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CHAPTER 1

INTRODUCTION

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In the Era of globalisation change in the business environment are rapid due to which
competition has become force of action in globalise world a company may
have longer capital while the other company may possess new technologies,
human resources and other operational capabilities. In order achieve greater
market share and profitability in long run, in this exploration we come to
know that there is increase in profitability, network, revenue and ranking of
the bank as a world level. In Indian companies act 2013 u/s 395 when 90%
of shareholder (present & voting ) of company must agree to the proposal of
merger

ABOUT THE STATE BANK OF INDIA
Founded in 1806, Bank of Calcutta was the first Bank established in
India and over a period of time, evolved into State Bank of India (SBI).
SBI represents a sterling legacy of over 200 years. It is the oldest
commercial Bank in the Indian subcontinent, strengthening the nation’s
trillion-dollar economy and serving the aspirations of its vast
population.

The Bank is India’s largest commercial Bank in terms of assets, Deposits,
Branches, number of customers and employees, enjoying the continuing
faith of millions of customers across the social spectrum.

SBI, headquartered at Mumbai, provides a wide range of products and
services to individuals, commercial enterprises, large corporates, public
bodies and institutional customers through its various branches and outlets,
joint venture and associate company.

From the past few years Banking Industry is being consolidated to reap the
benefits of mergers and acquisitions. Bank in general terminology is referred
to as a financial institute or a corporation which is authorized by the state or
central government to deal with money by accepting deposits, giving out loan
and investing in securities. The main role of Banks are economic growth,
expansion of the economy and provide funds for investment. In the recent
times banking sector has been undergoing a lot of changes in terms of
regulation and effects of globalization. These changes have affected this
sector both structurally and strategically. With the changing environment
many different strategies have been adopted by this sector to remain efficient
and to surge ahead in the global arena. One such strategy is through the
process of consolidation of banks which emerged as one of the most
profitable strategy. There are several ways to consolidate the banking
industry; the most commonly adopted by banks is merger. There have been
several reforms in the Indian banking sector, as well as quite a few successful
mergers and acquisitions, which have helped it, grow manifold. The first and
the most successful example of merger is of New Bank of India merging with
the Punjab National Bank (PNB). This was the first merger between
nationalized banks. And then there were a lot of mergers in banking industry Page | 2
which exemplified that mergers are beneficial for an industry.

The most recent and largest merger in the history of banking industry was of
State Bank of India with its 5 associate banks namely State Bank of Bikaner
and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of
Mysore(SBM), State Bank of Patiala(SBP), State Bank of Travancore(SBT)
and Bharatiya Mahila Bank. It was on 1st April 2017 that "the SBI opened as
'one bank' and will continue to operate in the same manner as before, post-
merger" - Bhattacharya told the media.

Shares of State Bank of India (SBI) and its listed associate banks (State Bank
of Bikaner, State Bank of Mysore and State Bank of Travancore) gained 3-13
percent on the back of approval from the cabinet for their merger.

At 09:27 hrs, the next day after approval, State Bank of India was quoting at
Rs 273.20, up Rs 4.55, or 1.69 percent on the BSE. SBBJ was quoting at Rs
752.45, up 4.80 percent, SBM was trading at Rs 589 up 4.87 percent and
State Bank of Travancore was quoting at Rs 590.10, up 5.38 percent. The rest
two associate banks —State Bank of Patiala and State Bank of Hyderabad —
are unlisted. The merger will bring nearly a quarter of all outstanding loans
in India’s banking sector to SBI’s books.

SBI and ASSOCIATE BANK

PROFILE OF THE COMPANY

The origin of the State Bank of India goes back to the first decade of the
nineteenth century with the establishment of the Bank of Calcutta in Calcutta
on 2nd June 1806. Three years later the bank received its charter and was re-
designed as the Bank of Bengal (2nd January 1809). A unique institution, it
was the first joint-stock bank of British India sponsored by the Government
of Bengal. The Bank of Bombay (15th April 1840) and the Bank of Madras
(1st July 1843) followed the Bank of Bengal. These three banks remained at
the apex of modern banking in India till their amalgamation as the Imperial
Bank of India on 27th January 1921. New phase of Indian Banking System
with the advent of Indian Financial & Banking Sector Reforms after 1991.

