Legal Battle for SBI merger with Associate Banks

Although the law ministry has allowed repeal of the State Bank of Saurashtra Act to enable its merger with State Bank of India (SBI), a similar repeal will be required for the State Bank of Hyderabad, which is governed by a separate Act.

Sources in the bank expect that the merger with all its subsidiaries will be completed by March 2009. But the government had indicated earlier that it will first take the experience of merging one associate before pushing for a consolidation with others.

Boards of both SBS and SBI had endorsed the merger proposal originally scheduled to be completed in January this year. The RBI was also in favour of the merger. Earlier, the law ministry was of the view that the government cannot issue an executive order and repeal the specific legislations governing some of these associates.

 The ministry of finance will issue an administrative order endorsing the merger proposal, which will then need Cabinet approval. A bill will be placed before the Parliament in the monsoon session that will both repeal the State Bank of Saurashtra Act, 1955, and effect changes in the State Bank of India (Subsidiary Banks) Act, 1959, that governs all subsidiaries.