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A Comprehensive Project On

A Study of Impacts of Merger & Acquisition on Financial


Performance of Indian Banking Sector
SUBMITTED BY:
TEJAL MIRANI

JEPAL PUROHIT

EN. NO: 097410592002

EN. NO: 097410592017


MBA 4th SEMESTER

MBA 4th SEMESTER

PROJECT GUIDE:
Dr. SHAILESH RANSARIYA

SUBMITTED TO:

GUJARAT TECHNOLOGICAL UNIVERSITY


AHMEDABAD

YEAR:
2011
OM VINDHYA VASINI INSTITUTE OF MANAGEMENT
BEHIND SOLAR CLOCK, RAJKOT- MORBI HIGHWAY, MORBI

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Certificate

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DECLARATION

We, MIRANI TEJAL BHARATKUMAR (97140592002) and PUROHIT JEPAL BHARATBHAI


(9741059017) hereby declare that the research report titled A Study of Impacts of Merger and
Acquisition on Financial Performance of Indian banking Sector submitted by us under the
guidance of DR.SHAILESH RANSARIYA in partial fulfillment of the requirements for the MBA
degree of GUJARAT TECHNOLOGICAL UNIVERSITY, is the result of our original work has not been
previously submitted for the award of any other Degree, Diploma, fellowship or other similar titles.

Place:

Date:

Candidates signature

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PREFACE
It was a privilege for us to do project on Impact of Merger and Acquisition on
financial position of selected banks. This study was undertaken during the project work in
the period of 2011, as a partial fulfillment of MBA programme of GUJARAT
TECHNOLOGICAL UNIVERSITY.
.
The banking activities play a crucial role in overall economic development, in case
of developing country. This now progresses rapidly along with its various activities.
Various Merger and Acquisition takes place in banking sector.

In the research five Indian banks in banking sector are taken and study has been
made to find the impact of M&A on banks profitability as well as liquidity position and to
compare the pre and post performance of banks and to provide the suggestion to the banks
to manage the profitability.

Comparative study of various criteria like reason for doing merger and acquisition,
risk involved in M & A are also been analyzed.

The study of these banks provided us the golden opportunity to enrich our
knowledge by comparing theoretical knowledge with practical knowledge, and also helped
us to understand how important it is for any study.

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Acknowledgement
It is said, the most important single word is we and the zero important single word is I
.This true even in todays modern era. It is absolutely impossible for a single individual to
complete the assigned job without help and assistance from others.

First and foremost, we would like to express our sincere gratitude to our project guide,
Dr SHAILESH RANSARIYA thought of the project. He took in our work and gave us
right directions. Without his directions it was difficult to complete project successfully.

Last but not least, we express our deep sense of gratitude and indebtedness to staff
members and the institute, in general, for extending a helping hand at every juncture of
need. We thank all of those persons who involved directly or indirectly help us.

Yours Faithfully,

Tejal Mirani.
Jepal Purohit.

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ABSTRACT

Banking industry plays a vital role in the growth of economy as well by providing
above services like, ATM, Phone Banking, Net banking along with normal banking
transactions. Nowadays, with the struggle for competitive advantage becoming stronger and
stronger, it is almost essential for banks to form alliances. Diversifying and expanding
techniques such as mergers and acquisitions are very popular methods for forming these
alliances.

Merger and Acquisitions Since the 1980's, and even more now in the twentieth
century, it has become a growing trend for companies, large and small, domestic a nd
foreign, as well as for any industry to form strategic alliances within their particular
industries. There are many specific goals that companies may be looking to achieve by
doing this, but the main underlying reason is to guarantee the long-term sustained
achievement of fast profitable growth for their business.

So we select the topic of merger and acquisition in Indian banking sector which is
helpful for us to know the reason behind all this activities and which are the impact and
benefits associated with this activity.

The objective of this study is to measure the impact of merger and acquisition on
selected units. This 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.

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TABLE OF CONTENT

TITLE

SR
NO

PG NO

CERTIFICATE OF COLLEGE

DECLARATION

PREFACE

ACKNOWLEDGEMENT

ABSTRACT

CH-1 Research Methodology

14

1.1 Research Methodology


1.2 Objective of the 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 the Study
1.8 Proposed Chapter Plan
1.9 Hypothesis of the Study
1.10 Limitations of the Study
7

CH-2 History and Development of Merger and Acquisition


2.1 Introduction
2.2 Classification Of merger And Acquisition
2.3 Difference Between Merger And Acquisition
2.4 Motives behind Merger & Acquisition
2.5 History of Merger & Acquisition
2.6 Merger & Acquisition Trend
2.7 Reasons for Merger & Acquisition
2.8 Impact of Merger & Acquisisition
2.9 Legal procedure for bringing out merger of Companies
2.10 Procedure for evaluating the decision for merger &
Acquisition

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27

2.11 Regulation for Merger & Acquisition


2.11.1 The Companies Act,1956
2.11.2 The Competition Act ,2010
2.11.3 The other Regulation
Ch-3 History and Development of Industry and Selected Units
8

3.1 About banking


3.2 Historical background of banking in India
3.3 List of Banking in India
3.4 Major M & A in banking/NBFC Sector in India
3.5 History of Selected Units
1) ICICI Bank
3.6 History of ICICI
3.6.1 Subsidiaries of ICICI Bank
3.6.2 Merger & Acquisition of ICICI Bank
3.6.3 History of Merger of ICICI Bank with Sangli bank
2) BOB
3.7 History of BOB
3.7.1 Subsidiaries of BOB
3.7.2 Merger & Acquisition of BOB
3.7.3 History of Merger of BOB Bank with South Gujarat
Local Area Bank LTD.
3) IDBI
3.8 History of IDBI Bank
3.8.1 Subsidiaries of IDBI Bank
3.8.2 Merger & Acquisition of IDBI Bank
3.8.3 History of Merger of IDBI Bank with United Western
Bank
4) IOB
3.9 History of IOB
3.9.1 Merger & Acquisition of IOB
3.9.2 History of Merger of IOB with Bharat Overseas
Bank
5) OBC
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54

3.10 History of OBC


3.10.1 Acquisition of Global Trust Bank LTD by OBC
9

84

CH- 4 FINANCIAL ANALYSIS


4.1 Meaning of financial analysis.
4.2 Need for analysis of financial statements
4.3 Parties interested in analysis of financial statement
4.4 Ratio analysis
4.4.1 Meaning of accounting Ratio
4.4.2 Significance of ratio Analysis
4.4.3 Uses of Accounting ratio
4.5 The importance of Liquidity Ratio
4.6 Profitability ratio

10

CH-5 Summary, Finding and Suggestions

154

11

Bibliography

161

12

Annexure

163

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List Of Table
Table NO
1.1
3.3
3.4
4.1
4.1.1

Table Title
Review of Literature
Banking In India
Major M & A in banking/NBFC Sector in India

Cash Deposit Ratio in selected Units


Analysis of T-test in selected units under the study of

Pg NO
19
63
64
90
92

Cash Deposit Ratio


4.2
4.2.1
4.3
4.3.1
4.4
4.4.1
4.5
4.5.1
4.6
4.6.1
4.7
4.7.1
4.8
4.8.1
4.9
4.9
4.10
4.10.1
4.11
4.11.1
4.12
4.12.1
4.13
4.13.1
4.14

