Through mergers with its associate banks, SBI will benefit from better reach and network, and will find itself among the world’s largest banks. But it also risks ignoring local sensibilities.

The cabinet’s approval on June 15 for State Bank of India (SBI) to bring into its fold five associate banks has been hailed as a significant development that paves the way for major consolidation in the banking sector. However, it would be unwise to view such an issue only through the narrow prism of balance sheets and alleged synergies; like many developments in the financial sector, the merger of the five associate banks with SBI ought to be viewed through the proper perspective – there are positive developments but also some major negatives that must not to be glossed over.

The five banks set to merge with SBI are State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Mysore, State Bank of Hyderabad and State Bank of Patiala. SBI will also absorb Bharatiya Mahila Bank. In the past, SBI has absorbed two other associates – State Bank of Saurashtra in 2008 and State Bank of Indore in 2010. These mergers were supposed to pay the way for an accelerated phase of consolidation involving SBI and its associates, but this has not happened. The bigger hope that a fully amalgamated SBI will set the trend for all bank consolidation is clearly misplaced. Six years after SBI absorbed the Indore bank, there has been very little merger-and-acquisition activity in the banking space, and