The Union Cabinet approved the merger of State Bank of India and its five associate banks, Finance Minister Arun Jaitley announced on Wednesday.
"The cabinet approved the merger into SBI of its five subsidiaries, namely, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Travancore, State Bank of Mysore and State Bank of Patiala," Jaitley told reporters following the cabinet meeting.
"The merger will lead to far greater operational efficiency and synergy of operations within these banks," he said.
"Obviously, with greater efficiency if cost of operations are reduced, the cost of funds will also come down," he added.
The Finance Minister said the merged entity will create a banking behemoth, "a very large bank, not only from the domestic point of view but also globally".
SBI is the country's largest lender with about 16,500 branches, including 191 foreign offices spread across 36 countries.
"The merger is likely to result in recurring savings, estimated at more than Rs 1,000 crore in the first year, through a combination of enhanced operational efficiency and reduced cost of funds," a cabinet communique said.
"Existing customers of subsidiary banks will benefit from access to SBI's global network. The merger will also lead to better management of high value credit exposures through focused monitoring and control over cash flows instead of separate monitoring by six different banks," it added.
Jaitley said the proposed merger of Bhartiya Mahila Bank into SBI is still under consideration and the cabinet did not take a decision on the matter on Wednesday.
Last year, SBI had announced that it would merge its five subsidiaries and Bharatiya Mahila Bank on receipt of government approval for the same.