Are You Ready for the Merger of State Bank of India and Associate Banks

Recently i received requests from readers of the blog to share my views on the merger of State Bank of India with its Associate Banks. To find out myself, i visited few branches of State Bank of India and its associate banks. I have a bank account with State Bank of India and State Bank of Mysore so it made my task bit easier. The employees of the bank are tight-lipped about this whole exercise of the merger. I think they are instructed not to divulge any details to the general public :).

For this post, how the merger of State Bank of India with its associate banks will impact customers, i identified 3 branches of the state bank group that are within a striking distance of each other. These 3 branches are State Bank of India (SBI), State Bank of Mysore (SBM) and State Bank of Hyderabad (SBH). The other 3 associate banks to be merged with SBI are State Bank of Patiala, State Bank of Bikaner & Jaipur and State Bank of Travancore.

Based on my interaction with bank staff, other customers and information available in public domain, i am sharing some of the crucial points with the readers of this blog. In some of the cases, proactive action is required from the account holder to mitigate any operational risk/hassle because of the merger. Let’s check out.

Are You Ready for the Merger of State Bank of India and Associate Banks?

1. Relocation of Branches:

It’s a no-brainer that a lot of branches especially in metros and urban areas will be relocated because of proximity between the branches of SBI and its associate banks. Currently, it is taken for granted by the customers and branch staff that as State Bank of India will be the big brother therefore only the branches of associate banks will be relocated/closed.

In my opinion, the branches at strategic and prime location will be retained & others will shift to areas with NO or poor presence. For example, the 3 branches studied by me for this exercise i am of the opinion that State Bank of Mysore will remain in that area. The State Bank of Hyderabad and State Bank of India branch will shift. The reason being, the branch of SBM is on the main road and at a strategic/prime location. Whereas other two branches i.e. SBI and SBH are inside the residential layout.

In all probability, the accounts with SBI and SBH branches will shift to SBM branch. In certain cases, post-merger, the retained branches may become crowded and will result in bad customer experience. The State Bank of India branch, in this case, is in a residential area. The majority of customers opened an account just because of proximity. After the merger, if the account of these people is transferred to branch approx 1 Km from their house. Will they continue with an account or not is a big question mark?

If accessibility is the sole deciding factor as an account holder then i may open a new account with Bank of Baroda that is just 50 meters from State Bank of India branch in the same residential layout.

Action Point: The action point for account holder is if you foresee closure of your state bank group branch. At the same time, you are anticipating a future hassle and accessibility is your major concern. In this case, you can open a new savings account with the nearest branch of some other Bank A. The reason being each branch has the capacity to serve X no of customers. It may happen that Bank A may stop accepting a fresh request for new bank accounts because of an unforeseen rush after the merger of State Bank of India with Associate Banks. Therefore, you may lose out on the locational advantage of your state bank group branch.

2. Locker Facility:

All the 3 branches studied by me have locker facility. I posed as a customer and checked the availability of bank locker. I asked bank employees what will happen to the locker facility if your branch is closed. He told that existing customers of the closed branch will be either allocated a safe deposit locker in a retained branch in this area or will be offered locker in any other “nearby” branch.

In my opinion, it is the biggest risk for customers who availed a locker facility. Assuming all 3 branches have 300 lockers each. After the merger, if 2 branches are closed then 600 lockers will be shifted. The retained branch may accommodate additional 100-150 lockers depending on the space availability. Another 200 might be adjusted in nearby areas. For sure, half of the existing customers will lose the locker facility.

Action Point: If you have a locker facility with State Bank of India or its associate banks then you should make an arrangement of the alternate facility in advance. This is to mitigate any risk of losing locker facility. Though i am confident that bank will try its level best to accommodate all the customers but logistically and operationally it might not be feasible. There is another possibility that you will be allocated locker far from your house. Normally, people prefer locker facility near to their house. Therefore, all these possibilities may create a problem for you in near future. If you are planning to hire a private locker service then you may check my post, Private Locker Service – Beware of 5 Imp Point before you hire.

3. Multiple Accounts in the same bank:

In my post, How Many Savings Account Do I Need? i shared that a customer should not have multiple accounts with the same bank because of various reasons. After the merger of State Bank of India with its associate banks, you might hold multiple accounts with the same bank i.e. State Bank of India. For example, i have a bank account with State Bank of India and State Bank of Mysore. After the merger, i will have 2 accounts with the same bank i.e. State Bank of India.

The financial wisdom says that i should close one of the accounts and open in another bank to hedge my risk and potential hassles.

Action Point: If you hold multiple accounts with SBI and its associate banks then you may re-access your requirement. Post-merger, consider retaining only one account with the State Bank of India. Though it is your personal choice whether you would like to keep single/multiple accounts with the same bank or not.

4. Home Loan Borrowers of Associate Banks:

In my opinion, the biggest beneficiary of the merger of State Bank of India with its associate banks will be the home loan borrowers of associate banks.  It’s a known fact that State Bank of India is the cheapest home loan provider. The borrowers prefer SBI Home Loan. The current interest rate of State Bank of India and its associate banks are as follows

State Bank of India: 9.3%

State Bank of Hyderabad: 9.65%

State Bank of Mysore: 9.55%

State Bank of Patiala: 9.6%

State Bank of Travancore: 9.6%

State Bank of Bikaner and Jaipur: 9.70%

Post merger, the benefit of lowest home loan interest rate will be passed by State Bank of India to the existing and potential borrowers of its associate banks.

Action Point: No action point at this stage. As i understand that interest rates will not be reduced by default. After the merger, you can approach State Bank of India to reduce the home loan interest rate. State Bank of India may ask you to pay conversion fees to reduce the home loan interest rate.

5. Change in Account Number, New Cheque Book, PDC’s, and Standing Instructions/ECS:

It will be a major hassle for the customers of associate banks and also the customers of relocated/transferred SBI branches. In some cases, your bank account number might change and it will be a headache to get it changed in all the records.

A new cheque book will be issued and the customers have to replace PDC’s with new cheques. Therefore, if i have issued PDC’s to my loan provider then i need to first get the new cheque book from State Bank of India after the merger. Post that, i need to approach my loan provider to replace existing PDC’s.

Similarly, any existing standing instructions/ECS for EMI, Credit Card, bill payment etc will stand canceled. You need to issue fresh standing instructions for ECS payment.

Action Point: No action required at this stage. Bank will give sufficient time to make these changes but you should remember that post-merger State Bank of India will be the truly “largest bank” with 50 Cr customers i.e. 1 out of 2 Indians will bank with SBI. Though it is a pure guess, even if 2% customers gets impacted by merger then 1 Cr customers will run around for all these changes. It is HUGE. The other banks and financial institutions might not be ready to handle these many footfalls. Therefore, you can avoid all this hassle by proactively making necessary changes in case you are anticipating that your branch will be impacted by the merger.

Words of Wisdom:

Currently, we are witnessing one of the biggest financial exercises in India i.e. to merge 6 banks (including Bhartiya Mahila Bank) with one bank. Though these banks are associate banks of State Bank of India but it is mammoth exercise. As a customer, we should support the bank as this merger will put SBI in TOP 50 Global Banks. It will be a matter of proud for the country.

The objective of this post is just to share the information based on my understanding. If you are one of those customers like me who hate even a little bit hassle on the financial front. You may take proactive steps to avoid :).

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