Associate Banks of State Bank of India (SBI)

The Associate Banks of the State Bank of India (SBI) were a group of regional public sector banks that operated under the parentage of the State Bank of India. These banks played a significant role in expanding banking outreach, mobilising savings and supporting regional economic development in India. In the context of banking, finance and the Indian economy, the associate banks represented a unique model of decentralised banking under a centralised institutional framework until their merger with SBI in 2017.
The associate banks helped strengthen India’s banking system during the formative decades of economic planning and financial inclusion.

Background and Evolution of Associate Banks

The origin of SBI’s associate banks can be traced to the princely states and regional banking institutions that existed before Independence. Many of these banks were originally state-owned banks of former princely states and were later brought under the control of the State Bank of India through legislative measures.
The State Bank of India (Subsidiary Banks) Act, 1959 provided the legal framework for associating these banks with SBI. Under this arrangement, SBI held a controlling stake and exercised supervisory and managerial influence, while the associate banks retained separate identities and regional focus.
This structure allowed the Indian banking system to balance national-level coordination with regional responsiveness.

List of Associate Banks of SBI

Before their merger, SBI had five associate banks:

• State Bank of Bikaner and Jaipur
• State Bank of Hyderabad
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Travancore

Each associate bank primarily operated in specific regions, reflecting historical and administrative boundaries. This regional orientation enabled them to understand local economic conditions, credit needs and customer profiles more effectively.

Role in Banking and Financial Development

The associate banks of SBI made a substantial contribution to the expansion of formal banking in India. They extended banking services to semi-urban and rural areas, particularly in regions where commercial banking penetration was limited.
Their key contributions included:

• Mobilisation of household savings
• Expansion of branch networks in underserved areas
• Provision of agricultural and small-scale industry credit
• Support to state-level development initiatives

By complementing SBI’s national presence, the associate banks strengthened the overall reach and depth of India’s banking system.

Importance in Priority Sector Lending

Priority sector lending has been a cornerstone of India’s banking policy, aimed at directing credit to agriculture, small enterprises, education and weaker sections. SBI’s associate banks played a vital role in implementing these policies at the grassroots level.
Due to their regional familiarity, associate banks were effective in:

• Financing small and marginal farmers
• Supporting micro and small enterprises
• Implementing government-sponsored credit schemes
• Promoting financial inclusion

Their contribution helped align banking operations with India’s socio-economic development goals.

Operational and Managerial Structure

Although the associate banks were independent legal entities, they operated under the strategic guidance of SBI. SBI provided managerial support, policy direction and technological integration, while associate banks handled day-to-day operations within their regions.
This structure offered several advantages:

• Shared expertise and best practices
• Greater operational autonomy at the regional level
• Risk diversification across geographies

However, it also led to operational overlaps and differences in efficiency levels across the group.

Challenges Faced by Associate Banks

Over time, the associate banks faced several challenges related to scale, efficiency and competition. The liberalisation of the Indian economy and the entry of new private sector banks intensified competition in the banking sector.
Key challenges included:

• Rising non-performing assets
• Limited ability to raise capital independently
• Duplication of functions and costs
• Variations in technological adoption

These challenges prompted policymakers to reconsider the structure of associate banks within the evolving financial landscape.

Merger with State Bank of India

In 2017, the Government of India approved the merger of all five associate banks with the State Bank of India. This marked a significant consolidation in the Indian banking sector and transformed SBI into one of the largest banks globally by assets.
The merger aimed to:

• Achieve economies of scale
• Improve operational efficiency
• Strengthen capital base and risk management
• Enhance customer service through unified systems

The integration represented a shift towards consolidation as a strategy for strengthening public sector banks in India.

Impact on Banking and Finance

The merger of associate banks into SBI had far-reaching implications for banking and finance in India. It reduced fragmentation within the public sector banking system and created a stronger, more competitive institution.
Key impacts included:

• Streamlined balance sheet management
• Improved capacity to fund large projects
• Enhanced technological and digital capabilities
• Better alignment with global banking standards