If the sole purpose of the proposed merger of the State Bank of Saurashtra (SBS) with the State Bank of India (SBI) is to derive higher value for both the entities in areas of assets, clientele, deposit base, operational cost and management efficiency. It’s possible adverse impact on the career growth of SBI officers and on their pension fund is not only unreasonable but also narrow focused. The arrangement had lost its meaning over the years and makes no commercial sense under the present day circumstances when PSU banks are facing cut-throat competition from fast growing private sector banks, enjoying more operational flexibility, large foreign banks as also within themselves.

Mergers and acquisitions are always a bit painful and tricky for employees and senior executives of the merged or acquired entities. In this case, however, the SBI Officers Federation’s contention is that the officers of the subsidiary bank waiting to be merged stand to gain more in terms of promotions, placements and salaries vis-a-vis their counterparts in SBI within the system after the merger. In reality, however, the merger of SBS with SBI could just be the first major step to restructure the management of the public sector banks, which is being talked about by the United Progressive Alliance (UPA) government for the past several months but was not implemented because of the persistent opposition from Left parties, on whose support UPA stayed in power until the trust vote earlier this month that changed the political equation. Now that the government no longer depends on the Left group support for its survival, it may pursue with the so-called banking sector reform through a series of M&A initiatives among PSU banks to derive greater value for the merged banks. Once this is achieved, the next logical step would be to unlock the value through the sale of stocks of these large restructured banks.

The global bank and financial institution majors are watching with great interest about the steps the Indian government takes towards the ful¬fillment of its resolution to bring down its holdings in the country’s public sector banks to 50 per cent. The move opens a great opportunity for these foreign banks and institutions to consolidate their position in India’s burgeoning financial market. Foreign investors are also acquiring stakes in smaller private banks. The PSU banks still own about 71 per cent of the total assets in the country’s banking system and play a major role in responding to the changes in India’s economic environment.

The performance of the major Indian banks has been a matter of envy for foreign banks and institutions and their economic analysts. To many, it defies logic and global trends. Unfortunately for the aspiring foreign investors in Indian PSU banks, the time at the disposal of the present UPA government is too short to push through highly employee-sensitive bank mergers before their stock sales. They may have to wait till the formation of a new government at the Centre for the next round of PSU bank reforms to take place.