high. Unfortunately the bond market has not developed in the country to support the fund requirement, something the government tried to address in the budget.

India needs at least one large development financial institution (DFI) for infrastructure funding. All over the world, including advanced economies like Germany, there are DFIs which make it easy to raise long-term capital, Rangan said, but stopped short of saying that winding up India’s own DFIs was a mistake.

“There are very few takers for long-term deposits in commercial banks, which by nature and by rules have access only to short- and medium-term capital. Long-term lending to infrastructure projects resulted in the asset-liability mismatch,” he said.

Banks have welcomed the announcement of infrastructure bonds in the budget, as they would attract high net worth individuals into infra funding.

State Bank of Patiala has not yet decided on floating such bonds, but might come out with a small issue this financial year, Rangan said.

krsudhaman@mydigitalfc.com

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