Deposit to owners Fund Ratio in selected units


Analysis of t-test in selected units under the study of
Deposit to owners Fund Ratio
Loan to Deposit Ratio
Analysis of t-test in selected units under the study of
Loan to Deposit Ratio
Debt to Equity Ratio
Analysis of t-test in selected units under the study of
Debt to Equity Ratio
Debt to Asset Ratio
Analysis of t-test in selected units under the study of
Debt to Asset Ratio
Fixed Asset to Fixed capital Ratio
Analysis of t-test in selected units under the study of
Fixed Asset to Fixed capital Ratio
Interest Coverage Ratio
Analysis of t-test in selected units under the study of
Interest Coverage Ratio
Net profit Ratio
Analysis of t-test in selected units under the study of
Net profit Ratio
Interest Expense Ratio
Analysis of t-test in selected units under the study of
Interest Expense Ratio
Return on Asset capital Employee
Analysis of t-test in selected units under the study of
Return on Asset capital Employee
Interest Expense to Interest Earned Ratio
Analysis of t-test in selected units under the study of
Interest Expense to Interest Earned Ratio
Earning Per Share Ratio
Analysis of t-test in selected units under the study of
Earning Per Share Ratio
Return on Gross capital Employed
Analysis of t-test in selected units under the study of
Return on Gross capital Employed
Return on Net Capital Employed Ratio
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93
95
96
98
100
102
104
106
107
109
111
113
116
118
119
121
122
124
125
127
129
131
133
135
136

4.14.1
4.15
4.1.5.1
4.16
4.16.1
4.17
4.17.1

Analysis of t-test in selected units under the study of


Return on Net Capital Employed Ratio
Net Worth Ratio
Analysis of t-test in selected units under the study of
Net Worth Ratio
Return on Equity Ratio
Analysis of t-test in selected units under the study of
Return on Equity Ratio
Return on Investment Ratio
Analysis of t-test in selected units under the study of
Return on Investment Ratio

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138
140
142
146
148
150
152

List of Graph
Graph No

Graph Title

Pg NO

2.1

Merger & Acquisition trend

40

4.1

Cash Deposit Ratio in selected Units

91

4.2

94

4.3

Deposit to owners Fund Ratio in


selected units
Loan to Deposit Ratio

4.4

Debt to Equity Ratio

101

4.5

Debt to Asset Ratio

105

4.6

Fixed Asset to Fixed capital Ratio

108

4.7

Interest Coverage Ratio

112

4.8

Net profit Ratio

117

4.9

Interest Expense Ratio

120

4.10

Return on Asset

123

4.11

126

4.12

Interest Expense to Interest Earned


Ratio
Earning Per Share Ratio

4.13

Return on Gross capital Employed

134

4.14

137

4.15

Return on Net Capital Employed


Ratio
Return on Net Worth Ratio

4.16

Return on Equity Ratio

147

4.17

Return on Investment Ratio

151

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97

130

141

Chapter-1
RESEARCH
METHODOLOGY

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CHAPTER-1
RESEARCH METHODOLOGY
CONTENT
1.1 Research Methodology
1.2 Objective of the 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 the Study
1.8 Proposed Chapter Plan
1.9 Hypothesis of the Study
1.10 Limitations of the Study
1.11 References

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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 banks. 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. The various players in the banking arena have already
begun to feel the heat of the intense competition M&A is one among the various modes of
restructuring restored by banks to ensure a better growth prospect.1

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 pe rformance
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.

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1.2 Objective of the study

Primary objective

To evaluate the impacts of merger and acquisitions on the profitability of the


selected Indian banks during the study period.
To evaluate the impacts of merger and acquisitions on the liquidity of the
selected Indian banks during the study period.
To compare the overall performance of selected Indian banks for pre and
post merger.

Secondary objective

To study why the banks are going towards merger and acquisition.
To know the risk involved in merger and acquisition.
To study the benefits of merger and acquisition for banks.

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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, articles and from the various newspapers, bulletins and other journals like
Management Account, and Chartered Account.

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1.4 Selection of sample


Sample size

: - 5 Indian banks are,


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

Sampling Technique

: - Systematic Sampling

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.

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1.5 Review Literature


Table-1.12
Authors
Name
Gallet

Study
Period
1996

Yuce
Ng

& 2005

Kling

2006

Sun
tang

& 2000

Mazumdar
et l

2007

Objective

Measure
Used

Examine the relationship


between mergers in the
U.S. steel industry and the
market power.
Investigate the effect of
mergers announcements of
Canadian firms on the
abnormal returns.

Investigate the
successfulness of
The mergers wave in
Germany.

Identify the source of


gains in merger and
acquisition transactions in
the railroad industry;
market power or
Efficiency power.

Examine the effects of


mergers of local exchange
firms in the U.S. on the
financial performance and
Efficiency level.

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Market
power

Results

Results have suggested


that mergers slightly
boost market power in
steel industry.
Abnormal
Results have indicated
return
that both the target and
the
acquiring company
shareholders earn
significant
Positive abnormal
returns.
Total Stock From 1898 to 1904
return
mergers affected stock
returns
Positively in all
industries except for
banks.
Operating
Stockholders of
Margin
acquiring firms do not
Ratio, Net
gain from
Margin
mergers, while
Ratio, Stock stockholders of
Price
acquired firms and
Reaction
Industry counterparts
earn positive marketadjusted returns.
Cash Flow, Cash flows decreased
Sales
after mergers. For sales
Growth,
growth, the pattern was
Efficiency
ambiguous and driven
and Synergy by increased market
Measures
presence. The impact
of mergers on the
measures of efficiency
and synergy was
negative.

Choi &
Russell

2004 Examine the effect


of M&A in the
construction sector
in the U.S. on firms'
performance and
Investigating factors
that may affect post
M&A performance.

Feroz et al.

2005 Test the effect of


mergers on the
financial
performance of the
US companies
2008 Study the impact of
mergers on the
financial
performance and
investigate the
effect of firm size
on performance in
India
2009 Identify synergies of Return on Capital
companies, if any,
Employed, debtresulting from
equity ratio
mergers in India

Mantravadi
& Reddy

Kumar

Malhotra & 2006 Study postZhu


acquisition shortterm impact and
long-term impact on
the acquiring firms'
shareholders' wealth
as well as the
impact of
acquisition on the
acquiring firms'
financial
performance.

Cumulative
Abnormal Returns

Results have reported that


firms experience insignificant
improved performance. No
evidence was found that
either acquisition time,
method of payment, or target
status has an impact on the
reported performance.
Related diversifications
performed slightly better than
unrelated
Diversifications.
Data Envelopment Results have shown that
Analysis
managerial efficiency of 82%
of firms included in the
sample improved across postmerger periods.
Operating Profit
Results have suggested that
Margin, Gross
there
is
a
positive
Profit Margin, Net relationship between firm
Worth,Return on
size
and
post-merger
Capital Employed, performance.
Debt Equity
Ratio.

Cumulative
Abnormal
Returns, Sales to
Growth, Profit
Margin Ratio,
Return on Equity,
Earnings per
Share, Foreign
Export Sales

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Post-merger
profitability,
assets turnover and solvency
of the acquiring companies,
on average,
show
no
improvement when compared
with pre merger
Values.
Domestic market has
significant positive response
to the short-term
announcement. With respect
to long-term announcement
impact, Indian international
acquisitions under-perform
their bench market. Net sales
to growth and foreign export
sales increased after the
acquisition while other
financial ratios decreased
post acquisition.

1.6 Tools of analysis


In this study we have used

1. Ratio Analysis
Ratio analysis is an important technique of financial analys is 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.

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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3. Du-Pont Analysis
The DuPont Model is a technique that can be used to analyze the profitability of a company
using traditional performance management tools. To enable this, the DuPont model
integrates elements of the Income Statement with those of the Balance Sheet.
The collected data was suitably classified and tabulated in the form of simple tables
and the data was objectively analyzed and conclusions were drawn on the basis of
parametric tests at 5% level of significance and application of two tailed test with the help
of SPSS software by using students Paired t distribution for judging the significance of a
sample mean.