Government took major steps in this Indian Banking Sector Reforms after
independence. In 1955, Government nationalized Imperial Bank of India with
extensive banking facilities on a large scale especially in rural and semi-urban
areas. It formed State Bank of India to act as the principal agent of Reserve
Bank of India and to handle banking transactions of the Union and State
Governments all over the country.
Seven banks forming subsidiary of State Bank of India were nationalized in
1960 on 19th July, 1969, major process of nationalization was carried out. It
was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14
major commercial banks in the country were nationalized.

The Imperial Bank continued to provide banking services to the Reserve Bank,
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particularly in areas where the Reserve Bank had not yet established offices. At
the same time, the Imperial Bank retained its position as a bankers' bank.

Into the early 1950s, the Imperial Bank grew steadily, dominating the Indian
commercial banking industry. The bank continued to build up its assets and
capital base, and also entered a new phase of national expansion. By the middle
of the 1950s, the Imperial Bank operated more than 170 branch offices, as well
as 200 sub-offices. Yet the bank, like most of the colonial government, focused
primarily on the country's urban regions.

The new state-owned bank now controlled more than one-fourth of India's total
banking industry. That position was expanded at the end of the decade, when
new legislation was passed providing for the takeover by the State Bank Of
India of eight regionally based, Government-Controlled Banks. As such the
Banks of Bikaner, Jaipur, Indore, Mysore, Patiala, Hyderabad, Saurashtra, and
Travancore became subsidiaries of the State Bank of India. Following the 1963
merger of the Bikaner and Jaipur banks, their seven remaining subsidiaries
were converted into associate banks.

SBI now has one associate bank, down from the eight that it originally acquired
in 1959. All use the State Bank of India logo, which is a blue circle, and all use
the "State Bank of" name, followed by the regional headquarters' name:

State Bank of Travancore (founded 1945)

State Bank of Mysore (founded 1913)

State Bank of Bikaner & Jaipur (founded 1963)

State Bank of Patiala (founded 1917)

State Bank of Hyderabad (founded 1941)

Bharatiya Mahila Bank(founded 2013)

SBI provides a range of banking products through its network of branches in
India and overseas, including products aimed at non-resident Indians (NRIs).
SBI has 14 regional hubs and 57 Zonal Offices that are located at important
cities throughout India

Yet the State Bank of India now began an era of expansion, acting as a motor
for India industrial and agricultural development that was to transform it into
one of the world's largest financial networks. the State Bank of India counted
as on 31-12-2017 22,500 branches and 58,000 ATM with 5O crore customer
throughout India and staff is 2,66,065.Even as it played a primary role in the
Indian government's industrial and agricultural development policies, State
Bank of India continued to develop its commercial banking operations.

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State Bank Of Hyderabad (SBH)

Hyderabad State Bank was established on 8 August 1941 under the Hyderabad
State Bank Act, by last Nizam of Hyderabad, Mir Osman Ali Khan now the
new state of Telangana. It is one of the five associate banks of State Bank of
India and is one of the scheduled banks in India. In 1956, the Reserve Bank of
India took over the bank as its first subsidiary and renamed it as State Bank of
Hyderabad. Since 1956 it has been a subsidiary and largest associate bank of
SBI. The bank has performed well in the past decades, winning several awards
for its banking practices. SBH has over 2,000 branches and about 18,000
employees. The Bank's business has crossed Rs. 2.4 trillion as on 31.12.2015
with a net profit of Rs. 8.12 billion. The bank has performed well in the past
decades, winning several awards for its banking practices.

State bank of Travancore (SBT)

SBT was established in 1945 as the Travancore Bank Ltd, at the initiative of
Travancore Divan C. P. Ram swami Iyer. Following popular resentment
against his dictatorial rule, the bank no longer credits his role. Instead, the
Bank now considers the Maharaja of Travancore as the founder, though the
king had little to do with the founding. Although the Travancore government
put up only 25% of the capital, the bank undertook government treasury work
and foreign exchange business, apart from its general banking business. Its
registered office was at Madras. In 1960, it became a subsidiary of State Bank
of India under the SBI Subsidiary Banks Act, 1959, enacted by the Parliament
of India.
State Bank of Mysore (SBM)

