New Delhi, July 21 (IANS) State Bank of India (SBI) will acquire its wholly-owned subsidiary SBICI Bank Ltd, which runs two branches in Mumbai and has business of nearly Rs.700 crore.

The union cabinet Thursday gave its green signal for the acquisition. Board of directors of both banks as well as the Reserve Bank of India have already approved the deal.

State Bank of India Commercial and International Bank Ltd. (SBICI Bank Ltd.) was set up in 1994 as a wholly-owned subsidiary of SBI after the country's largest lender took over Indian operations of the erstwhile Bank of Credit and Commerce International Ltd. (BCCI), which went into liquidation in 1991.

The proposed merger would help in eliminating the cost involved in maintaining the administrative structure of SBICI as both the branches of SBICI would be easily absorbed in the operations of the main bank of SBI, the finance ministry said in a statement.

As on March 31, 2010, net worth of SBICI Bank stood at Rs.128.74 crore and capital base of Rs.100 crore. The bank has a total business (deposits plus advances) of less than Rs.700 crore.

According to the RBI guidelines for ownership in private sector banks, the bank's capital had to be raised to Rs.300 crore.

"The existing business model of the bank and the returns generated by it over the years do not justify additional capital infusion," finance ministry said.