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Chapter -1

Research Methodology

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Research methodology
Content
1.1

Research methodology

1.2

Objective of study

1.3

Method of data collection

1.4

Selection of sample

1.5

Review literature

1.6

Tools of analysis

1.7

Significance of study

1.8

Proposed chapter plan

1.9

Hypothesis of study

1.10

Limitation of study

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1.1

Research Methodology
Banking is the mirror reflection of an economy. The performance of any
economy, to a large extend, is dependent on the performance of its bank.
Banking has undergone a metamorphosis globally as well as in India. Over the
past few decades,36 banks and non banking finance companies have been
merged
The Banking sector which plays a very vital role in the economic
development of india has been witnessing tremendous change. Thevarious
players in the banking are have already begun to feel the hart of intense
competition M&A is one among the various model of restructuring restore by
bank to ensure a better growth prospect.
The Indian banking system has undergone major changes that have affected
both its structure and the nature of the strategic interaction among banking
institutions. The demand of the new operating environment has made
consolidation via merger and acquisitions a strategic necessity. Thats why we
choose the topic,
A Study of Impacts of Merger & Acquisition on financial performance of
Indian Banking Sector
Mergers and acquisitions in banking sector are forms of horizontal merger
because the merging entities are involved in the same kind of business or
commercial activities. Sometimes, non-banking financial institutions are also
merged with other banks if they provide similar type of services.

1.2 Objective of study


Primary objective

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To evaluate the impact of merger and acquisition on the


profitability of the selected Indian banks during the study
period.

To evaluate the impact of merger and acquisition on the


liquidity of the selected Indian banks during the study period.

To compare the overall performance of selected Indian banks


for the pre and past merger.

Secondary objective

To study why the banks are going the merger and acquisitions.
To known the risk in the merger and acquisitions.
To study the benefits of merger and acquisitions

1.3

Method of data collection

The study is based on the secondary data taken from the annual reports of
selected units and other websites. And all the data relating to history, growth
and development of selected Industries, it will be collected mainly from the
books and magazine relating to the industry and published papers, reports,
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articles and from the various newspapers, bulletins and other journals like
Management Account, and Chartered Account.

1.4

selection of sample

Sample size

: - 5 Indian banks are,

ICICI bank
Bank of Baroda
Oriental bank of commerce
IDBI bank
Indian overseas bank
Sampling techniques

: - systematic sampling

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Reason for selecting sample

: - these 5 Indian banks merger took place

during the Year 2004 to 2007 and which is widely accepted in all Over the world.

1.5

Review literature

Authors

Study Period

Objective

Measure Used

Results

Name
Gallet

1996

Examine the

Market power

Results have suggested that

relationship

mergers slightly boost market

between mergers

power in steel industry.

in the U.S. steel


industry and the
Yuce & Ng

2005

market power.
Investigate the

Abnormal return

Results have indicated that both

effect of mergers

the target and the

announcements

acquiring company

of Canadian

shareholders earn significant

firms on the

Positive abnormal returns.

abnormal
Kling

2006

returns.
Investigate the

Total Stock

From 1898 to 1904 mergers

successfulness of

return

affected stock returns

The mergers

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Positively in all industries

wave in
Sun & tang

2000

except for banks.

Germany.
Identify the

Operating

Stockholders of acquiring firms

source of

Margin Ratio,

do not gain from

gains in merger

Net

mergers, while stockholders of

and

Margin Ratio,

acquired firms and

acquisition

Stock Price

Industry counterparts earn

transactions in

Reaction

positive market-adjusted

the railroad

returns.

industry;
market power or
Efficiency
Mazumdar et l

2007

power.
Examine the

Cash Flow, Sales

Cash flows decreased after

effects of

Growth,

mergers. For sales growth, the

mergers of local

Efficiency and

pattern was ambiguous and

exchange firms

Synergy

driven by increased market

in the U.S. on

Measures

presence. The impact of

the financial

mergers on the measures of

performance and

effiy and synergy was negative.

Efficiency level.

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1.6

Tools of analysis

In this study we have used


1. Ratio Analysis
Ratio analysis is an important technique of financial analysis which shows the
arithmetical relationship between any two figures.
A ratio, in general, is a statistical yardstick by means of which the relationship
between the figures can be compared and measured.
2. Statistical Analysis
In this study we have used Mean, Difference and Standard Deviation as tools of
statistical analysis and Paired t-test for judging hypothesis.
3. Paired T-test
Paired t- test is a way to test for comparing two related samples, involving small
values of n that does not require the variances of the two populations to be equal,
but the two populations are normal must continue to apply. For a paired T-test it is
necessary that the observation of two samples be collected in the form of matched
pairs that is i.e,each observation in the one sample must be paired with an
observation in the other sample in such a manner that these observations are
somehow matched or related. Such a test is generally considered appropriate in a
before-and-after-treatment study.

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1.7

Significance of study

The study which we have undertaken is significant and useful as it has given
us an experience and knowledge about the merger and acquisition in Indian
banking sector and what was its impact on the financial performance of the
bank.

1.8

proposed chapter plan


1)
2)
3)
4)
5)

research methodology
History &development of merger &Acquition.
History & development of selected unit
Financial analysis
Summary ,finding ,suggestion.

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1.9

Hypothesis of the study


Null Hypothesis
There would be no significant difference in average percentages of
Liquidity indicators in selected units, before and after merger and
acquisition.
There would be no significant difference in average percentages of
Profitability indicators in selected units, before and after merger
and acquisition.
Alternate Hypothesis
There would be significant difference in average percentages of
Liquidity indicators in selected units, before and after merger and
acquisition.
There would be significant difference in average percentages of
Profitability indicators in selected units, before and after merger
and acquisition.

1.10 Limitation of the study


1) Our study is based on only 5 selected banks.
2) There is a lack of time for the study.
3) We have no so much experience about banking merger and
acquisition.
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4) The banks which we selected for our study may adopt window
dressing which creates effect on our study.
5) There is a lack of primary data in this study.
6) All the limitation of ratio analysis affect our study.
7) All the limitation of secondary data make an impact in our analysis
because our study is based on that data only.
8) For this study we have taken only 3 years data for both before and
after merger and acquisition to compare the performance of
selected units.

Chapter -2
History and Development
Of
Merger and acquisition
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Content
2.1
2.2
2.3
2.4
2.5
2.6
2.7

Introduction
Classification of merger and acquisition
Different between merger and acquisition
Motivation behind merger and acquisition
Merger and acquisition trend
Reason for merger and acquisition
Legal producer for bringing out of merger

2.8

company
Regulation of merger and acquisition

2.8.1

The companies Act 1956

2.8.2

The competitions Act 2010

2.8.3

The other regulation

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2.1 Introductions
We know that the companies together form another company and companies taking over
the existing companies to expand their businesses.

With recession taking toll of many Indian businesses and the feeling of insecurity
surging over our businessmen, it is not surprising when we hear about the immense
number of corporate restructuring taking place, several companies have been taken over
and several have undergone internal restructuring, whereas certain companies in the
same field of business have found it beneficial to merge together into one company.
Corporate Mergers and Acquisitions are something very crucial for any country's
economy. This is so because the Corporate Mergers and Acquisitions can result in
significant restructuring of the industries and can contribute to rapid growth of
industries by generating Economies of Scale.

Remaining small may be beautiful but becoming big would make you powerful is the
underlying principle behind the Merger & Acquisition business strategy. Every business
strives for survival in this growing era of core competence. It is here M&A is looked
upon as an immediate mode for external growth. This phenomena has been prevailing
both in the developed and developing economies. But it is gaining more prominence in
the presentglobalising world. Mergers and acquisitions (M&A) is one of the main part
of the corporate finance world .merger and acquisition are the corporate strategies that
deal with buying, selling or combining different companies with a goal to achieve
rapid growth. However, the decisions on mergers and acquisitions are taken after
considering a few facts like the current business status of the companies, the present
market scenario, and the threats and opportunities etc. In fact, the success of mergers
and acquisitions largely depend upon the merger and acquisition strategies adopted by
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the organizations.

