• Government said to approve State Bank’s merger with units
  • India pushing for banking consolidation to boost industry

State Bank of Bikaner & Jaipur and State Bank of Mysore shares surged for a second day as India approved the merger of the lenders with their parent, amid a government push to strengthen the nation’s fragmented banking industry.

Bikaner Bank rose 18 percent as of 10:59 a.m. in Mumbai to a five-month high, while SBM climbed 20 percent to the highest since February 2013. Both stocks jumped 20 percent on Wednesday.

Prime Minister Narendra Modi’s government has given State Bank of India, the country’s largest lender, the official nod to start talks to acquire the assets of its five lending subsidiaries and Bharatiya Mahila Bank Ltd, said people familiar with the matter, who asked not to be identified as they weren’t authorized to speak to media. Frank Noronha, a government spokesman in New Delhi, declined to comment on the approval.

In a statement late Wednesday, SBI’s chairman said the merger was a “win-win” for the lender and its units, citing expected cost savings. The combination of SBI with Bikaner Bank, State Bank of Hyderabad, State Bank of Patiala, State Bank of Travancore, State Bank of Mysore and BMB will create a lender with assets of about 30 trillion rupees ($447 billion), exchange filings show.

Banking Giant

The smaller banks “are rallying as investors are betting on good valuations and share-swap ratios while being merged with SBI,” said Nirmal Bang Institutional Equities analyst Hatim Broachwala. “SBI’s profit growth and share holder returns will see strong improvement” once the deals are completed, he said.

Shares of the Indian banking giant, which is 60.2 percent owned by the government, lost 0.5 percent on Thursday, as the Travancore unit surged 15 percent.

Any final decision on the acquisitions will be taken by SBI’s board after discussions with relevant stake holders, the lender said last month. The bank, which accounted for about a fifth of India’s outstanding loans, has 16,784 outlets in the country -- almost triple the more than 6,000 operated by Wells Fargo & Co., the largest U.S lender by branches.

“While the network of SBI would stand to increase, its reach would multiply,” the bank’s Chairman Arundhati Bhattacharya said in an e-mailed statement on Wednesday. “One can expect efficiencies to be created from rationalization of branches, common treasury pooling and proper deployment of a large skilled resource base.”

The 210-year-old lender has acquired two of its other units -- State Bank of Indore and State Bank of Saurashtra -- in the last decade. India banking system has more than 90 domestic and foreign lenders competing for $1.4 trillion of deposits.

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