State Bank of Mysore was established in the year 1913 as The Bank of Mysore
Ltd. under the patronage of Maharaja Krishna Raja Wadiyar IV, at the instance
of the banking committee headed by the great EngineerStatesman, Bharat Page | 5
Ratna Sir M.Visvesvaray. During 1953, "Mysore Bank" was appointed as an
agent of Reserve Bank of India to undertake Government business and treasury
operations, and in March 1960, it became a subsidiary of the State Bank of
India under the State Bank of India (subsidiary Banks) Act 1959. Now the bank
is an Associate Bank under State Bank Group and the State Bank of India holds
92.33% of shares. The Bank's shares are listed in Bangalore, Chennai, and
Mumbai stock exchanges. This bank has 976 branches and 10627 employees
(June 2014) and the Bank has 772 branches (79%) in Karnataka State. The
bank's turnover in the year 2013-2014 was around US$19 Billion and Profit
about US$46 Million.

State Bank of Patiala (SBP)

Bhupinder Singh, Maharaja of Patiala State, founded the Patiala State Bank on
17 November 1917 to foster growth of agriculture, trade and industry. The
bank combined the functions of a commercial bank and those of a central bank
for the princely state of Patiala. The bank had one branch at Chowk Fort,
Patiala, undivided India. The formation of the Patiala and East Punjab States
Union in 1948 led to the bank being reorganized, being brought under the
control of the Reserve Bank of India, and being renamed Bank of Patiala. On 1
April 1960 Bank of Patiala became a subsidiary of State Bank of India and was
renamed State Bank of Patiala. Presently, State Bank of Patiala has a network
of 1445 service outlets, including 1314 branches, in all major cities of India,
Particularly in north India.
State Bank of Bikaner & Jaipur

SBBJ came into existence on 1963 when two banks, namely, State Bank of
Bikaner (established in 1944) and State Bank of Jaipur (established in 1943),
were merged. Both these banks were subsidiaries of the State Bank of India
under the State Bank of India (Subsidiary Bank) Act, 1959. On 25 April 1966
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SBBJ took over Govind Bank (Private) Ltd., Mathura, established on 8
February 1963. In 1984 SBBJ sponsored and established Ganganagar Kshetriya
Gramin Bank as a Regional Rural Bank. Thereafter, in 1985 SBBJ opened the
Bikaner Kshetriya Gramin Bank, the second Regional Rural Bank sponsored
by it. The third Regional Rural Bank, sponsored by SBBJ was Marwar Gramin
Bank, which covered the districts of Pali, Jalore and Sirohi. On 12 June 2006,
SBBJ merged all three regional rural banks that it sponsored under the name
MGB Gramin Bank, with headquarters in Jodhpur. It is an associated bank of
State Bank of India. As of 2015, SBBJ had 1,360 branches, mostly located in
the state of Rajasthan, India. Its branch network out of Rajasthan covers all the
major business centres of India. In 1997, the bank entered the capital market
with an Initial Public Offering of 13, 60,000 shares at a premium of Rs 440 per
share. For the year 2015-16 the net profit of the company was 850.60 Crore.

BHARTIYA MAHILA BANK

Bank has merged five of its Associate Banks and Bhartiya Mahila bank

1st April 2017. Accordingly, Figures / Ratios / Parameters relating to
June 2017 are for the

merger entity. Wherever feasible, the historical data has been arrived at
by aggregating the

audited State Bank of India (SBI), India’s largest Bank has started
working as unified entity

from 1 april 2017.It merged with 5 associate Banks besides Bharatiya
Mahila Bank (BMB).

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).

According to a gazette notification dated 22 February, the government
said that all shares of these associate banks would cease to exist as individual
entities and would merger with

The merger leads to higher capitalisation of the bank

After this merger, SBI will probably join the league of top 50 Banks in
terms of Assets.
To decrease unhealthy competition among Public Sector Banks(PSBs). It is
difficult for smaller outs to sustain the pace of competition and regulatory /
risk mitigation norms.

After merger, SBI is expected to compete with the largest bank

The Bank is India’s largest commercial Bank in terms of assets, deposits, Page | 7
branches, number of customers and employees, enjoying the continuing faith of
millions of customers across the social spectrum. SBI, headquartered at
Mumbai, provides a wide range of products and services to individuals,
commercial enterprises, large corporates, public bodies and institutional
customers through its various branches and outlets, joint ventures, subsidiaries
and associate companies. SBI merged with its associate banks in order to have
increased balance sheet and economies of scale. With this merger:

SBI has entered into the league of top 50 global banks.