Many big companies continuously look out for potential companies, preferably smaller
ones, for mergers and acquisitions. Some companies may have their core cells, which
concentrate on merger and acquisition

Merger is a tool used by companies for the purpose of expanding their operations often
aiming at an increase of their long term profitability. Mergers and acquisitions are
almost a daily occurrence in the life sciences. Competition is fierce, and

companies

must team up to survive in an industry where specialized knowledge is king. One of the
largest, most critical, and most difficult parts of a business merger is the successful
integration of the enterprise networks of the merger partners. The prime objective of a
firm is to grow profitably. The growth can be achieved either through the process of
introducing or developing new products or by expanding or enlarging the capacity of
existing products.
This wave was driven by globalization, liberalization and technological
changes.

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Merger

A merger occurs when two or more companies combines and the resulting firm
maintains the identity of one of the firms. One or more companies may merger with an
existing company or they may merge to form a new company. Usually the assets and
liabilities of the smaller firms are merged into those of larger firms.
Example: company A + company B = company B
Merger may take two
forms1. Merger through absorption
2. Merger through
consolidation

Absorption
Absorption is a combination of two or more companies into an existing company.
All companies except one loose their identity in a merger through
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absorption.

Consolidation
A consolidation is a combination if two or more combines into a new
company. In this form of merger all companies are legally dissolved and a
new entity is created. In consolidation the acquired company transfers its
assets, liabilities and share of the acquiring company for cash or exchange
of assets.

Acquisition

An acquisition usually refers to a purchase of a smaller firm by a larger one. It is an


attempt or a process by which a company or an individual or group of individual
acquires control on another company called Target Company.

Acquisition also known as takeover or a buyout is the buying of one company by


another. An acquisition may be friendly or hostile.

2.2 Classifications of Mergers and Acquisitions

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1. Horizontal
A merger in which two firms in the same industry combine.
Often in an attempt to achieve economies of scale and/or scope.

2. Vertical
A merger in which one firm acquires a supplier or another firm that is closer to
its existing customers.
Often in an attempt to control supply or distribution channels.

3. Conglomerate
A merger in which two firms in unrelated businesses combine.
Purpose is often to diversify the company by combining uncorrelated assets
and income streams

4. Cross-border (International) M&As


A merger or acquisition involving a Canadian and a foreign firm either the
acquiring or target company.

2.3 Difference between merger and acquisition

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2.4 Motives behind merger and acquisition


To increase profit.
To get benefit of economize of scale.
To get the benefit of centralization.
Access to new markets.
To get the benefit of synergy.
Growth in market share.
Access to new products.
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Redirection of operating expenses.


To enhance reputation.
Access to distribution channels.
Access to additional management or technical talent.
To reduce competition.
To reduce distribution costs.
Access to new brands.

2.5 Merger and Acquisition Trends


Merger and Acquisition Trends give a clear idea about the movements of the market.
Not only the product market or labor market, but also the money market gets
influenced by these Merger and Acquisition Trends.
Merger and Acquisition Trends are important to study in order to judge the market
movements of any particular economy.
So, one can easily understand how determining the Merger and Acquisition Trends
All over the world, in the developed and developing nations, record number of
merger and acquisition deals took place. The reason of this particular Merger and
Acquisition Trend was the emergence and rapid growth of Private Equity Funds.
Moreover, the regulatory environment of the publicly owned companies and the urge
to attain growth of short term earnings were also behind the specific trend of Mergers
and Acquisitions.

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2.1 Merger and Acquisition Trends

(S

ou
rce

Rajesh
Kumar B., 2011, Mergers and Acquisitions Text and Cases) Trend of merger

and acquisition
The above graph represents that in 2003-2004 more no of m&a activity
took place as compared to other years.

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2.6 Reason for merger and acquisition

Following are some of the reasons why corporate go for


mergers and acquisitions.

Through corporate mergers and acquisitions, duplicate departments can be


eliminated in the combined company, which would help to reduce its fixed costs.
As a result, the profit margins would go up.
It helps the organization to increase revenue and market share.
Cross-selling of products/services is possible.
A profitable corporation also buys a loss-making company in order to use the
losses of the target company to lessen its tax liability.
Mergers and acquisitions also let the companies to transfer resources. By this way,
one company may use the specialized skills of the others.

Companies also go for mergers/acquisitions for vertical integration, where the


vertically integrated company can gather one deadweight loss by setting the
output of the upstream company to the competitive level

2.7 Legal Procedure for Bringing About Merger of


Companies.
(1) Examination of object clause:
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The MOA of both the companies should be examined to check the power to amalgamate
is available. Further, the object clause of the merging company should permit it to carry
on the business of the merged company. If such clauses do not exist, necessary approvals
of the share holders, board of directors, and company law board are required.
(2) Intimation to stock exchanges:
The stock exchanges where merging and merged companies are listed should be informed
about the merger proposal. From time to time, copies of all notices, resolutions, and
orders should be mailed to the concerned stock exchanges.
(3) Approval of the draft merger proposal by the respective boards:
The draft merger proposal should be approved by the respective BOD s. The board of
each company should pass a resolution authorizing its directors/executives to pursue the
matter further.
(4) Application to high courts:
Once the drafts of merger proposal is approved by the respective boards, each company
should make an application to the high court of the state where its registered office is
situated so that it can convene the meetings of share holders and creditors for passing the
merger proposal.

(5) Dispatch of notice to share holders and creditors:


In order to convene the meetings of share holders and creditors, a notice and an
explanatory statement of the meeting, as approved by the high court, should be
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dispatched by each company to its shareholders and creditors so that they get 21 days
advance intimation. The notice of the meetings should also be published in two news
papers.
(6) Holding of meetings of share holders and creditors:
A meeting of share holders should be held by each company for passing the scheme of
mergers at least 75% of shareholders who vote either in person or by proxy must approve
the scheme of merger. Same applies to creditors also.
(7) Petition to High Court for confirmation and passing of HC orders:
Once the mergers scheme is passed by the share holders and creditors, the companies
involved in the merger should present a petition to the HC for confirming the scheme of
merger. A notice about the same has to be published in 2 newspapers.
(8) Filing the order with the registrar:
Certified true copies of the high court order must be filed with the registrar of companies
within the time limit specified by the court.
(9) Transfer of assets and liabilities:
After the final orders have been passed by both the HC s, all the assets and liabilities of
the merged company will have to be transferred to the merging company.

(10) Issue of shares and debentures:

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The merging company, after fulfilling the provisions of the law, should issue shares and
debentures of the merging company. The new shares and debentures so issued will then
be listed on the stock exchange.

2.8 Regulations for Mergers & Acquisitions


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Mergers and acquisitions are regulated under various laws in India. The objective of the
laws is to make these deals transparent and protect the interest of all shareholders. They
are regulated through the provisions of:-

2.8.1 The Companies Act, 1956


The Act lays down the legal procedures for mergers or acquisitions:Permission for merger:Two or more companies can amalgamate only when the amalgamation is permitted under
their memorandum of association. Also, the acquiring company should have the
permission in its object clause to carry on the business of the acquired company. In the
absence of these provisions in the memorandum of association, it is necessary to seek the
permission of the shareholders, board of directors and the Company Law Board before
affecting the merger.

Information to the stock exchange:The acquiring and the acquired companies should inform the stock exchanges (where
they are listed) about the merger.

