SBI scrip gains just five paise, scrips of associates over Rs 70

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Chennai, June 16 (IANS) The share prices of three listed associate banks of State Bank of India (SBI) flared up for second consecutive day on Thursday whereas the latter’s scrip only went up by five paise.

The three listed associate banks of SBI are: State Bank of Mysore (SBM), State Bank of Bikaner and Jaipur (SBJJ) and State Bank of Travancore (SBT).

The SBM scrip gained Rs 109.55 to close at Rs 657.45, SBJJ gained Rs 94.40 to close at Rs 694 and SBT gained Rs 72.85 to close at Rs 551.75.

On the other hand, SBI’s scrip gained just five paise to close at Rs 215.70.

The scrips of the three listed banks went up for second day on Thursday after the government gave its in-principle nod to the merger of six banks – five associate banks and Bharatiya Mahila Bank Ltd – with the SBI.

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“It is natural that whenever a smaller entity mergers with a bigger entity the share prices of the former will go up,” Saswata Guha, director, Financial Institutions at global credit rating agency Fitch Ratings, told IANS.

He said the smaller banks are getting in to bigger franchise – SBI.

“As a stand alone bank SBI is stronger than its associate banks,” Guha said.

According to him, scrip prices going up may also be due to speculation as SBI does not hold the entire equity in some of the associate banks.

Analysts are also of the view that the increase in scrip prices of the three associate banks is to catch-up with its actual valuation.

“We did see some broad based selling in the banking sector today. However SBI was able to hold its fort and end in positive territory. On the other hand its associate banks have risen massively by around 35 percent in the last two days,” Anand James, Chief Market Strategist, Geojit BNP Paribas Financial Services, told IANS.

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“The associate banks of SBI rose massively as they are expected to gain more out of this merger in terms of better synergies and management practices coming in from the parent company. Apart from this the rise has basically recouped the losses these banks had suffered after the last time the proposal of merger appeared, but nothing happened. Since then the scrip of these banks had fallen significantly,” he said.

The SBI’s scrip gaining just five paise is perhaps due to the challenges it would face in integrating the six banks with itself with the unions opposing the move.

Further SBI has to take care of Rs.3,000 crore worth of pension burden of the associate banks.

Global credit rating agency, Moody’s Investors Service had estimated it would cost SBI around Rs.16.6 billion ($250 million) for the merger and will have limited impact on its credit metrics, including its asset quality and capitalisation level.

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