It has now 24,017 branches and 59,263 ATMs serving over 42 crore
customers

SBI is now a banking behemoth with an asset book of Rs 37 lakh crore.

The merged entity will have one-fourth of the deposit and loan market, as
the SBI's market share will increase from 17% to 22.5-23%.

SBI's asset base is now five times larger than the second largest Indian
bank, ICICI Bank. Apart from these facts, there are many perceived gains as
well: the government, as shareholder, feels that now it will have six less
capital-hungry banks to worry about. It was expected that a larger institution
will be better equipped to deal with sticky loans, thereby enabling fresh credit
outflows to productive sectors. Thus Productivity and efficiency are also
among the expected benefits.

But these benefits were questionable due to SBI's legacy and ownership
structure. A former SBI chairman had once remarked that reforming SBI was
trying to make an elephant dance. Even discounting for exaggeration,
according to the statement, a larger and unmanageable bank is getting even
larger. The merger seems to overlook a critical, post-crisis concern - the too-
bigto-fail (TBTF) question. The TBTF theory posits that some institution are so
large and intricately interconnected with different parts of the economy that
failure can create a systematic shock. This forced many government to bail out
large financial institutions with taxpayer money. It might also be instructive to

note that many countries have been formulating preventive TBTF regulations.
Australia, for example, has prohibited any merger between the country's four
largest banks.
This whole merger process was something like a shortgun wedding, with not
enough opportunity to pause and ponder. There were many imponderables
involved in this big merger, for example, the overlap in the combined physical
network, the people question, or integrating disparate backend systems and
processes. Most recently the issue of employees has also come up.
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State Bank Now, Bank can better focus on defaulters. Many people had
availed multiple finances. With

The merger will affect the seniority of top officials of Associate Banks and will
also result in redeployment or loss of jobs of some workmen and closure of
branches and finally, the banks might lose some of their regular customers,"
said C.H. Venkatachalam, AIBEA general secretary .

The bigger question was the impact that the merger would have on the health
of SBI. Cumulative bad loans of the five associate banks were as big as 35% of
the bad loans of SBI. Their slippage ratio stands at 20% and credit costs have
deteriorated to 5.56%. Also, their Non-Performing Asset (NPA) were around 4
times the NPAs of SBI alone. When these banks having deteriorating
conditions join SBI, they will have adverse effect on SBI's health.

No doubt, the revenue will increase, but at what cost?

What we need is not big, but strong, efficient and vibrant banks.

In order to understand the current scenario and throw light on the impact of
merger on SBI, A comparison is drawn between pre-merger entities ( before
merger SBI and associate banks) and post-merger entity (after merger SBI and
associate bank)

MERGER OF BANK & ASSOCIATE BANK
The merger capital of the SBI &ASSOCIATE as on 1April 2017

(The Quarter that was – The Starting Point)
SBI + Abs + BMB 31st MARCH 2017 31st MARCH 2017 1st APRIL 2017
(SOLO)SBI ABs (Merged)

Total Deposit 20,44,751 5,40,569 25,85,320

CASA Ratio(%) 45.58 40.10. 40.44 Page | 9

Gross Advance 16,27273 3,25,324 19,52,507
Mkt. Share- 18.13 5.04 23.17
Deposits(%)
Mkt. Share- 17.11 4.15 21.26
Advance(%)
Number of branches 17,170 6,847 24,017

Total Staffs 2,09,572 70,231 2,79,803.

Number of customer 3,375 829 4,204
in lakh

SBI + Abs + BMB 31st MARCH 2017 (SOLO) 1st MARCH 2017 (Merged)

CET (%) 9.82 9.41

Tier 1(%) 10.35 10.05

CAR(%) 13.11 12.85

GOI Shareholding(%) 61.23 60.75
Asset Quality Ratio
SBI+ 31st MARCH 31st MARCH 1stMARCH Page | 10
ABs+BMB(Asset 2017(solo) 2017(ABs) 2017(Merged)
Quality Ratios)

