This would be the second merger of an associate bank with parent SBI after the State Bank of Saurashtra in August, 2008.

"The cabinet gave its nod to the merger of State Bank of Indore with SBI. Acquisition of State Bank of Indore by SBI would allow economies of scale in terms of footprint, manpower and other resources," information and broadcasting minister Ambika Soni told reporters after the meeting.

On concerns of employees of the State Bank of Indore about the amalgamation and unions threatening to take to streets, shares of SBI fell 1.01% to Rs 2,439.45 at the close of trade on the Bombay Stock Exchange.

Expressing its opposition to the merger, All-India Bank Employees Association (AIBEA) general secretary CH
Venkatachalam said, "It is unwarranted. We will oppose it
after reading into the details of the merger. It is in nobody's interest. We will oppose it within and outside Parliament."

After the merger, the SBI will be left with five associate banks -- State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.

State Bank of Indore has a large number of branches outside Madhya Pradesh and Chhattisgarh and all of them will be controlled conveniently from SBI's local head offices in various states, leading to substantial cost savings, Soni said.

"SBI is facing a situation where most of its branches and
those of State Bank of Indore are competing for the same
business, in the same market, under the same brand. This has
prevented SBI from fully exploiting its brand equity for
driving business growth," Soni said.

SBI holds a 98% stake in State Bank of Indore. The merger proposal was approved by the central board of SBI last year. Following this, the Centre also gave an in-principle approval.

To facilitate the merger, the cabinet also gave an in-principle approval to introduce a Bill in Parliament for amending the State Bank of India (Subsidiary Banks) Act of 1959, to remove references of State Bank of Indore.

SBI has already announced a share swap ratio of 34:100 for the merger. It has agreed to give 34 SBI shares for every 100 shares of State Bank of Indore held by minority shareholders. For this purpose, SBI would issue up to over 1.16 lakh shares of Rs 10 face value each to minority shareholders of State Bank of Indore.

SBI had also said the issue capital of the company will rise from Rs 634.96 crore to a maximum of Rs 635.08 crore after the merger.

Sources :: PTI, dnaindia.com