1.7 Significance of the 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.

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1.8 Proposed Chapter Plan

1) Research Methodology:
2) History & Development of Merger & Acquition.
3) History & Development of Selected Unit
4) Financial Analysis.
5) Summary, Findings, Suggestions

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.

Alte rnate 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.

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1.10 Limitation of the study


Our study is based on only 5 selected banks
There is a lack of Time for the study.
We have no so much Experience about banking mergers and acquisition.
The banks which we selected for our study may adopt Window Dressing which
creates effect on our study.
There is a lack of primary data in this study.
All the limitations of ratio analysis affect our study.
All the limitations of secondary data make an impact in our analysis because
our study is based on that data only.
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.

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1.11 REFRENSES
1. www.wikipedia.com
2. http://www.eurojournals.com/REFAS.htm

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Chapter-2
HISTORY AND
DEVELOPMENT OF
MERGER AND
ACQUISITION

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CHAPTER-2
History and Development of Merger and
Acquisition
CONTENT

2.1 Introduction
2.2 Classification Of merger and Acquisition
2.3 Difference between Merger & Acquisition
2.4 Motives behind Merger & Acquisition
2.5 History of Merger & Acquisition
2.6 Merger & Acquisition Trend
2.7 Reasons for Merger & Acquisition
2.8 Impact of Merger & Acquisisition
2.9 Legal procedure for bringing out merger of Companies
2.10 Procedure for evaluating the decision of Merger & Acquisition
2.11 Regulation for Merger & Acquisition
2.11.1 The Companies Act, 1956
2.11.2 The Competition Act, 2010
2.11.3 The other Regulation
2.12 References

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2.1 INTRODUCTION

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 present globalising 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 the organizations. 1

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 mergers and acquisitions.
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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 forms-

1. 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 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.

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ACQUISITION

An acquisition usually refers to a purchase of a smalle r 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.

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2.2 Classifications of Mergers and Acquisitions

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-borde r (Inte rnational) M&As

A merger or acquisition involving a Canadian and a foreign firm either the


acquiring or target company.

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2.3 Difference between merger and acquisition

MERGER

ACQUISITION

Merging of two organization in to one

Buying organization in another

It is the mutual decision

It can be friendly takeover or hostile take


over

Merger is expensive than acquization

Acquization

(higher legal cost)

is

less

expensive than

merger

Through merger shelholders can increase

Buyers cant raise their enough capital

their net worth


- It is time consuming and the company has to

It is faster and easier transaction

maintain their legal issues.


Dilusion of ownership occurs in merger

The acquirer does not experience in the


Dilusion of ownership

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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.
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.

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MERGER : WHY & WHY NOT

Why is Important?

Increase market share


Economic of scale
Profit for research and scale
Benefits on account of tax shields like carried forward losses or unclaimed
depreciation
Reduction of competition,

Proble m with merge r

Clash of corporate cultures


Increased business complexity
Employees may be resistant to change

ACQUISITION: WHY & WHY NOT

Why is important?

Increased market share.


Increased speed to market
Lower risk comparing to develop new products.
Increased diversification
Avoid excessive competition.

Proble m with ACQUISITION

Inadequate valuation of target


Inability to achieve synergy
Finance by taking huge debt.
- 35 -

2.5 History of merger2


First Wave Mergers

The first wave mergers commenced from 1897 to 1904. During this phase merger
occurred between companies, which enjoyed monopoly over their lines of production like
railroads, electricity etc. the first wave mergers that occurred during the aforesaid time
period were mostly horizontal mergers that took place between heavy manufacturing
industries.

End Of 1st Wave Merger

Majority of the mergers that were conceived during the 1st phase ended in failure since
they could not achieve the desired efficiency. The failure was fuelled by the slowdown of
the economy in 1903 followed by the stock market crash of 1904. The legal framework
was not supportive either. The Supreme Court passed the mandate that the anti
competitive mergers could be halted using the Sherman Act.

Second Wave Mergers

The second wave mergers that took place from 1916 to 1929 focused on the mergers
between oligopolies, rather than monopolies as in the previous phase. The economic boom
that followed the post World War I gave rise to these mergers. Technological
developments like the development of railroads and transportation by motor vehicles
provided the necessary infrastructure for such mergers or acquisitions to take place. The
government policy encouraged firms to work in unison. This policy was implemented in
the 1920s.
.
The 2nd wave mergers that took place were mainly horizontal or conglomerate in nature.
The industries that went for merger during this phase were producers of primary metals,
food products, petroleum products, transportation equipments and chemicals. The
investments banks played a pivotal role in facilitating the mergers and acquisitions.

- 36 -

End Of 2nd Wave Mergers

The 2nd wave mergers ended with the stock market crash in 1929 and the great
depression. The tax relief that was provided inspired mergers in the 1940s.

Third Wave Mergers

The mergers that took place during this period (1965-69) were mainly conglomerate
mergers. Mergers were inspired by high stock prices, interest rates and strict enforcement
of antitrust laws. The bidder firms in the 3rd wave merger were smaller than the Target
Firm. Mergers were financed from equities; the investment banks no longer played an
important role.

End Of The 3rd Wave Merger

The 3rd wave merger ended with the plan of the Attorney General to split conglomerates
in 1968. It was also due to the poor performance of the conglomerates. Some mergers in
the 1970s have set precedence. The most prominent ones were the INCO-ESB merger;
United Technologies and OTIS Elevator Merger are the merger between Colt Industries
and Garlock Industries.

Fourth Wave Merger

The 4th wave merger that started from 1981 and ended by 1989 was characterized by
acquisition targets that wren much larger in size as compared to the 3rd wave mergers.
Mergers took place between the oil and gas industries, pharmaceutical industries, banking
and airline industries. Foreign takeovers became common with most of them being hostile
takeovers. The 4th Wave mergers ended with anti takeover laws, Financial Institutions
Reform and the Gulf War.

- 37 -

Fifth Wave Merger

The 5th Wave Merger (1992-2000) was inspired by globalization, stock market boom and
deregulation. The 5th Wave Merger took place mainly in the banking and
telecommunications industries. They were mostly equity financed rather than debt
financed. The mergers were driven long term rather than short term profit motives. The 5th
Wave Merger ended with the burst in the stock market bubble.

Hence we may conclude that the evolution of mergers and acquisitions has been long
drawn. Many economic factors have contributed its development. There are several other
factors that have impeded their growth. As long as economic units of production exist
mergers and acquisitions would continue for an ever-expanding economy.

- 38 -

2.6 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 are in
the overall development growth of any economy.

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.

- 39 -

2.1 Merger and Acquisition Trends

2500
2000
1500
1000

Trend
Line

500
0

(Source: Rajesh Kumar B., 2011, Mergers and Acquisitions Text and Cases)

Trend of me rger and acquisition

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

- 40 -

2.7 Reason for merger and acquisition


Following are some of the reasons why corporate go for me rgers 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.

- 41 -

2.8 Impacts of Mergers and Acquisitions


Mergers and acquisitions bring a number of changes within the organization. The size of
the organizations change, its stocks, shares and assets also change, even the ownership
may also change due to the mergers and acquisitions. The mergers and acquisitions play a
major role on the activities of the organizations. However, the impact of mergers and
acquisitions varies from entity to entity; it depends upon the group of people who are
being discussed here.The impact of mergers and acq uisitions also depend on the structure
of the deal.Possible

Impact of Mergers and Acquisitions has a look at the impact of Mergers and Acquisitions
on different segments of business.

Impact on Employees

Mergers and acquisitions may have great economic impact on the employees of the
Organization. In fact, mergers and acquisitions could be pretty difficult for the employees
As there could always be the possibility of layoffs after any merger or acquisition. If the
Merged company is pretty sufficient in terms of business capabilities, it doesn't need the
Same amount of employees that it previously had to do the same amount of business.