Gross NPA Ratio(%) 6.90 20.15 9.11

Net NPA Ratio(%) 3.71 12.99 5.19

Provision Coverage 65.95 52.18 61.53
Ratio(%)

Slippage Ratio(%) 2.59 17.87 5.78

Credit Cost(%) 2.14 5.77 2.90

Financial Ratio
SBI +ABs +BMB 31st MARCH 31st MARCH ABs 1st APRIL
(Financial Ratio) 2017(solo) 2017 2017(merged)

Cost to income 47.75 57.66 49.54
ratio(%)

Cost of deposits (%) 5.79 6.31 5.84
Yield on Advances 9.42 8.98 9.32
(%)

NIM (Domestic) (%) 3.11 2.35 2.93

(source Final Analyst PPT Q1FY18)

COMPANY VISION
My SBI

My First customer

My SBI First in customer satisfaction

COMPANY MISSION
We will be prompt, polite and proactive with our customers.
We will speak the language of Young India.

We will create products and services that help our customers achieve
their goals.

We will go beyond the call of duty to make our customers feel valued.
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We will be of service even in the remotest part of our country.

We will offer excellence in services to those abroad as much as we do
to those in India.

We will imbibe state-of-the-art technology to drive excellence.

COMPANY VALUES
We will always be honest, transparent and ethical.

We will respect our customers and fellow associates.

We will be knowledge driven

. We will learn and we will share our learning.

We will never take the easy way out

We will do everything we can to contribute to the community we work in.

We will nurture pride in India

In order to provide better value to the customers, company have
introduced the use of the latest digital technology and have changed
company processes to reduce costs and enhance SBI productivity.
(State Bank of India Annual Report 2016-1)

SBI’s Journey Through Numbers
Personal Banking SBI are succeeding by putting bank customers and
clients at the centre of everything SBI do and by continuing to do this,
bank will always remain the “Smart Bank” to partner with

CORPORATE BANKING Corporate Banking offering is an end-to-end
proposition and service continuum that supports corporate India of all
shapes and sizes, from start-ups, through BSE/NSE100 companies, to
partnering with the largest global corporations and financial institutions.
INVESTMENT BANKING From bank unique position with dual home
markets and truly global reach of bank are transforming our Investment
Banking so that bank can continue to help their target clients achieve
their ambitions.

 1 No. Largest Bank in India (Deposits, Advances, Branches and
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Employees)
 Pan-India ATMs 59,263
 State Bank Group debit card holders 34.50crore+
 Average daily transactions through Green Remit Cards 1.12lakh+
 customer base 33.75crore+
 2.5 crores + FI Accounts opened during the year
 Internet banking users 3.27crore+
 1,426 Villages adopted under SBI Ka Apna Gaon
 Business size `36lakh crore +
 Mobile Banking users 1.98crore +
 RuPay Debit Cards issued under PMJDY during the year 5.85crore+
 SBI Online is India’s most and the World’s 5th most visited Banking
Site
 Transactions on alternate channels 77%
 POS machines 5.09lakh+
 Pradhan Mantri Jandhan Yojna Accounts 8.57crore `36lakh crore+
 Home loans Market share at 25.88%
At SBI, we are cognisant of the need for an ongoing process for self-
improvement. This is necessary for the bank to adapt and undergo
constructive consolidation within the Bank’s organisational structure.
Company are also attuned to the concerns and challenges prevailing in
the economy, and more specifically, the banking sector. With our
constant introspection and readiness for change, we remain committed
towards optimising our framework, operations and work culture. In
particular, we have focused on adjustments that are conducive to
improving risk management, growth velocity and profitability.
In doing so, we have embedded transformational changes in our way of
doing business, which has helped us achieve higher benchmarks of
excellence in banking. We have re-engineered our internal processes,
making them more efficient and leveraged on innovative technology
advancements to enhance customers’ experience. We planned cohesive
strategies to supplement the quality of our loan book and optimise capital
allocation. Furthermore, our Associate Banks and Bharatiya Mahila Bank
merged with us on 1st April 2017, bringing a sense of synergy to our
operations and stimulating superior performance. We believe that these
delta-actions are the prerequisite for delivering better returns to our
stakeholders, in a tangible and sustainable way.
We have already begun to see the positive outcome of this
transformation. Confident for the future, we aspire to be an enduring
value producer, and an excellent long-term wealth creator for our
investors