In a parallel development, the bank is repositioning SBI Commercial & International Bank Ltd (SBICIB) -- the new avatar of the erstwhile Bank of Credit & Commercial International -- as a competitor to the new generation private sector banks. SBICIB, a one-branch bank, will set up a string of branches over the next few months.

Says a senior SBI executive: "We have drawn up a three-stage plan for integration of treasury operations. At the first stage, SBI's forex and domestic treasury operations are being merged. This will be followed up by integrating the forex and domestic treasury operations of each of the seven associate banks. At the final stage, one central dealing roomwill coordinate the entire treasury operations of the SBI family."

The top brass of the SBI associates are meeting later this week to explore the synergies of operations. "We will centralise the treasury and inspection activities, among other things, at the earliest," the SBI official said.According to industry sources, the State Bank's supremacy could be threatened in the near future if two or more strong banks or financial institutions start merging their operations to take on the moght of the SBI.

Hence the plan to leverage the "family strength" to ward off competition. Once the State Bank is able to merge the treasury operations of its associate banks, it will be able to move the market at will.

"Even now the SBI is the prime market mover. If the money markets acquire enough depth, the combined strength of the SBI group will still move the market," analysts said. SBI sources agreed that size was a critical issue.

"We will have to explore every possible avenue of risk-sharing. In the financialsector, size is a strength and we want to use that to the hilt."The McKinsey report on revamping the SBI had recommended a phased merger of the associate banks with the SBI. However, the suggestion has been hanging fire as the finance ministry has not given the green signal. "We were expecting the Narasimham committee report to make some comment on the issue.

SBI to integrate treasury operations:

But, the panel has been silent on the SBI and its arms. Hence the decision is to go all out to exploit the group's strengths without being formally merged," sources said. SBI and its 7 associates account for over 30 per cent of the business of the banking industry. The branch network of the SBI family exceeds 16,000, including 2,500 regional rural bank branches sponsored by the SBI. Of the 7 associate banks, State Bank of Travancore, State Bank of Bikaner & Jaipur, State Bank of Hyderabad and State Bank of Patiala are big banks while State Bank of Mysore, State Bank of Indore and State Bank of Saurashtraare smaller in size.

Insight -- pre-emptive move

Size is only one of the factors pushing SBI towards a closer integration of the operations of its subsidiaries. The problem is the government is yet to make up its mind on bank mergers in general, and its views on the SBI associate banks are yet to crystallise. By merging the treasury operations of its associate banks, the SBI is saying that it has the first claim to its associate banks. Some years back the government was toying with the idea of asking SBI to let the associate banks merge and form a rival to the SBI itself; another idea was to ask the stronger associates to merge with other weaker nationalised banks. Now that opinion is veering towards fewer but bigger megabanks, SBI is taking pre-emptive action to ensure that its associates are not hived off by ministry mandarins on a whim or fancy.