As a result, layoffs are quite inevitable. Besides, those who are working would also see
some changes in the corporate culture. Due to the changes in the operating environment
and business procedures, employees may also suffer from emotional and physical
problems.

Impact on Management

The percentage of job loss may be higher in the management level than the general
employees. The reason behind this is the corporate culture clash. Due to change in
corporate culture of the organization, many managerial level professionals, on behalf of
their superiors, need to implement the corporate policies that they might not agree with. It
involves high level of stress.
- 42 -

Impact on Shareholders

Impact of mergers and acquisitions also include some economic impact on the
Shareholders. If it is a purchase, the shareholders of the acquired company get highly
Benefited from the acquisition as the acquiring company pays a hefty amount for the
Acquisition. On the other hand, the shareholders of the acquiring company suffer some
Losses after the acquisition due to the acquisition premium and augmented debt load.

Impact on Competition

Mergers and acquisitions have different impact as far as market competitions are
Concerned. Different industry has different level of competitions after the mergers and
Acquisitions. For example, the competition in the financial services industry is relatively
Constant. On the other hand, change of powers can also be observed among the market
Players.

- 43 -

2.9 Legal Procedure for Bringing About Merger of Companies


(1) Examination of object clause:

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 BODs. The board of each
company should pass a resolution authorizing its directors/executives to p ursue 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.

- 44 -

(5) Dispatch of notice to share holde rs 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 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 orde rs:

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 HCs, all the assets and liabilities of
the merged company will have to be transferred to the merging company.

(10) Issue of shares and debentures:

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.
- 45 -

2.10 Procedure for evaluating the decision for mergers and acquisitions
The three important steps involved in the analysis of mergers and acquisitions are:-

Planning:-

Of acquisition will require the analysis of industry-specific and firm-specific information.


The acquiring firm should review its objective of acquisition in the context of its strengths
and weaknesses and corporate goals. It will need industry data on market growth, nature of
competition, ease of entry, capital and labor intensity, degree of regulation, etc. This will
help in indicating the product- market strategies that are appropriate for the company. It will
also help the firm in identifying the business units that should be dropped or added. On the
other hand, the target firm will need information about quality of management, market share
and size, capital structure, profitability, production and marketing capabilities, etc.

Search and Screening:-

Search focuses on how and where to look for suitable candidates for acquisition. Screening
process short- lists a few candidates from many available and obtains detailed information
about each of them.

- 46 -

Financial Evaluation:-

Of a merger is needed to determine the earnings and cash flows, areas of risk, the
maximum price payable to the target company and the best way to finance the merger. In a
competitive market situation, the current market value is the correct and fair value of the
share of the target firm. The target firm will not accept any offer below the current market
value of its share. The target firm may, in fact, expect the offer price to be more than the
current market value of its share since it may expect that merger benefits will accrue to the
acquiring firm.

A merger is said to be at a premium when the offer price is higher than the target firm's premerger market value. The acquiring firm may have to pay premium as an incentive to target
firm's shareholders to induce them to sell their shares so that it (acquiring firm) is able to
obtain the control of the target firm.

- 47 -

2.11 Regulations for Mergers & Acquisitions


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:2.11.1 The Companies Act, 1956

The Act lays down the legal procedures for mergers or acquisitions:Permission for me rger:-

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:-

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 Court.
- 48 -

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 cas h 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.

- 49 -

2.11.2 The Competition Act, 2002


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.

- 50 -

2.11.3 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 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.

- 51 -

2.12 REFRENCES
1. www.wikipedia.com
2. www.economywatch.com

- 52 -

Chapter-3
HISTORY AND
DEVELOPMENT OF
INDUSTRY AND
SELECTED UNITS

- 53 -

CHAPTER-3
HISTORY AND DEVELOPMENT OF INDUSTRY
AND SELECTED UNITS
CONTENT

3.1 About banking


3.2 Historical background of banking in India
3.3 List of banking in India
3.4 Major M & A in banking/NBFC Sector in India
3.5 History of Selected Units
1) ICICI Bank
3.6 History of ICICI
3.6.1 Subsidiaries of ICICI Bank
3.6.2 Merger & Acquisition of ICICI Bank
3.6.3 History of Merger of ICICI Bank with Sangli bank
2) BOB
3.7 History of BOB
3.7.1 Subsidiaries of BOB
3.7.2 Merger & Acquisition of BOB
3.7.3 History of Merger of BOB Bank with South Gujarat Local Area Bank
3) IDBI
3.8 History of IDBI Bank
3.8.1 Subsidiaries of IDBI Bank
3.8.2 Merger & Acquisition of IDBI Bank
3.8.3 History of Merger of IDBI Bank with United Western Bank

- 54 -

4) IOB
3.9 History of IOB
3.9.1 Merger & Acquisition of IOB
3.9.2 History of Merger of IOB with Bharat Overseas Bank
5) OBC
3.10 History of OBC
3.10.1 Acquisition of Global Trust Bank LTD by OBC
3.11 References

- 55 -

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.

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.
- 56 -

There are three different phases in the history of banking in India. 1


Pre-Nationalization Era.
Nationalization Stage.
Post Libe ralization Era.

1. Pre-Nationalization Era:
In India the business of banking and credit was practices even in very early times. The
remittance of money through Hundies, an indigenous credit instrument, was very popular.
The hundies were issued by bankers known as Shroffs, Sahukars, Shahus or Mahajans in
different parts of the country.
The modern type of banking, however, was developed by the Agency Houses of Calcutta
and Bombay after the establishment of Rule by the East India Company in 18 th and 19th
centuries.
During the early part of the 19 th Century, ht volume of foreign trade was relatively small.
Later on as the trade expanded, the need for banks of the European type was felt and the
government of the East India Company took interest in having its own bank. The
government of Bengal took the initiative and the first presidency bank, the Bank of Calcutta
(Bank of Bengal) was established in 180. In 1840, the Bank of Bombay and IN 1843, the
Bank of Madras was also set up.
These three banks also known as Presidency Bank. The Presidency Banks had their
branches in important trading centers but mostly lacked in uniformity in their operational
policies. In 1899, the Government proposed to amalgamate these three banks in to one so
that it could also function as a Central Bank, but the Presidency Banks did not favor the
idea. However, the conditions obtaining during world war period (1914-1918) emphasized
the need for a unified banking institution, as a result of which the Imperial Bank was set up
in1921. The Imperial Bank of India acted like a Central bank and as a banker for other
banks.

- 57 -

The RBI (Reserve Bank of India) was established in 1935 as the Central Bank of the
Country. In 1949, the Banking Regulation act was passed and the RBI was nationalized and
acquired extensive regulatory powers over the commercial banks.
In 1950, the Indian Banking system comprised of the RBI, the Imperial Bank of India,
Cooperative banks, Exchange banks and Indian Joint Stock banks.

2. Nationalization Stages:
After Independence, in 1951, the All India Rural Credit survey, committee of Direct ion with
Shri. A. D. Gorwala as Chairman recommended amalgamation of the Imperial Bank of
India and ten others banks into a newly established bank called the State Bank of India
(SBI). The Government of India accepted the recommendations of the committee a nd
introduced the State Bank of India bill in the Lok Sabha on 16 th April 1955 and it was
passed by Parliament and got the presidents assent on 8 th May 1955. The Act came into
force on 1st July 1955, and the Imperial Bank of India was nationalized in 1955 as the State
Bank of India.
The main objective of establishing SBI by nationalizing the Imperial Bank of India was to
extend banking facilities on a large scale more particularly in the rural and semi- urban areas
and to diverse other public purposes.
In 1959, the SBI (Subsidiary Bank) act was proposed and the following eight stateassociated banks were taken over by the SBI as its subsidiaries.