Approval of board of directors:The board of directors of the individual companies should approve the draft proposal for
amalgamation and authorize the management of the companies to further pursue the
proposal.
Application in the High Court:-

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An application for approving the draft amalgamation proposal duly approved by the
board of directors of the individual companies should be made to the High
Shareholders' and creators' meetings:The individual companies should hold separate meetings of their shareholders and
creditors for approving the amalgamation scheme. At least, 75 percent of shareholders
and creditors in separate meeting, voting in person or by proxy, must accord their
approval to the scheme.
Sanction by the High Court:After the approval of the shareholders and creditors, on the petitions of the companies,
the High Court will pass an order, sanctioning the amalgamation scheme after it is
satisfied that the scheme is fair and reasonable. The date of the court's hearing will be
published in two newspapers, and also, the regional director of the Company Law Board
will be intimated.

Filing of the Court order:After the Court order, its certified true copies will be filed with the Registrar of
Companies.
Transfer of assets and liabilities:The assets and liabilities of the acquired company will be transferred to the acquiring
company in accordance with the approved scheme, with effect from the specified date.
Payment by cash or securities:As per the proposal, the acquiring company will exchange shares and debentures and/or
cash for the shares and debentures of the acquired company. These securities will be
listed on the stock exchange.

2.8.2 The Competition Act, 2002


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The Act regulates the various forms of business combinations through Competition
Commission of India. Under the Act, no person or enterprise shall enter into a
combination, in the form of an acquisition, merger or amalgamation, which causes or is
likely to cause an appreciable adverse effect on competition in the relevant market and
such a combination shall be void. Enterprises intending to enter into a combination may
give notice to the Commission, but this notification is voluntary. But, all combinations do
not call for scrutiny unless the resulting combination exceeds the threshold limits in terms
of assets or turnover as specified by the Competition Commission of India. The
Commission while regulating a 'combination' shall consider the following factors :

Actual and potential competition through imports;


Extent of entry barriers into the market;
Level of combination in the market;
Degree of countervailing power in the market;
Possibility of the combination to significantly and substantially increase prices or

profits;
Extent of effective competition likely to sustain in a market;
Availability of substitutes before and after the combination;
Market share of the parties to the combination individually and as a combination;
Possibility of the combination to remove the vigorous and effective competitor or

competition in the market;


Nature and extent of vertical integration in the market;
Nature and extent of innovation;
Whether the benefits of the combinations outweigh the adverse impact of the
combination.
Thus, the Competition Act does not seek to eliminate combinations and only aims
to eliminate their harmful effects.

2.8.3 The other regulations are provided in the:The Foreign Exchange Management Act, 1999 and the Income Tax Act,1961.
Besides, the Securities and Exchange Board of India (SEBI) has issued guidelines
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to regulate mergers and acquisitions. The SEBI (Substantial Acquisition of


Shares and Take-overs) Regulations,1997 and its subsequent amendments aim
at making the take-over process transparent, and also protect the interests of
minority shareholders.

CHAPTER-3

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HISTORY AND
DEVELOPMENT
OF
INDUSRYAND
SELECTED UNIT

CONTENT
3.1 About banking
3.2 Historical background of banking in India
3.3 List of banking in India

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3.4 Major M & A in banking/NBFC Sector in India


3.5 History of Selected Units
1) ICICI Bank
2) BOB
3) IDBI
4) IOB
5) OBC

3.1 About banking


The importance of banks in the modern economy cannot be neglected. They occupy a
very important place in the field of commerce and industry of any country. No country
can achieve commercial and industrial progress in the absence of a sound banking
system.
According to section 5(b) of the Banking Regulation Act the term banking is defined as
accepting for the purpose of lending or investment of deposits of money from the public,
repayable on demand or otherwise and withdraw able by cheque, draft, order or
otherwise.
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3.2 HISTORICAL BACKGROUND OF BANKING IN INDIA


From the early Vedic period the giving and taking of credit in one form or the other have
existed in Indian Society. The bankers are the pillars of the Indian society. Early days
bankers were called as indigenous bankers. The development of modern banking has
started in India since the days of East India Company. These banks mostly had no capital
of their own and depended entirely on deposits in India.
The banking industry worldwide is transformed concomitant with a paradigm shift in the
Indian economy from manufacturing sector to nascent service sector. Indian banking as a
whole in undergoing a change. Indian banks have always proved beyond doubt their
adaptability to mould themselves into agile and resilient organizations.

For the past three decades Indias banking system has several outstanding achievements
to its credit. The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even
to the remote corners of the country. This is one of the main reasons of Indias growth
process.
Not long ago, an account holder had to wait for hours at the bank counters for getting a
draft or for withdrawing his own money. Today, he has a choice. Gone are days when the
most efficient bank transferred money from one branch to other in two days. Now it is
simple as instant messaging or dials a pizza. Money has become the order of the day.

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3.3 Major M&A in Banking / NBFC sector in India.


Year
1969
1970
1971
1974
1976
1984-85
1984-85
1985
1986
1988
1989-90
1989-90
1989-90

Acquirer
State Bank of Indian
State Bank of Indian
Chartered Bank
State Bank of Indian
Union Bank
Canara Bank
State Bank of Indian
Union Bank
Punjab National Bank
Bank of Baroda
Allahabad Bank
Indian Overseas Bank
Indian Bank

Target
Bank of Behar
National Bank Lahor
Eastern Bank
Krishnaram Baldeo Bank Ltd
Belgaum Bank Ltd
Lakshmi Commercial Bank
Bank of Cochin
Miraj state Bank
Hindustan Commercial Bank
Traders Bank
United Industrial Bank
Bank of Tamil Nadu
Bank of Thanjavur

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1989-90
1990-91
1993-94
1993-94
1995-96
1996
1997
1997
1997
1998
1999
1999
1999
1999
2000
2000
2001
2002
2002
2002
2003
2004
2004
2004
2006
2006
2006

Bank OF India
Central Bank of India
Punjab national bank
Bank of India
State bank of India
ICICI
ICICI
Oriental Bank of commerce
Oriental Bank of commerce
ICICI
Bank of Baroda
Centurion Bank

Parur Central Bank


Purbanchal Bank
New Bank of India
Bank of Karad
Kasinath Seth Bank
SCICI
ITC Classic
Bari Doad Bank
Punjab Cooperation Bank
Anagram Finance
Bareilly Corporation Bank
20th Century Finance

HSBC
Union Bank
HDFC Bank
Standard Chartered Bank
ICICI Bank
ICICI Bank
Bank of Baroda
ING
Punjab National Bank
Bank of Baroda
Oriental bank of Commerce
IDBI
United Western Bank
Centurion Bank
The Federal Bank

Corporation
British Bank of Middle East
Sikkim Bank
Times Bank
Gridleys Bank
Bank of Madura
ICICI
Benares State Bank
Vysya Bank
Nedungadi Bank
South Gujarat Local bank
Global trust Bank
IDBI Bank
IDBI Bank
Lord Krishna Bank
Ganesh Bank of Kurundwad

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3.4 History of Selected Units


1) ICICI BANK

Type

Public NSE:ICICIBANK BSE:532174


NYSE:IBN

Industry

Banking Financial services

Founded

1955

Headquarters

Mumbai, Maharashtra, India

Key people

K.V. Kamath (Chairman),


Chanda Kochhar (MD & CEO)
Mr. N. S.Kannan(CFO)

Products

Retail Banking
Commercial Banking
Mortgages Credit Cards Private Banking,
Asset Management Investment Banking

Websites

www.ICICIBank.com

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History of ICICI Bank


Acquisition of ICICI Bank
2005 - Investitsionno-Kreditny Bank (IKB), a Russian bank

2007 - Sangli Bank , Maharashtra State

2008 - Bank of Rajasthan

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History of merger of ICICI bank with sangli bank.

