India`s union cabinet has approved top lender State Bank of India`s (SBI) planned merger with its five subsidiary banks, Finance Minister Arun Jaitley said on Wednesday.

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SBI is merging with State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore.

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SBI has said the merger will help the country`s largest lender by assets increase its scale and cut expenses through synergies.

New Delhi expects the move to result in savings of more than Rs 1,000 crore ($149 million) in the first year of the merger.

Policymakers want to recapitalise and consolidate the country's state-run banks so they can extend fresh credit and help drive an investment-led recovery in Asia`s third-largest economy.

The country's 27 public sector banks account for 70% of its banking sector assets, as well as the lion`s share of the country`s $120 billion in troubled loans.

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