- 58 -

Name of the Bank


from

Subsidiary with effect

1 st October 1959

1. State Bank of Hyderabad


2. State Bank of Bikaner

1st January 1960

3. State Bank of Jaipur

1 st January 1960

4. State Bank of Saurashtra

1st May 1960

5. State Bank of Patiala

1st April 1960

6. State Bank of Mysore

1st March 1960

7. State Bank of Indore

1st January 1968

8. State Bank of Travancore

1 st January 1960

With effect from 1st January 1963, the State Bank of Bikaner and State Bank of Jaipur with
head office located at Jaipur. Thus, seven subsidiary banks State Bank of India formed the
SBI Group.
The SBI Group under statutory obligations was required to open new offices in rural and
semi- urban areas and modern banking was taken to these unbanked remote areas.

On 19th July 1969, then the Prime Minister, Mrs. Indira Gandhi announced the
nationalization of 14 major scheduled Commercial Banks each having deposits worth Rs. 50
crore and above. This was a turning point in the history of commercial banking in India.

- 59 -

Later the Government Nationalized six more commercial private sector banks with deposit
liability of not less than Rs. 200 crores on 15th April 1980, viz.
Andhra Bank.
Corporation Bank.
New Bank if India.
Oriental Bank of Commerce.
Punjab and Sind Bank.
Vijaya Bank.
In 1969, the Lead Bank Scheme was introduced to extend banking facilities to every cor ner
of the country. Later in 1975, Regional Rural Banks were set up to supplement the activities
of the commercial banks and to especially meet the credit needs of the weaker sections of
the rural society.
Nationalization of banks paved way for retail bank ing and as a result there has been an alt
round growth in the branch network, the deposit mobilization, credit disposals and of course
employment.
The first year after nationalization witnessed the total growth in the agricultural loans and
the loans made to SSI by 87% and 48% respectively. The overall growth in the deposits and
the advances indicates the improvement that has taken place in the banking habits of the
people in the rural and semi- urban areas where the branch network has spread. Such credit
expansion enabled the banks to achieve the goals of nationalization, it was however,
achieved at the coast of profitability of the banks.

- 60 -

Consequences of Nationalization:
The quality of credit assets fell because of liberal credit extension policy.
Political interference has been as additional malady.
Poor appraisal involved during the loan meals conducted for credit disbursals.
The credit facilities extended to the priority sector at concessional rates.
The high level of low yielding SLR investments adversely affected the
profitability of the banks.
The rapid branch expansion has been the squeeze on profitability of banks
emanating primarily due to the increase in the fixed costs.
There was downward trend in the quality of services and efficiency of the ba nks.

3. Post-Liberalization EraThrust on Quality and Profitability:


By the beginning of 1990, the social banking goals set for the banking industry made most
of the public sector resulted in the presumption that there was no need to look at the
fundamental financial strength of this bank. Consequently they remained undercapitalized.
Revamping this structure of the banking industry was of extreme importance, as the health
of the financial sector in particular and the economy was a whole would be reflected by its
performance.
The need for restructuring the banking industry was felt greater with the initiation of the real
sector reform process in 1992. The reforms have enhanced the opportunities and challenges
for the real sector making them operate in a bord erless global market place. However, to
harness the benefits of globalization, there should be an efficient financial sector to support
the structural reforms taking place in the real economy. Hence, along with the reforms of
the real sector, the banking sector reformation was also addressed.

- 61 -

The route causes for the lackluster performance of banks, formed the elements of the
banking sector reforms. Some of the factors that led to the dismal performance of banks
were.
Regulated interest rate structure.
Lack of focus on profitability.
Lack of transparency in the banks balance sheet.
Lack of competition.
Excessive regulation on organization structure and managerial resource.
Excessive support from government.
Against this background, the financial sector reforms were initiated to bring about a
paradigm shift in the banking industry, by addressing the factors for its dismal performance.
In this context, the recommendations made by a high level committee on financial sector,
chaired by M. Narasimham, laid the foundation for the banking sector reforms. These
reforms tried to enhance the viability and efficiency of the banking sector. The Narasimham
Committee suggested that there should be functional autonomy, flexibility in operations,
dilution of banking strangulations, reduction in reserve requirements and adequate financial
infrastructure in terms of supervision, audit and technology. The committee further
advocated introduction of prudential forms, transparency in operations and improvement in
productivity, only aimed at liberalizing the regulatory framework, but also to keep them in
time with international standards. The emphasis shifted to efficient and prudential banking
linked to better customer care and customer services.

- 62 -

3.3 Banking in India

Central bank

Reserve Bank of India NABARD

Nationalized

Allahabad Bank Andhra Bank Bank of Baroda Bank of India

banks

of Maharashtra Canara Bank Central Bank of India Corporation Bank

Bank

Dena Bank IDBI Bank Indian Bank Indian Overseas Bank Oriental
Bank of Commerce Punjab & Sind Bank Punjab National Bank
Syndicate Bank UCO Bank Union Bank of India United Bank of
India Vijaya Bank
State

Bank State Bank of India State Bank of Bikaner & Jaipur State Bank of

Group

Hyderabad State Bank of Indore State Bank of Mysore State Bank of


Patiala State Bank of Travancore

Private banks

Axis Bank Bank of Rajasthan Bharat Overseas Bank Catholic Syrian


Bank Dhanalakshmi Bank South Indian Bank City Union Bank
Federal Bank HDFC Bank ICICI Bank IndusInd Bank ING Vysya
Bank Jammu & Kashmir Bank Karnataka Bank Limited Karur Vysya
Bank Kotak Mahindra Bank Lakshmi Vilas Bank Nainital Bank
Ratnakar Bank Saraswat Bank Tamilnad Mercantile Bank Limited Yes
Bank

Foreign banks ABN AMRO Abu Dhabi Commercial Bank Antwerp Diamond Bank
Arab Bangladesh Bank Bank International Indonesia Bank of America
Bank of Bahrain & Kuwait Bank of Ceylon Bank of Nova Scotia The
Bank of Tokyo-Mitsubishi UFJ Barclays Bank Citibank India Credit
Suisse HSBC Standard Chartered Deutsche Bank Royal Bank of
Scotland
Regional

North Malabar Gramin Bank South Malabar Gramin Bank Pragathi

Rural banks

Gramin Bank Shreyas Gramin Bank

Financial

Real Time Gross Settlement(RTGS) National Electronic Fund Transfer

Services

(NEFT) Structured Financial Messaging System (SFMS) CashTree


Cashnet Automated Teller Machine (ATM)

- 63 -

3.4 Major M&A in Banking / NBFC sector in India.3

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

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
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
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

- 64 -

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
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 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

3.5 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 (M D & CEO)
Mr. N. S.Kannan(CFO)

Products

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

Websites

www.ICICIBank.com
- 65 -

3.6 History of ICICI Bank


In 1955, The Industrial Credit and Investment Corporation of India Limited (ICICI)
was incorporated at the initiative of World Bank, the Government of India and
representatives of Indian industry, with the objective of creating a development financial
institution for providing medium-term and long-term project financing to Indian businesses.
ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is a
major banking and financial services organization in India. It is the second largest bank in
India and the largest private sector bank in India by market capitalization. The bank also has
a network of 2,016 branches (as on 31 March 2010) and about 5,219 ATMs in India and
presence in 18 countries, as well as some 24 million customers (at the end o f July 2007).
ICICI Bank offers a wide range of banking products and financial services to corporate and
retail customers through a variety of delivery channels and specialization subsidiaries and
affiliates in the areas of investment banking, life and no n- life insurance, venture capital and
asset management. (These data are dynamic.) ICICI Bank is also the largest issuer of credit
cards in India. ICICI Bank's shares are listed on the stock exchanges at BSE, NSE, Kolkata
and Vadodara (formerly Baroda) ; its ADRs trade on the New York Stock Exchange
(NYSE).