Date of Merger: - 9th December, 2006


Type of Merger: - voluntary merger
Motive of Merger: - Expansion of size
INTENT

The Board of India's largest private sector lender ICICI Bank approved the merger of The
Sangli Bank Limited with itself - a move that would enhance its presence in rural and
small and medium enterprises banking space ICICI Bank has planned to leverage Sangli
Banks network to expand its base and to roll out of its small enterprise banking
operations in the rural part of the two most developed states in the Country.
BENEFIT OF MERGER
Benefit to Sangli bank
Increase in the value of share of sangli bank.
New opportunity for the employees of sangli bank.
Benefit to ICICI bank
Expansion in geographical area.
Increase in the number of customer.
Increase distribution network in urban area.

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VALUE OF MERGER
According to the merger scheme, the share exchange ratio has been fixed for the
shareholders of the Maharashtra based Sangli Bank. The shareholders of Sangli Bank
with every 925 equity shares will get 100 equity shares of the ICICI Bank.
Further, the ICICI Bank is expected to issue 3.46 million equity shares with the face
value of Rs 10 each against Sangli Bank Limiteds 31.96 million equity shares of the
face value of Rs 10 each.

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2) Bank of Baroda

Type
Industry

Public (BSE: 532134)


Banking Financial services Investment

Founded
Headquarters

services
1908
Bank of Baroda, Baroda Corporate Center,
Plot No - C-26, G - Block, Bandar Kurla
Complex, Mumbai India

Key people

M D Mallya

Products

(Chairman & MD)


Finance and insurance Consumer banking
Corporate banking
Investment banking Investment management
Private banking Private equity Mortgages
Credit cards

Website

www.bankofbaroda.com

1959: BoB acquired Hind Bank.


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M .H. Gardi School of Management

1961: BoB merged in New Citizen Bank of India.


1963: BoB acquired Surat Banking Corporation in Surat, Gujarat.
1972: BoB acquired The Bank of Indias operations in Uganda.
2002: BoB acquired Benares State Bank (BSB) at the Reserve Bank of Indias
request.

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History of merger of Bank Of Baroda with South Gujarat Local


Area Bank ltd.
Date of Merger: - 25th June, 2004
Type of Merger: - Forced merger
Motive of Merger: - Restructuring of weak bank
INTENT
According to the RBI, South Gujarat Local Area Bank had suffered net losses in
consecutive years and witnessed a significant decline in its capital and reserves. To tackle
this, RBI first passed a moratorium under Section 45 of the Banking Regulation Act 1949
and then, after extending the moratorium for the maximum permissible limit of six
months, decided that all seven branches of SGLAB function as branches of Bank of
Baroda. At that time the focus interest for BOB was the local area banks depositors.

BENEFIT OF MERGER
The clients of SGLAB were effectively transferred to Bank of Baroda, deriving the
advantage of dealing with a more secure and bigger bank. SGLAB did not benefit much,
except that it was able to merge with a bigger bank and able to retain its branches and
customers, albeit under a different name. Since BoB was a large entity (total assets of Rs.
793.2 billion at the time of merger), addition of a small liability did not affect it much.
Albeit minor, it obtained seven more branches and the existing customers of SGLAB.
This further strengthened its position in rural Gujarat

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3) IDBI BANK

Type

Public (BSE: )

Industry

Banking Financial services

Founded

July 1964

Headquarters

Mumbai, India

Key people

Shri R. M. Malla, CMD

Products

Finance and insurance

Employees

8,989

Website

www.idbi.com

History of IDBI Bank


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Merger and Acquisition of IDBI bank


Sep 2003: IDBI acquires entire shareholding of Tata Finance Limited.
July 2004: Merger of IDBI Bank with the Industrial Development Bank of India
Ltd.
Oct 2006: IDBI Bank also acquired United Western Bank

History of merger of IDBI Bank with United Western Bank

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Date of Merger: - 9th Oct, 2006


Type of Merger: - Forced merger
Motive of Merger: - Restructuring of weak bank

INTENT
The amalgamation of United Western Bank (UWB) with Industrial Development Bank of
India is likely to change the rules of the game in the banking space on the issue of
valuation of shares.

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The merger is markedly different from takeover of Global Trust Bank and Nedungadi
Bank by healthier rivals. In both the cases, shareholders went away without any
consideration for the shares surrendered.
Apart from synergies to the participating banks, the IDBI-UWB merger is likely to be a
positive for old private sector banks.

Benefit of merger
The merger is likely to help IDBI expand its retail presence, though its size
The merger would give IDBI immediate access to the 230-branch network of
UWB, thereby widening its deposit franchise.
The merger with UWB is likely to help IDBI diversify its credit profile.
Benefit of an improved deposit mix for IDBI.
.
VALUE OF MERGER
IDBI has offered to pay Rs 28 per share to the UWB shareholders. The purchase
consideration, at this price, works out to about Rs 150 crore.
The price-to-book multiple for the acquisition works out to about 1.9. Although this
appears slightly high, we believe the price factors in the takeover premium attached to
UWB's business. Further, UWB has a positive net worth (about Rs 115 crore). Its
capital adequacy ratio had turned negative mainly because of technical provisions such as
for depreciation in the value of investments.

4) INDIAN OVERSEAS BANK

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Type

Public

Industry

Banking Capital Markets and allied


industries

Founded

Madras, February 10,1937

Headquarters

Chennai, India

Key People

Chairman & MD
M Narendra
Executive Directors:
Nupur Mitra ,
A.K.Bansal

Products

Loans, Credit Cards, Savings,


Investment vehicles etc.

Website

www.iob.in

History of Indian Overseas Bank


Merger and Acquisition of Indian Overseas Bank
1988-89: IOB acquired Bank of Tamil Nadu in a rescue.
2007: IOB took over Bharat Overseas Bank.
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2009: IOB took over assets and liabilities of Shree Suvarna Sahakari Bank.

History of merger of Indian Overseas Bank with Bharat Overseas Bank.


Date of Merger: - 31st March, 2007
Type of Merger: - compulsory merger
Motive of Merger: - Restructuring of weak bank
BENEFIT OF MERGER
For IOB, this acquisition will fit in nicely with its plans to expand abroad. BOB has a
branch in Bangkok that is making profits. The Bangkok branch registered profits of
about Rs 8 crore in the year ended March 2005. BOB is also substantially smaller
than IOB and both are South-based banks. Integration challenges could thus be
expected to be minimal.

5) ORIENTAL BANK OF COMMERCE

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Type
Industry

Public
Banking Financial services

Founded
Headquarters
Key people

19 February 1943
New Delhi, Delhi, India
NAGES PAYDAH (Chairman and MD)

Products

Investment Banking Consumer Banking


Commercial Banking Retail Banking
Private Banking Asset Management
Pensions Mortgages Credit Cards
Government of India
www.obcindia.co.in

Owner(s)
Website

History of Oriental Bank of Commerce

Oriental Bank of Commerce Acquires Global Trust Bank Ltd


Date of merger -14th Aug, 2004
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Types of merger- Forced Merger


Motive of merger- Restructuring of weak bank

INTENT
For Oriental Bank of Commerce there was an apparent synergy post merger as the
weakness of Global Trust Bank had been bad assets and the strength of OBC lay in
recovery In addition, GTB being a south-based bank would give OBC the much-needed
edge in the region apart from tax relief because of the merger. GTB had no choice as the
merger was forced on it, by an RBI ruling, following its bankruptcy.
BENEFIT OF MERGER
OBC gained from the 104 branches and 276 ATMs of GTB, a workforce of 1400
employees and one million customers. Both banks also had a common IT platform. The
merger also filled up OBC's lacunae - computerization and high-end technology. OBC's
presence in southern states increased along with the modern infrastructure of GTB.
As part of the merger proposal, the OBC would get Income Tax exemptions in
transferring the assets of GTB in its book during the merger process, while all the bad
debts of the merged entity would be adjusted against the cash balances and reserves of the
Hyderabad-based bank.

