Acquisition of SBI Commercial & International Bank Ltd. (SBICI Bank) by State Bank of India

The Union Cabinet July 21 approved acquisition of the State Bank of India Commercial and International Bank Ltd. (SBICI Bank Ltd.) by State Bank of India (SBI), in terms of sub-section (2) of section 35 of the State Bank of India Act, 1955.

A Scheme of Acquisition, setting out the terms and conditions for acquisition of SBICI Bank by State Bank of India, has been approved by Board of Directors of both the banks and also by the Reserve Bank of India. Based on the Scheme of Acquisition, the draft 'Order’ has been prepared and is to be notified in the Gazette.

Background

SBICI Bank Ltd. is a wholly owned subsidiary of SBI, which was set up in 1994 after taking over the Indian operations of the erstwhile Bank of Credit & Commerce International Ltd. (BCCI), which went into liquidation in 1991.

SBICI Bank Ltd. has only two branches, both in Mumbai. Its performance over the period of its existence has not been consistent. It has not paid any dividend since inception and its net worth stood at only Rs.128.74 crore as on 31st March, 2010 on a capital base of Rs.100 crore. As on 31st March, 2010, the Bank had a total business (deposits + advances) of less than Rs. 700 crore. The Return on Assets of the Bank was 0.49% as on that date. In terms of RBI guidelines for ownership in private sector banks, the Bank's capital is to be raised to Rs. 300 crore. The existing business model of the Bank and the returns generated by it over the years do not justify additional capital infusion.

In the overall analysis, continuation of SBICI in its present form would not create a sustainable organisation with a separate niche, able to hold on its own in the medium term. So also as an independent Bank, SBICI has had to maintain a full-fledged, elaborate administrative setup to conform to regulatory requirements. The cost of maintaining such a structure is disproportionate to the level of operations of the SBICI. The proposed merger would help in eliminating the cost involved in maintaining the administrative structure of SBICI as both the branches of SBICI would be easily absorbed in the operations of the main Bank.

While no present beneficiary of the State Bank of India would be affected, the number of beneficiaries would be the clients of SBI Commercial & International Bank Ltd. who will have access to the bigger network of State Bank of India.