3.6.1. Subsidiaries of ICICI Bank


1 ICICI LOMBARD
2 ICICI PRUDENTIAL

3.6.2 Acquisition of ICICI Bank


2005 - Investitsionno-Kreditny Bank (IKB), a Russian bank
2007 - Sangli Bank , Maharashtra State
2008 - Bank of Rajasthan
- 66 -

3.6.3 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.

- 67 -

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.

VALUE OF MERGER

According to the merge r 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 s hares 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.

- 68 -

2) Bank of Baroda

Type

Public (BSE: 532134)

Industry

Banking Financial services


Investment services

Founded

1908

Headquarters

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

Key people

M D Mallya
(Chairman & MD)

Products

Finance and insurance


Consumer banking
Corporate banking
Investment banking
Investment management
Private banking
Private equity
Mortgages
Credit cards

Website

www.bankofbaroda.co m

- 69 -

3.7 History of Bank of Baroda


The Maharajah of Baroda, Sir Sayajirao Gaekwad III, founded the bank on 20 July 1908 in
the princely state of Baroda, in Gujarat. The bank, along with 13 other major commercial
banks of India, was nationalized on 19 July 1969, by the government of India
Bank of Baroda (BoB) (BSE: 532134) is the third largest bank in India, after the State
Bank of India and the Punjab National Bank and ahead of ICICI Bank. BoB has total assets
in excess of Rs. 2.27 lakh crores, or Rs. 2,274 billion, a network of over 3,000 branches and
offices, and about 1,100 ATMs.
IT plans to open 400 new branches in the coming year. It offers a wide range of banking
products and financial services to corporate and retail customers through a variety of
delivery channels and through its specialized subsidiaries and affiliates in the areas of
investment banking, credit cards and asset management.

3.7.1 Subsidiaries of Bank of Baroda


BOB Capital Markets Ltd. (BOBCAPS) is a SEBI-registered investment banking
company based in Mumbai, Maharashtra. It is a wholly owned subsidiary of Bank of
Baroda. Its financial services portfolio includes Initial Public Offerings, private placement
of debts, corporate restructuring, Business valuation, mergers & acquisition, project
appraisal and loan syndication.

3.7.2 Merger and Acquisition of Bank of Baroda


1959: BoB acquired Hind Bank.
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.

- 70 -

3.7.3 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.

- 71 -

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

- 72 -

3.8 History of IDBI Bank


The Industrial Development Bank of India Limited (IDBI) is one of India's leading
public sector banks and 4th largest Bank in overall ratings. RBI categorized IDBI as an
"other public sector bank".
It was established in 1964 by an Act of Parliament to provide credit and other facilities for
the development of the fledgling Indian industry. It is currently 10th largest development
bank in the world in terms of reach with 1300 ATMs, 758 branches and 513 centers.
Some of the institutions built by IDBI are the National Stock Exchange of India (NSE), the
National Securities Depository Services LTD (NSDL), the Stock Holding Corporation of
India (SHCIL), the Credit Analysis & Research LTD, the export- import Bank of
India(Exam Bank), the Small Industries Development Bank of India(SIDBI), the
Entrepreneurship Development Institute of India, and IDBI BANK, which today is owned
by the Indian Government, though for a brief period it was a private scheduled bank.

3.8.1 Subsidiaries of IDBI Bank


IBDI Bank has the following subsidiaries:
IDBI Capital Market Services Limited
IDBI Home Finance Limited
IDBI Intech Limited
IDBI Gilts Limited

3.8.2 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
- 73 -

3.8.3 History of merger of IDBI Bank with United Western

Bank

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.
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.

- 74 -

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.
IDBI should get exposure to agriculture credit through UWB; nearly half the number
of UWB its branches is in semi- urban and rural areas, and should complement
IDBI's loan book.
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.

- 75 -

4) INDIAN OVERSEAS BANK

Type

Public

Industry

Banking
Capital Markets and
allied industries

Founded

Headquarters

Madras, February 10,1937

Chennai, India

Chairman & MD
Key People

M Narendra
Executive Directors:
Nupur Mitra ,
A.K.Bansal
Loans, Credit Cards, Savings,

Products

Investment vehicles etc.

Website

www.iob.in

- 76 -

3.9 History of Indian Overseas Bank


Established in 1937, Indian Overseas Bank (IOB) is a leading bank based in Chennai, India.
IOB had the distinction of simultaneously commencing operations in three branches at
Karaikudi, Chennai, and Yangon (Myanmar). Since IOB aimed to encourage overseas
banking and foreign exchange operations, it soon opened its branches in Penang and
Singapore. Today, Indian Overseas Bank boasts of a vast domain in banking sector with
over 1400 domestic branches and 6 branches overseas.
IOB was the first bank to venture into consumer credit, as it introduced the popular Personal
Loan scheme. In 1964, the Bank started computerization in the areas of inter-branch
reconciliation and provident fund accounts.
Indian Overseas Bank was one of the 14 major banks which were nationalized in 1969.
After nationalization, the Bank emphasized on opening its branches in rural parts of India.
In 1979, IOB opened a Foreign Currency Banking Unit in the free trade zone in Colombo.

3.9.1 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.
2009: IOB took over assets and liabilities of Shree Suvarna Sahakari Bank.

- 77 -

3.9.2 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.

- 78 -

5) ORIENTAL BANK OF COMMERCE

Type

Public

Industry

Banking
Financial services

Founded

19 February 1943

Headquarters

New Delhi, Delhi, India

Key people

NAGES PAYDAH
(Chairman and MD)

Products

Investment Banking
Consumer Banking
Commercial Banking
Retail Banking
Private Banking
Asset Management
Pensions
Mortgages
Credit Cards

Owner(s)

Government of India

Website

www.obcindia.co.in

- 79 -

3.10 History of Oriental Bank of Commerce


Oriental Bank of Commerce made a beginning under its Founding Father, Late Rai Bahadur
Lala Sohan Lal, and the first Chairman of the Bank. Within four years of coming into
existence, the Bank had to face partition. Branches in the newly formed Pakistan had to be
closed down and the Registered Office had to be shifted from Lahore to Amritsar. Late
lala Karam Chand Thapar, the then Chairman of the Bank, in a unique gesture honoured the
commitments made to the depositors from Pakistan and paid every rupee to its departing
customers.

The Bank has witnessed many ups and downs since its establishment. The period of 197076 is said to be the most challenging phase in the history of the Bank. At one time profit
plummeted to Rs.175 that prompted the owner of the bank, the Thapar House, to sell / close
the bank. Then employees and leaders of the Bank came forward to rescue the Bank. The
owners were moved and had to change their decision of selling the bank and in turn they
decided to improve the position of the bank with the active cooperation and support of all
the employees. Their efforts bore fruits and performance of the bank improved significantly.
This was the turning point in the history of the bank.

The bank was nationalized on 15th April, 1980. At that time total working of the bank was
Rs.483 crores having 19th position among the 20 nationalized banks. Within a decade the
bank turned into one of the most efficient and best performing banks of India.

- 80 -

3.10.1Oriental Bank of Commerce Acquires Global Trust Bank Ltd 5

Date of Merger: -

14th Aug, 2004

Type 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 p latform. 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.