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CHAPTER- 4
FINANCIAL ANALYSIS
CONTENT

Content
4.1
4.2
4.3

Uses of Accounting Ratio


Ratio Analysis
Profitability Ratio

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4.1 Ratio Analysis:

Uses of Accounting Ratios

Simplification of accounting data


Helpful in comparative study
Focus on trends
Setting standards

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Study of financial soundness

In this Study, We used following Liquidity Ratios

Cash Deposit
Deposit to owner Fund
Loan to Deposit
Fixed Ass et to Fixed capital
Debt to Equity
Debt to Asset
Interest coverage

1.
2.
3.
4.
5.
6.
7.

1 ) Cash Deposit Ratio

Table 4.1
CASH DEPOSIT RATIO IN SELECTED UNIT
(Before 3 years and after 3 years of M&A)
Bank Name

ICICI
BOB
IDBI
IOB
OBC

Before M
&A
(x)
6.63
4.53
8.69
7.45
7.33

After M &
A
(y)
11.22
4.01
9.76
7.89
10.10

Difference
(x-y)
-4.59
0.52
-1.07
-0.44
-2.77

(Source: Moneycontrol.com)
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Square Of
Difference
(X-Y)2
21.0681
0.2704
1.1449
0.1936
7.6729

cash deposit ratio


Before M & A (x)
11.22

9.76
8.69

6.63

After M & A (y)


10.1
7.457.89

7.33

4.534.01

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS:
Table 4.1 showing Cash Deposit Ratio in selected units, before 3 years and
after 3 years of merger and acquisition. In which before merger, IDBI
showing the highest Cash Deposit Ratio (8.69) whereas BOB showing
the lowest ratio (4.53) as compare to other banks and after merger
ICICI showing highest Cash Deposit Ratio (11.22) whereas BOB
showing lowest ratio (4.01) as compare to other banks.
Impact of merger is highest positive in ICICI because it s showing
increasing Cash Deposit Ratio (4.59) whereas BOB showing negative
impact because its ratio (0.52) has been decreased after merger.
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Test application table


N

Mean

S.D

d.f.

tc

tt

Resul
t

XY

XY

6.926

8.596

-1.67

1.531

2.829

2.0251
8

n-1
5-1

-1.844

2.77

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.
54 | P a g e
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Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected
units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = - 1.844 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no significant
difference in mean score of selected units, before and after merger & acquisition.

2) Deposit to Owners Fund Ratio


FORMULA:

Table 4.2
DEPOSIT TO OWNERS FUND RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank
Name
ICICI

Before M
&A
(x)
8.29

After M
&A
(y)
4.53

Difference Square Of
(x-y)
Difference
(X-Y)2
3.76
14.1376

55 | P a g e
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BOB
IDBI
IOB
OBC

15.33
4.93
17.49
15.02

13.95
10.93
17.36
11.84

1.38
-6
0.13
3.18

1.9044
36
0.0169
10.1124

20
18
16
14
12
ratio 10
8
6
4
2
0

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS:
Table 4.2 showing Deposit to owners fund Ratio in selected units, before 3 years and
after 3 years of merger and acquisition. In which before merger, IOB showing the
highest Deposit to owners fund Ratio (17.49) whereas IDBI showing t he lowest
ratio (4.93) as compare to other banks and after merger IOB showing highest
Deposit to owners fund Ratio (17.36) whereas ICICI showing lowest ratio (4.53) as
compare to other banks.
Impact of merger is positive in IDBI because its showing increasing Deposit to
owners fund Ratio (6) whereas ICICI showing highest negative impact because its ratio
(3.76) has been decreased after merger.

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Mean

S.D

d.f.

tc

tt

n-1

0.281

2.77

Resul
t

XY

XY

12.21

11.72

0.49

5.34

4.72

3.90

5-1

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.

Alternate Hypothesis: (H1)

57 | P a g e
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There would be significant difference in mean score of selected


units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c =0.281 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no significant
difference in mean score of selected units, before and after merger & acquisition.

3) Loan to Deposit Ratio

Table 4.3
LOAN TO DEPOSIT RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank
Name
ICICI
BOB
IDBI
IOB
OBC

Before M
&A
(x)
0.89
0.52
1.91
0.65
0.53

After M &
A
(y)
0.94
0.61
1.16
0.73
0.63

Difference
(x-y)
-0.05
-0.09
0.75
-0.08
-0.1

58 | P a g e
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Square Of
Difference
(X-Y)2
0.0025
0.0081
0.5625
0.0064
0.01

Loan to Deposit Ratio


2
1.8
1.6
1.4
1.2
1
Ratio
0.8
0.6
0.4
0.2
0

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS:
Table 4.3 showing Loan to Deposit Ratio in selected units, before 3 years and after 3
years of merger and acquisition. I n which before merger, IDBI showing the highest
Loan to Deposit

Ratio (1.91)

whereas BOB showing the lowest ratio (0.52) as

compare to other banks and after merger I DBI showing highest Loan to Deposit Ratio
(1.16) whereas BOB showing lowest ratio (0.63) as compare to other banks.

Impact of mer ger is highest positive in OBC because its s howing increasing Loan
to Deposit

Ratio (0.1) whereas IDBI showing negative impact because its ratio

(0.75) has been decreased after merger.

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Mean

S.D

d.f.

tc

tt

n-1

0.517

2.77

Resul
t

XY

XY

0.9

0.81

0.086

0.58

0.23

0.372

5-1

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.

Alternate Hypothesis: (H1)

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There would be significant difference in mean score of selected


units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c =0.517 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no significant
difference in mean score of selected units, before and after merger & acquisition.

4) Debt to Equity Ratio:

Table 4.4
DEBT TO EQUITY RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank
Name

Before M
&A
(x)

After M
&A
(y)

Differenc
e
(x-y)

ICICI
BOB
IDBI
IOB
OBC

240.20
230.21
93.78
102.63
166.30

267.01
298.84
162.62
194.03
238.03

-26.81
-68. 63
-68.84
-91.4
-71.73

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Square Of
Differenc
e
(X-Y)2
718.78
4710.08
4738.95
8353.96
5145.19

300
250
200
ratio

150

Before M & A (x)

100

After M & A (y)

50
0

ICICI

BOB

IDBI

IOB

OBC

bank

ANALYSIS:
Table 4.4 showing Debt to Equity Ratio in selected units, before 3 years and after 3 years
of merger and acquisition. I n which before merger, IDBI showing the highest Debt to
Equity Ratio (240.20) whereas ICICI showing the lowest ratio (93.78) as compare to
other banks and after merger BOB showing highest debt to Equity Ratio(298.84) whereas
IDBI showing lowest ratio (162.62) as compare to other banks.
Impact of merger is highest positive in IOB because it s showing increasing Debt to
Equity Ratio (91.4) whereas ICICI showing lowest positive impact because its ratio
(26.81) has been decreased after merger.

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Mean

S.D

d.f.

tc

tt

Resul
t

166.6

232.11 -

XY

XY

68.66

58.74

23.60

65.48

n-1
5-1

-6.205

2.77

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.
Alternate Hypothesis: (H1)

63 | P a g e
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There would be significant difference in mean score of selected


units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = -6.205 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no significant
difference in mean score of selected units, before and after merger & acquisition.

