Basel III prevented merging subsidiary, says Chaudhuri

Will need capital of Rs 2.30 trillion by 2018

Former SBI Chairman Pratip Chaudhuri has said the nation’s largest lender would have completed the process of merging a subsidiary but for the huge capital requirement due to the Basel III norms.

“We have decided to merge one more subsidiary which we are pretty positive but because of Basel III impact, it is (delayed),” Chaudhuri, who left SBI last month, said here.
SBI had a shortage of capital but now is better placed to merge one of its subsidiaries, he said, adding that in the recent past it was able to merge State Bank of Indore and State Bank of Saurashtra.

Chaudhuri specifically pointed to steep salary hike which will have to be given to the employees of the merging subsidiary, which eats into capital base of the parent.

Depending on the bank to be merged, it will take either Rs 1,000 crore or up to Rs 2,000 crore for the merger.

SBI’s capital adequacy stood at 12.92 per cent as of March 2013, had received an infusion of Rs 7,900 crore from the government last fiscal and is likely to get around Rs 4,000 crore this fiscal.

“Now that we are comfortable with the capital, I think we are poised to merge one of the subsidiaries,” he said.

Notably, the bank, which controls nearly a fourth of the banking system, will need Rs 2.30 trillion towards capital as it gears up to meet the stringent Basel-III norms by 2018.

Basel-III is the newer international standards of capital allocation devised and adopted following the 2008 financial crisis. The Basel-III measures lay a lot of emphasis on increasing the buffers, which can help in times of difficulty and avoid the stress spilling over to other markets in the highly interconnected financial system.

There are five more subsidiaries, including State Bank of Hyderabad, State Bank of Patiala, State Bank of Bikaner and Jaipur, State Bank of Travancore, and State Bank of Mysore of which one can be merged with the parent.