- 81 -

3.11 REFERENCES

1. www.mbaknowledgebase.com
2. www.wikipedia.com
3. Rajesh Kumar B., 2011, Mergers and Acquisitions Text and Cases,
4. www.wikipedia.com
5. www.tejas@iimba.com

- 82 -

Chapter-4
FINANCIAL
ANALYSIS

- 83 -

CHAPTER- 4
FINANCIAL ANALYSIS
CONTENT

4.1 Meaning of financial analysis.


4.2 Need for analysis of financial statements
4.3 Parties interested in analysis of financial statement
4.4 Ratio analysis
4.4.1 Meaning of accounting Ratio
4.4.2 Significance of ratio Analysis
4.4.3 Uses of accounting ratio
4.5 The importance of Liquidity Ratio
4.6 Profitability ratio
4.7 DuPont Analysis
4.8 References

- 84 -

4.1 Meaning and need for Analysis of Financial Statements 1


As you know financial statements are those statements which provide information about the
profitability and the financial position of a business. It includes two statements, i.e., Profit
and Loss a/c or Income Statement and Balance Sheet or Position Statement.
The income statement present the income earned expense incurred during a financial year.
Position statement presents the financial position of the business at the end of the year.
Before understanding the meaning of Analysis of Financial Statements, it is necessary to
understand the meaning of Analysis and Financial Statements.
Analysis means establishing a meaningful relationship between two financial statements
with each other in such a way that a conclusion is drawn.

4.2 Need for Analysis of Financial Statements


Analysis of financial statement is an attempt to assess the efficiency and performance of an
enterprise. For this purpose it is necessary to know the-

Earning capacity or Profitability


Comparative position in relation to other firms
Efficiency of management
Financial strength
Solvency of the firm

- 85 -

4.3 Parties interested in Analysis of Financial Statements


Analysis of financial statement has become very significant due to wide spread interest of
various parties in the financial result of a business unit. The various persons interested in the
Analysis of Financial statements are:-

Short- term Creditors


Long- term Creditors
Shareholders
Management
Trade unions
Taxation authorities
Researcher
Employees

- 86 -

4.4 Ratio Analysis:

4.4.1 Meaning of Accounting Ratio:


The ratio is an arithmetical relationship between two numerical. It is expressed as a
proportion, or a fraction, or in percentage or in terms of number of times.
Accounting ratios are ratios formed out of figures taken from financial statements. These
are calculated by placing two figures taken from financial statements in the form of ratio.
They are tools in the hands of users and help the management in taking decisions.

4.4.2 Significance of Ratio Analysis


Analyzing financial statements from various aspects of business through the techniques
of Accounting Ratio is called Ratio Analysis.
Ratio analysis is an important technique of financial analysis. It is a means for judging
the financial health of a business enterprise. It determines and interprets the liquidity,
solvency, profitability etc of a business enterprise.

4.4.3 Uses of Accounting Ratios


Simplification of accounting data
Helpful in comparative study
Focus on trends
Setting standards
Study of financial soundness

- 87 -

4.5 Liquidity Ratio:

A class of financial metrics that is used to determine a company's ability to pay off its shortterms debts obligations. Generally, the higher the value of the ratio, the larger the margin of
safety that the company possesses to cover short-term debts.

Common liquidity ratios include the current ratio, the quick ratio and the operating cash
flow ratio. Different analysts consider different assets to be relevant in calculating liquidity.
Some analysts will calculate only the sum of cash and equivalents divided by current
liabilities because they feel that they are the most liquid assets, and would be the most likely
to be used to cover short-term debts in an emergency.

4.5.1 The Importance of Liquidity Ratios

Liquidity ratios are probably the most commonly used of all the business ratios. Creditors
may often be particularly interested in these because they show the ability of a business to
quickly generate the cash needed to pay outstanding debt. This information should also be
highly interesting since the inability to meet short-term debts would be a problem that
deserves your immediate attention.

Liquidity ratios are sometimes called working capital ratios because that, in essence, is what
they measure. Often liquidity ratios are commonly examined by banks when they are
evaluating a loan application. Once you get the loan, your lender may also require that you
continue to maintain a certain minimum ratio, as part of the loan agreement.

- 88 -

In this Study, We used following Liquidity Ratios

1) Cash Deposit
2) Deposit to owner Fund
3) Loan to Deposit
4) Fixed Asset to Fixed capital
5) Debt to Equity
6) Debt to Asset
7) Interest coverage

- 89 -

1 ) Cash Deposit Ratio


Banks keep a definite ratio between the volume of deposits which they issue and t he amount
of cash which they possess. This is known as the cash/deposit ratio or cash ratio 4
It is generally accepted in the accounting literature to maintain a high degree of prudence
in both the preparation and analysis of financial statements, the cash ratio seems as an
important idea.5

The pattern of cash holdings is reflected in the change in the ratio of currency outside banks
to total deposits in the banking system.6

FORMULA:

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

Before M & A

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)

ICICI

6.63

11.22

-4.59

21.0681

BOB

4.53

4.01

0.52

0.2704

IDBI

8.69

9.76

-1.07

1.1449

IOB

7.45

7.89

-0.44

0.1936

OBC

7.33

10.10

-2.77

7.6729

(Source: Moneycontrol.com)

- 90 -

CASH DEPOSIT RATIO


12

10

R
a
t
i
o

6
Before M & A
After M & A

4
2

0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

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 its showing increasing Cash Deposit
Ratio (4.59) whereas BOB showing negative impact because its ratio (0.52) has been
decreased after merger.

- 91 -

Table-4.1.1
Analysis of t-test in selected units under the study of Cash Deposit Ratio

Mean

S.D

d.f

XY

XY

n-1

6.926

8.596

-1.67

1.531

2.829

2.02518

5-1

tc

-1.844

tt

2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = -1.844 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, befo re and after merger & acquisition.

- 92 -

2) Deposit to Owners Fund Ratio


This ratio tells that how much the company has owners fund against its deposit. If the
owners fund is more it shows the good situation of the company or it can say that the
company has enough capacity to meet the liability.

FORMULA:

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

Bank Name

Before M & A

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)

ICICI

8.29

4.53

3.76

14.1376

BOB

15.33

13.95

1.38

1.9044

IDBI

4.93

10.93

-6

36

IOB

17.49

17.36

0.13

0.0169

OBC

15.02

11.84

3.18

10.1124

(source: Moneycontrol.com)

- 93 -

DEPOSIT TO OWNERS' FUND RATIO


20
18

16
14

R
a 12
t 10
i
8
o 6

Before M & A
After M & A

2
0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

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 the 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.
- 94 -

Table 4.2.1
Analysis of t-test in selected units under the study of Deposit to Owners Fund Ratio

Mean
X

12.21

11.72

S.D
XY

0.49

5.34

4.72

d.f
XY
3.90

tc

tt

Result

n-1
5-1

0.281

2.776

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, tc = 0.281 and tt = 2.776

So,

tc < tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisitio n

- 95 -

3) Loan to Deposit Ratio


The formula for the loan to deposit ratio is exactly as its name implies, loans divided by
deposits.
The loan to deposit ratio is used to calculate a lending institution's ability to cover
withdrawals made by its customers. A lending institution that accepts deposits must have a
certain measure of liquidity to maintain its normal daily operations. Loans given to its
customers are mostly not considered liquid meaning that they are investments over a longer
period of time. Although a bank will keep a certain level of mandatory reserves, they may
also choose to keep a percentage of their non-lending investing in short term securities to
ensure that any monies needed can be accessed in the short term.

FORMULA:

Table 4.3
LOAN TO DEPOSIT 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)

ICICI

0.89

0.94

-0.05

0.0025

BOB

0.52

0.61

-0.09

0.0081

IDBI

1.91

1.16

0.75

0.5625

IOB

0.65

0.73

-0.08

0.0064

OBC

0.53

0.63

-0.1

0.01

(source: Moneycontrol.com)
- 96 -

(x-y)

Square Of Difference
(X-Y)

LOAN TO DEPOSIT RATIO


2.5

R
a 1.5
t
i
1
o

Before M & A
After M & A

0.5

0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

ANALYSIS:

Table 4.3 showing Loan to Deposit Ratio in selected units, before 3 years and after 3 years
of merger and acquisition. In 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 IDBI showing highest Loan to Deposit Ratio (1.16) whereas BOB
showing lowest ratio (0.63) as compare to other banks.