5) Debt to Asset:

Table 4.5
DEBT TO ASSET RATIO IN SELECTED UNIT

Bank
Name
ICICI
BOB
IDBI
IOB
OBC

Before M
&A
(x)
0.81
0.88
0.82
0.87
0.90

After M
&A
(y)
0.78
0.88
0.86
0.89
0.88

Difference Square Of
(x-y)
Difference
(X-Y)2
0.03
0.0009
0
0
-0.04
0.0016
-0.02
0.0004
0.02
0.0004

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Debt to asset ratio


OBC
IOB
IDBI
BOB
ICICI
0.72 0.74 0.76 0.78

0.8

0.82 0.84 0.86 0.88

0.9

0.92

ANALYSIS:
Table 4.5 showing Debt to Asset Ratio in selected units, be fore 3 years and after 3 year s
of merger and acquisition. In which before merger, OBC showing the highest Debt
to Asset Ratio (0.90) whereas ICICI showing the lowest ratio (0.81) as compare to other
banks and after merger IOB showing highest Debt to Asset Ratio (0.89) whereas
ICICI showing lowest ratio (0.78) as compare to other banks.
Impact of merger is highest positive in IDBI because it s showing increasing Debt to
Asset Ratio

(0.04)whereas ICICI showing highest negative impact because its ratio

(0.03) has been decreased after merger.

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Mean

X
0.856

S.D

Y
0.858

XY
-

X
0.039

Y
0.045

0.002

XY
0.029

d.f.

tc

tt

Result

n-1

-0.156

2.77

H0

5-1

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units, before and after
merger and acquisition.

Alternate Hypothesis: (H1)

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There would be significant difference in mean score of selected units, before and
after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = -0.156 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no significant
difference in mean score of selected units, before and after merger & acquisition.

6)

Fixed Ass et to Fixed Capital

Table 4.6
FIXED ASSET TO FIXED CAPITALRATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)
Bank
Name
ICICI
BOB

Before M
&A
(x)
0.020
0.0099

After M
&A
(y)
0.011
0.0088

IDBI
IOB

0.012
0.0079

0.023
0.0112

OBC

0.004

0.004

Difference Square Of
(x-y)
Difference
(X-Y)2
0.009
0.000081
0.0011
0.0000012
1
-0.011
0.000121
-0.0033
0.0000108
9
0
0

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Fixed Asset to Fixed Capital


Before M & A (x)
After M & A (y)
0.02
0.02

0.01

0.01

0.01
0.01

0.01
0.01
0

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS:
Table 4.6 showing Fixed Asset to Fixed Capital Ratio in selected units, before 3 years
and after 3 years of merger and acquisition. I n which before merger, I DBI showing the
highest Fixed Asset to Fixed Capital Ratio (0.02) whereas O BC showing the lowest ratio
(0.004) as compare to other banks and after merger IDBI showing highest Fixed Asset to
Fixed Capital Ratio (0.023) whereas OBC showing lowest ratio (0.004) as compare to
other banks.
Impact of merger is highest positive in IDBI because it showing increasing Fixed Asset to
Fixed Capital Ratio

(0.011) whereas ICICI showing highest negative impact

because its ratio (0.009) has been decreased after merger.


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Mean

S.D

d.f.

tc

tt

Resul
t

XY

0.011

0.012 -

0.006

0.007 0.0072

0.0008

XY

n-1
5-1

-0.259

2.77

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units, before and after
merger and acquisition.
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Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected units, before and
after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = -0.259 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no significant
difference in mean score of selected units, before and after merger & acquisition.

7) Interest Coverage Ratio


Interest coverage ratio is also known as debt service ratio or debt
service coverage ratio. This ratio r elates the fixed interest charges to the
income earned by the business. It indicates whether the business has
earned sufficient profits to pay periodically the interest charges.
Table 4.7
INTEREST COVERAGE RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)
Bank
Name
ICICI
BOB
70 | P a g e
IDBI
IOB
OBC

Before M After M Differenc Square Of


&A
&A
e
Difference
(x)
(y)
(x-y)
(X-Y)2
1.39
1.26
0.13
0.0169
1.36
1.47
-0.11
0.0121
1.14of Management
-0.02
0.0004
M 1.12
.H. Gardi School
1.57
1.30
0.27
0.0729
1.49
1.37
0.12
0.0144

Interest Coverage Ratio


1.8
1.6
1.4
1.2
1
Ratio 0.8
0.6
0.4
0.2
0

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS:
Table 4.7 showing Interest Coverage Ratio in selected units, before 3 years and after 3
years of merger and acquisition. In which before merger, IOB showing the highest
Interest Coverage Ratio (1.57) whereas I DBI showing the lowest ratio (1.12) as
compare to other banks and after merger BOB showing highest Interest Coverage Ratio
(1.47) whereas IDBI showing lowest ratio (1.14) as compare to other banks.

Impact of merger is highest positive in BOB because it s showing increasing


Interest Coverage Ratio (0.11) whereas IOB showing highest negative impact
because its ratio (0.27) has been decreased after merger.
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Mean

XY

XY

1.386

1.308

0.078

0.170

0.123

0.147

S.D

d.f.

tc

tt

Result

n-1

1.188

2.77

H0

5-1

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.

Alternate Hypothesis: (H1)


72 | P a g e
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There would be significant difference in mean score of selected


units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = 1.188 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no
significant difference in mean score of selected units, before and after
merger & acquisition.

4.6 Profitability Ratio


1) Net Profit Ratio (NP Ratio):
Formula:
Net Profit Ratio = (Net profit / Net sales) 100
NET PROFIT RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)
Bank
Name

ICICI
BOB
IDBI
73 | P a g e
IOB
OBC

Before M
&A
(x)

After M
&A
(y)

Differenc
e
(x-y)

13
11
2
10
11
-1
9
8
1
10 of Management
5
M15
.H. Gardi School
12
14
-2

Square
Of
Differenc
e
(X-Y)2
4
1
1
25
4

Net Profit Ratio


16
14
12
10
Ratio

8
6
4
2
0

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS:
Table 4.8 showing Net Profit Ratio in selected units, before 3 years and after 3
years of merger and acquisition. I n which before merger, IOB showing the highest Net
profit Ratio (15) whereas IDBI shows the lowest ratio (9) as compare to other banks and
after merger OBC showing highest Net Profit

Ratio (14) whereas IDBI showing

lowest ratio (8) as compare to other banks.


Impact of merger is highest positive in OBC because it s showing increasing Net
profit Ratio (2) whereas IOB showing highest negative impact because its ratio (5)
has been decreased after merger.

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Mean

S.D

d.f.

tc

tt

Resul
t

XY

XY

11.8

10.8

2.39

2.15

2.74

n-1
5-1

0.816

2.77

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.
75 | P a g e
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Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected
units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = 0.816 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no
significant difference in mean score of selected units, before and after
merger & acquisition.

2) Interest Expense Ratio

INTEREST EXPENSE RATIO IN SELECTED UNIT


(Before 3 years and After 3 years of M&A)
Bank
Name

ICICI
BOB
IDBI
IOB
76 | P a g e
OBC

Before M
&A
(x)

After M
&A
(y)

Differenc
e
(x-y)

52
57
-5
53
48
5
7
7
0
47
60
-13
52
58
-6
M .H. Gardi School of Management

Square
Of
Differenc
e
(X-Y)2
25
25
0
169
36

Interest Expense Ratio


60
50
40
ratio 30
20
10
0

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS:
Table 4.9 showing Interest Expense Ratio in selected units, before 3 years
and after 3 years of merger and acquisition. In which before merger,
BO B showing the highest Interest Expense Ratio (53) whereas I DBI
showing the lowest ratio (7) as compare to other banks and after merger
IOB showing highest Interest Expense Ratio (60) whereas IDBI showing
lowest ratio (7) as compare to other banks.
Impact of merger is highest positive in OBC because it s showing
increasing Interest Expense Ratio (13) whereas BOB showing lowest
negative impact because its ratio (5) has been decreased after merger.

