State Bank of India
State Bank of IndiaReuters

The government's move to consolidate ailing public sector banks saw first major step on Wednesday when the Union Cabinet approved the merger of the five associate banks with State Bank of India.

The five associate banks are State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Patiala, State Bank of Mysore and State Bank of Hyderabad.

Shares of three listed associate banks jumped up to 20 percent following news of the merger. State Bank of Bikaner Jaipur stocks jumped 20 percent from its previous close to Rs. 599.60 on the Bombay Stock Exchange.

Similarly, share prices of State Bank of Travancore and State Bank of Mysore also jumped 20 percent and closed at Rs. 478.90 and Rs. 547.90, respectively, on Wednesday.

CR Sasikumar, MD of State Bank of Travancore, said the merger would benefit the customers, as reported by the Financial Express. Meanwhile, he further clarified that there was no issue of staff integration.

India's largest lender SBI had recently given its nod to the proposal of the merger of subsidiary banks and Bhartiya Mahila Bank.

The merger will not create any asset quality problem for the parent bank and it would give the senior management more access to the subsidiary banks, Siddharth Purohit of brokerage Angel Broking was quoted as saying by Moneycontrol.

As many as 50,000 SBI associate banks employees went on strike last month, protesting against the proposed merger with the parent bank. The associate bank employees had opposed the move under the banner of the All India Bank Employees Association (AIBEA).

"We are protesting against the plan of SBI management to merge five large associate banks into it," PTI quoted the union's statement as saying.

Shares of State Bank of India closed at Rs. 215.65 on the BSE, up 3.90% from their previous close.