The merger of State Bank of Saurashtra (SBS) with State Bank of India (SBI) has prompted the government for further mergers. The government is now preparing the grounds for merging the State Bank of Indore and State Bank of Patiala with the parent bank- State Bank of India. It is soon going start the procedure of the merger of these associate banks.

The government has long been looking at the possibility of either merging the SBI's subsidiaries with it or creating a separate mega bank by merging the seven subsidiaries into a separate bank. The latter option was not favoured by SBI as it would have created a rival for itself out of its own subsidiaries.

The bank has already completed the integration process of SBS and after the integration of its other associates, would able to compete better with its global peers.

An official of finance ministry said, "We would start the process once everything is stable and SBI is able to handle the pressure." He further added: "Once SBI is ready, we would take up the proposal to merge State Bank of Indore and SBP with the parent organization."

In the beginning the government is initiating the merger of only 100 percent owned subsidiaries of SBI. Of the associate banks, SBI owns 98.05 percent of State Bank of Indore, while it is 100 percent in State Bank of Patiala and State Bank of Hyderabad. In other associate banks, SBI has it has diluted its stake through listing them on different stock exchanges.

Prior to granting SBI a final approval on the merger, the government would have to present a new bill called the ‘SBI Subsidiary Bank Amendment Bill 2008' in Parliament. It is expected that the finance ministry would introduce changes in the SBI Subsidiary Act which will ensure that there is no need for amendment in the Act each time a subsidiary is merged with the parent bank.

Earlier this year SBI successfully integrated State Bank of Saurashtra's operations with itself after the union cabinet's approval in August last year.

After the merger of State Bank of Indore and State Bank of Patiala, SBI will be left with four associate banks - State Bank of Travancore, State Bank of Bikaner and Jaipur, State Bank of Hyderabad and State bank of Mysore.

The merger would help SBI consolidate its position as the country's biggest bank and widen the gap with its nearest rival ICICI Bank. The mergers will also enable State Bank to scale up its business in terms of footprint, manpower and resources.

The prospects of India opening up its banking sector to foreign banks in a big way in the next few years have made it necessary to add to the SBI's size.

However, these mergers are been protested by the bank employees who are planning to hold an indefinite strike form October 20 to show their anger.