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Mean

S.D

d.f.

tc

tt

Resul
t

XY

XY

42.2

46

-3.8

19.82

22.28

6.76

n-1
5-1

-1.257

2.77

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.
Alternate Hypothesis: (H1)

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M .H. Gardi School of Management

There would be significant difference in mean score of selected


units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = -1.257 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no
significant difference in mean score of selected units, before and after
merger & acquisition.

3) Return on Asset
FORMULA:
Table 4.10
RETURN ON ASSET RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank
Name

Before M
&A
(x)

After M
&A
(y)

Differenc
e
(x-y)

ICICI
BOB
IDBI

1.04
0.97
0.68

1.05
0.79
0.55

-0.01
0.18
0.13

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Square
Of
Differenc
e
(X-Y)2
0.0001
0.0324
0.0169

IOB
OBC

1.28
1.34

0.94
1.02

0.34
0.32

0.1156
0.1024

Return on Asset
1.4
1.2
1
0.8
ratio

0.6
0.4
0.2
0

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS
Table 4.10 showing Return on Asset Ratio in selected units, before 3 years
and after 3 years of merger and acquisition. In which before merger,
OBC showing the highest Return on Asset Ratio (1.34) whereas IDBI
showing the lowest ratio (0.68) as compare to other banks
and after merger ICICI showing highest Return on As set Ratio
(1.05) whereas IDBI showing lowest ratio (0.55) as compare to other
banks.
Impact of merger is positive in ICICI because its showing increasing
Return on Asset Ratio (0.01) whereas IO B showing highest negative
impact because its ratio (0.34) has been decreased after merger.

80 | P a g e
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Mean

S.D

d.f.

tc

tt

Resul
t

XY

XY

1.06

0.87

0.19

0.26

0.21

0.14

n-1
5-1

2.979

2.77

H1

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.
81 | P a g e
M .H. Gardi School of Management

Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected
units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = 2.979 and t t = 2.776
So, t c > t t
As t c is more than t t So Null Hypothesis (H1) is accepted means there is
significant difference in mean score of selected units, before and after
merger & acquisition.

4) Interest Expense to Interest Earned Ratio


Table 4.11
INTEREST EXPENSE TO INTEREST EARNED RATIO
IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)
Bank
Name

Before M
&A
(x)

After M
&A
(y)

Differenc
e
(x-y)

ICICI
BOB
IDBI

70.20
64.04
96.59

72.60
55.72
90.022

-2.4
8.32
6.57

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Square
Of
Differenc
e
(X-Y)2
5.76
69.22
43.16

IOB
OBC

62.45
54.07

61.87
69.56

0.58
-15.49

0.3364
239.94

Interest Expense to Interest Earned Ratio


120
100
80
Ratio

60
40
20
0

ICICI

BOB

IDBI

IOB

OBC

ANALYSIS
Table 4.11 showing Interest Expense to Interest Earned Ratio in selected units,
before 3 years and after 3 years of merger and acquisition. I n which before merger, IDBI
showing the highest Interest Expense to Interest Earned Ratio (96.59) whereas OBC
showing the lowest ratio (54.07) as compare to other banks and after merger IDBI
showing highest Interest Expense to Interest Earned Ratio (90.022) whereas BOB
showing lowest ratio (55.72) as compare to other banks.
Impact of merger is highest positive in OBC because it s showing increasing
Interest Expense Ratio (15.49) whereas BO B

showing lowest negative impact

because its ratio (8.32) has been decreased after merger.


83 | P a g e
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Mean

S.D

d.f.

tc

tt

n-1

-0.115

2.77

Resul
t

XY

XY

69.47

69.95

-0.48

16.22

13.02

9.45

5-1

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


84 | P a g e
M .H. Gardi School of Management

before and after merger and acquisition.

Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected
units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = - and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no
significant difference in mean score of selected units, before and after
merger & acquisition.

5) Earning Per Share


Table 4.12
EARNING PER SHARE RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)
Bank
Name
ICICI
BOB
IDBI
IOB

Before M
&A
(x)
30.12
25.84
7.62
12.28

After M
&A
(y)
35.74
26.70
10.20
19.80

Difference Square Of
(x-y)
Difference
(X-Y)2
-5.62
31.58
-0.86
0.74
-2.58
6.66
-7.52
56.55

85 | P a g e
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OBC

25.34

27.71

-2.37

5.62

Earning Per Share


40
35
30
25
Ratio 20
15
10
5
0

ICICI

BOB

IDBI

IOB

OBC

Analysis:
Table 4.12 showing Earning Per Share in selected units, before 3 years and after 3 year s
of merger and acquisition. In which before merger, ICICI showing the highest
Earning Per Share Ratio (30.12) whereas IDBI

showing the lowest ratio (7.62) as

compare to other banks and after merger ICICI showing the highest Earning Per (35.74)
Ratio whereas IDBI showing lowest ratio (10.20) as compare to other banks.

Impact of merger is the highest positive in IOB because it s showing increasing Earning
Per Share Ratio (7.52) whereas BOB showing the lowest positive impact because its ratio
(0.86) has been decreased after merger.
86 | P a g e
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Mean

S.D

d.f.

tc

tt

n-1

-3.130

2.77

Resul
t

XY

XY

20.24

24.03

-3.79

4.35

4.28

2.71

5-1

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


87 | P a g e
M .H. Gardi School of Management

before and after merger and acquisition.

Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected
units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = -3.130 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no
significant difference in mean score of selected units, before and after
merger & acquisition.

7) Return on Gross Capital Employed Ratio


Formula:
Gross capital employed = Fixed assets + Investments + Current assets
RETURN ON GROSS CAPITAL EMPLOYED RATIO
IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank
Name

Before M
&A

After M &
A

Difference
(x-y)

88 | P a g e
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Square Of
Difference

ICICI
BOB
IDBI
IOB
OBC

(x)

(y)

(X-Y)2

0.086
0.122
0.116
0.097
0.152

0.107
0.084
0.093
0.099
0.088

-0.021
0.038
0.023
-0.002
0.064

0.000441
0.001444
0.000529
0.000004
0.004096

0.16
0.14
0.12
0.1
Ratio 0.08
0.06

Before M & A (x)


After M & A (y)

0.04
0.02
0

ICICI

BOB

IDBI

IOB

OBC

Name of Bank

ANALYSIS:
Table 4.13 showing Return on Gross Capital Employed

Ratio in selected units,

before 3 years and after 3 years of merger and acquisition. I n which before merger, OBC
showing the highest
ICICI

Return on Gross Capital Employed

Ratio (0.152)

whereas

showing the lowest ratio (0.086) as compare to other banks and after

merger ICICI showing highest Return on Gross Capital Employed Ratio whereas BOB
showing lowest ratio as compare to other banks.

89 | P a g e
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Impact of merger is the highest positive in ICICI because its showing increasing Return
on Gross Capital Employed Ratio (0.021) whereas OBC showing the highest negative
impact because its ratio (0.064) has been decreased after merger.

Mean

S.D

d.f.

tc

tt

Resul
t

XY

XY

0.11

0.09

0.020

0.025

0.009

0.033

n-1
5-1
=4

Null Hypothesis: (H0)

90 | P a g e
M .H. Gardi School of Management

1.370

2.77
6

H0

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.

Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected
units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = 1.370 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no
significant difference in mean score of selected units, before and after
merger & acquisition.

