The country has its biggest bank ever with State Bank of India’s merger of five associate banks and Bharatiya Mahila Bank. State Bank of India now ranks globally among the 50 largest banks in the world, which means that it will have access to cheaper funds from abroad as lenders are known to like size lending behemoth banks greater stability. For instance, SBI most recently raised $500 million in forex debt as part of its medium-term notes programme (MTN) at an attractive interest rate of around 1.5 per cent. The bank has plans to raise a further $6 billion on its MTN plan and most of that money would come in at good rates helping to improve the profitability of a national bank, which is on the cusp of consolidating its banking operations. It also has plans to raise Rs 15,000 crore in India through a clutch of instruments including QIP.
The merger may pose several challenges in terms of rationalising operations in number of branches with the closing of some of its current 24,000 branches and offering some of its 2.77 lakh employees voluntary retirement to streamline the workforce. Importantly, the asset quality of SBI is estimated to go up even as it can remain optimistic about keeping the current net NPAs at around four per cent post merger. If it has exposure to large NPAs, for example Kingfisher Airlines, it might be owed to putting style over substance in lending, some of which could possibly be traced back to entrepreneurs using their clout with politicians to bring about such erratic outcomes. Going forward, the bank would have to try and minimise the stressed assets and keep the bottomline in sharp focus. As the largest public bank it owes the nation a duty to be a sensible lender striking a balance between big and small in terms of borrowers.