8) Return on Net Capital Employed Ratio


Formula:

Net capital employed = Fixed assets + Investments + Working


capital*.
*Working capital = current as sets - current liabilities
Table 4.14
RETURN ON NET CAPITAL EMPLOYED RATIO
IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)
91 | P a g e
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Before M
&A
(x)
0.104
0.138
0.14
0.110
0.165

ICICI
BOB
IDBI
IOB
OBC

After M &
A
(y)
0.124
0.093
0.10
0.106
0.094

Difference
(x-y)
-0.02
0.045
0.04
0.004
0.071

Square Of
Difference
(X-Y)2
0.0004
0.002025
0.0016
0.000016
0.005041

Return on Net Capital Employed Ratio


0.2
0.15
Ratio

Before M & A (x)

0.1

After M & A (y)

0.05
0

ICICI

BOB

IDBI

IOB

OBC

Name of Bank

ANALYSIS:
Table 4.14 showing Return on Net Capital Employed Ratio in selected units, before 3
years and after 3 years of merger and acquisition. In which before merger, OBC
showing the highest Return on Net Capital Employed Ratio (0.165) whereas ICICI
showing the lowest ratio (0.104) as compare to other banks and after merger ICICI
showing highest Return on Net Capital Employed Ratio (0.124) whereas BOB showing
lowest ratio (0.093) as compare to other banks.

92 | P a g e
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Impact of merger is positive in ICICI because its showing increasing Return on Net
Capital Employed Ratio (0.02) whereas OBC showing highest negative impact
because its ratio (0.071) has been decreased after merger.

Mean

S.D

d.f.

tc

tt

n-1

1.743

2.77

Resul
t

XY

XY

0.13

0.10

0.028

0.025

0.013

0.036

5-1

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


93 | P a g e
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before and after merger and acquisition.

Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected
units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = 1.743 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no
significant difference in mean score of selected units, before and after
merger & acquisition.

9) Return on Net Worth Ratio:


Table 4.15
RETURN ON NET WORTH RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank
Name
ICICI
BOB
IDBI

Before M
&A
(x)
0.13
0.19
0.01

After M &
A
(y)
0.08
0.12
0.11

Difference
(x-y)
0.05
0.07
-0.01

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Square Of
Difference
(X-Y)2
0.0025
0.0049
0.0001

IOB
OBC

0.26
0.23

0.19
0.15

0.07
0.08

0.0049
0.0064

0.3
0.25
0.2
Before M & A (x)

0.15

After M & A (y)


0.1
0.05
0
ICICI

BOB

IDBI

IOB

OBC

ANALYSIS:
Table 4.15 showing Return on Net Worth Ratio in selected units, before 3 years and after
3 years of merger and acquisition. In which before merger, OBC showing the highest
Return on Net Worth Ratio (0.26) whereas I DBI showing the lowest ratio (0.01) as
compare to other banks and after merger IOB showing highest Return on Net Worth
Ratio (0.19) whereas ICICI showing lowest ratio (0.08) as compare to other banks.

Impact of merger is positive in IDBI because its showing increasing Return on Net
Worth Ratio (0.01) whereas OBC showing highest negative impact because its ratio
(0.08) has been decreased after merger.
95 | P a g e
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Mean

S.D

d.f.

tc

tt

n-1

1.004

2.77

Resul
t

XY

XY

0.16

0.13

0.034

0.099

0.042

0.076

5-1

H0

=4

Null Hypothesis: (H0)

There would be no significant difference in mean score of selected units,


before and after merger and acquisition.
96 | P a g e
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Alternate Hypothesis: (H1)


There would be significant difference in mean score of selected
units, before and after merger and acquisition.

H o: 1= 2
H o: 1= 2
At 5% level of significance, here, t c = 1.004 and t t = 2.776
So, t c < t t
As t c is less than t t So Null Hypothesis (H0) is accepted means there is no
significant difference in mean score of selected units, before and after
merger
&
acquisition.

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Findings:
1)

The Liquidity Performance of ICICI Bank has been decreased after


merger but the performance of Profitability has been increased.

2)

There is no Change in Liquidity Performance of BOB Bank because of


merger but the performance of Profitability has been decreased.

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3)

The Liquidity Performance of IDBI Bank has been increased after


merger but the performance of Profitability has been decreased.

4)

IOB shows the increasing trend after merger in Liquidity Performance and
shows the decreasing Profitability performance.

5)

There is neutral impact of merger in Liquidity Performance as well as


profitability performance in OBC.

6)

In Interest Coverage Ratio, BOB shows the highest positive value in


the year of merger i.e., 2004- 2005 and decrease in next two consecutive
year as compare to the year of merger while the ICICI shows increasing
trend after merger but not with the same growth rate as compare to before
merger year and IOB shows decreasing trend after merger with high
decreasing rate as compare to before merger.

7)

In Cash Deposit Ratio, IOB and OBC give result of decreasing trend in
before merger and highest positive value in the year of merger and again
decreasing trend in next two year of merger.

8)

IOB shows the increasing trend in before and after merger in Debt to Equity
ratio and IDBI also represent the same result but with high increment
in after merger as compare to before.

9)

In fixed asset to fixed capital ratio I DBI shows decreasing trend in before
merger and highest positive value in the year of merger and then again
decrease in next two years after the year of merger while IOB shows
decreasing trend in both before and after merger.

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10)

BOB shows the negative trend in both before and after merger for Return on
capital employed ratio while IDBI and OBC show the increasing trend.

11)

By this analysis we can say that the overall liquidity performance of


all selected units has been increased while on the other hand the profitability
has been decreased after merger & acquisition.

Recommendations:
1)

The given result shows that ICICI bank s liquidity performance has been
decreased but the profitability performance has been increased after merger &
acquisition

so this bank should maintain balance between the liquidity and

profitability.
2) After

merger

&

acquisition

IDBI s

as

well

as

IOB s

profitability

performance has been decreased due to inefficient utilization of funds and


increase in expenses (Employee cost, misc. Expenses and operating expenses)
so bank should utilize its fund in such way that it can cover all their expenses.

3) So while merging any bank should keep in mind that their liquidity and
100 | P a g e
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profitability performance must not decrease either it should increase or it must be


balanced.
4) The bank should not merge with weak unit which created negative impact on
their financial performance.

Chapter-6
Bibliography
References:
Books

1) Rajes h Kumar B., 2011, Mergers and Acquisitions Text and Cases, New Delhi,
Tata McGraw Hill Education Private Limited
2) C.R.Kothari,

2004, Research

Methodology 2nd ED,New

International limited.

101 | P a g e
M .H. Gardi School of Management

Delhi,

New Age

3) Gupta R.L., V.K. Gupta, Principle and Practice of Accountancy.


4) Rana T.J.,2007- 2008, Management Accounting 2nd ED, Ahmedabad, B.S.Shah
Prakashan.

Websites

www.google.com
www.yahoo.com
www.icicibank.com
www.bankofbaroda.com
www.idbi.com
www.iob.in
www.obcindia.co.in
www.moneycontrol.com
http://www.eurojournals.com/REFAS_1_06.pdf
http://www.scribd.com/doc/25822832/Merger-and-Acquisition
http://en.wikipedia.org/wiki/Mergers_and_acquisitions
http://www.bank2020.info/banking/bank-mergers-and-acquisitions
http://www.scribed.com

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Chapter 7 Annexure
LIST OF ABBRIVIATION

BOB

Bank of Baroda

EPS

Earning per Share

ICICI

Industrial Credit and Investment Corporation of India

IDBI

Industrial Development Bank of India

IOB

Indian Overseas Bank

M&A

Merger and Acquisition

NBFC

Non Banking Financial Corporation

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OBC

Oriental Bank of Commerce

ROE

Return on Equity

ROI

Return on Investment

SGLB

South Gujarat Local area Bank

UWB

United Western Bank

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