Impact of merger is highest positive in OBC because its showing increasing Loan to
Deposit Ratio (0.1) whereas IDBI showing negative impact because its ratio (0.75) has
been decreased after merger.

- 97 -

Table-4.3.1
Analysis of t-test in selected units under the study of Loan to Deposit Ratio

Mean

0.9

d.f

XY

XY

n-1

0.81

0.086

0.58

0.23

0.372

5-1

S.D

tc

0.517

tt

2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = 0.517 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 98 -

4) Debt to Equity Ratio


About Debt/Equity Ratio
A measure of a company's financial leverage calculated by dividing its total
liabilities by stockholders' equity. It indicates what proportion of equity and debt the
company is using to finance its assets.
Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal
financial statements as well as corporate ones.
"Debt" involves borrowing money to be repaid, plus interest. "Equity" involves raising
money by selling interests in the company.
A high debt/equity ratio generally means that a company has been aggressive in financing
its growth with debt. This can result in volatile earnings as a result of the additional interest
expense.

Formula:

ADVANTAGES OF DEBT COMPARED TO EQUITY


The following are the advantages of debt financing as compared to equity financing.

Debt does not dilute the owner's ownership interest in the company.
Fixed rate of interest in debt instrument.
Interest on the debt can be deducted on the company's tax return.
Raising debt capital is less complicated because the company is not required to
comply with state and federal securities laws and regulations.

- 99 -

DISADVANTAGES OF DEBT COMPARED TO EQUITY


Unlike equity, debt must at some point be repaid.
Interest is a fixed cost which raises the company's break-even point. High
interest costs during difficult financial periods can increase the risk of
insolvency.
Cash flow is required for both principal and interest payments and must be
budgeted for.

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

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)

ICICI

240.20

267.01

-26.81

718.78

BOB

230.21

298.84

-68. 63

4710.08

IDBI

93.78

162.62

-68.84

4738.95

IOB

102.63

194.03

-91.4

8353.96

OBC

166.30

238.03

-71.73

5145.19

(source: Moneycontrol.com)

- 100 -

DEBT TO EQUITY RATIO


350
300
250

R
a 200
t
i 150
o 100

Before M & A
After M & A

50

0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

ANALYSIS:

Table 4.4 showing Debt to Equity Ratio in selected units, before 3 years and after 3 years of
merger and acquisition. In 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 its showing increasing Debt to Equity
Ratio (91.4) whereas ICICI showing lowest positive impact because its ratio (26.81) has
been decreased after merger.

- 101 -

Table-4.4.1
Analysis of t-test in selected units under the study of Debt to Equity Ratio

Mean

S.D

XY

166.62

232.11

-65.48

d.f
XY

n-1

68.66 58.74 23.60

5-1

tc

tt

-6.205 2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = -6.205 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 102 -

5) Debt to Asset
Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are
provided via debt. It is the ratio of total debt (the sum of current liabilities and long-term
liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as)
The higher the ratio, the greater risk will be associated with the firm's operation. In addition,
high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will
lower the firm's financial flexibility. Like all financial ratios, a company's debt ratio should
be compared with their industry average or other competing firms.
If the ratio is less than 0.5, most of the company's assets are financed through equity. If the
ratio is greater than 0.5, most of the company's assets are financed through debt. Companies
with high debt/asset ratios are said to be "highly leveraged,
A company with a high debt ratio (highly leveraged) could be in danger if creditors start to
demand repayment of debt.
The objective of this ratio is to indicate the extent of trading on equity and measure the
percentage of assets financed through borrowing.

FORMULA:

- 103 -

Table 4.5
DEBT TO ASSET RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)
Bank Name

Before M & A

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)

ICICI

0.81

0.78

0.03

0.0009

BOB

0.88

0.88

IDBI

0.82

0.86

-0.04

0.0016

IOB

0.87

0.89

-0.02

0.0004

OBC

0.90

0.88

0.02

0.0004

(source: Moneycontrol.com)

- 104 -

DEBT TO ASSET RATIO


0.92
0.9
0.88
0.86

R
a 0.84
t 0.82
i
0.8
o 0.78

Before M & A
After M & A

0.76
0.74
0.72
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

ANALYSIS:

Table 4.5 showing Debt to Asset Ratio in selected units, before 3 years and after 3 years 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 its showing increasing Debt to Asset
Ratio (0.04)whereas ICICI showing highest negative impact because its ratio (0.03) has
been decreased after merger.

- 105 -

Table-4.5.1
Analysis of t-test in selected units under the study of Debt to Asset Ratio

Mean

S.D

XY

0.856

0.858

-0.002

0.039

0.045

d.f
XY

n-1

0.029

5-1

tc

-0.156

tt

2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = -0.156 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 106 -

6) Fixed Asset to Fixed Capital


This ratio shows that how much the portion of fixed asset the company has against its fixed
liability. If there is a more fixed liability it is not good for company because to meet liability
it must have necessary fixed asset.

FORMULA:

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

Bank Name

Before M & A

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)

ICICI

0.020

0.011

0.009

0.000081

BOB

0.0099

0.0088

0.0011

0.00000121

IDBI

0.012

0.023

-0.011

0.000121

IOB

0.0079

0.0112

-0.0033

0.00001089

OBC

0.004

0.004

(source: Moneycontrol.com)

- 107 -

FIXED ASSET TO FIXED CAPITAL RATIO


0.025

0.02

R
a 0.015
t
i
0.01
o

Before M & A
After M & A

0.005

ICICI

BOB

IDBI

IOB

OBC

Name of Bank

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. In which before merger, IDBI showing the highest
Fixed Asset to Fixed Capital Ratio (0.02) whereas OBC 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 its 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.

- 108 -

Table-4.6.1
Analysis of t-test in selected units under the study of Fixed Asset to Fixed Capital Ratio.

Mean

S.D

d.f

XY

XY

n-1

0.011

0.012

-0.00084

0.006

0.007

0.00726

5-1

tc

tt

-0.259 2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = 0.767 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 109 -

7) Interest Coverage Ratio


Interest coverage ratio is also known as debt service ratio or debt service coverage ratio.
This ratio relates 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.
Interest Coverage Ratio is the estimation on how many times a company can pay its interest
payment obligations.2

Formula:

This will also benefit the bondholders and stockholders in estimating their probability of
loss to where they will invest their money. By knowing the coverage ratio, they will be able
to sense how far a company can go before defaulting, and they will have an idea on the
picture of the financial status of a chosen business.

Basics
Less than 1.0 result. If the result of the ratio is less than 1 percent, this means that
the company is having difficulty in paying its interest obligations.
Average result. More than 1.0 result can signify that the company can meet its
interest obligations.
Too high. Results that are too high signify that the company is playing too safe.

- 110 -

Table 4.7
INTEREST COVERAGE RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank Name

Before M & A

After M & A

(x)

(y)

ICICI

1.39

1.26

0.13

0.0169

BOB

1.36

1.47

-0.11

0.0121

IDBI

1.12

1.14

-0.02

0.0004

IOB

1.57

1.30

0.27

0.0729

OBC

1.49

1.37

0.12

0.0144

(source: Moneycontrol.com)

- 111 -

Difference
(x-y)

Square Of Difference
2

(X-Y)

INTEREST COVERAGE RATIO


1.8

1.6
1.4

R 1.2
a
1
t
0.8
i
o 0.6

Before M & A
After M & A

0.4

0.2
0

ICICI

BOB

IDBI

IOB

OBC

Name of Bank

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

- 112 -

Table-4.7.1
Analysis of t-test in selected units under the study of Interest Coverage Ratio

Mean

S.D

XY

1.386

1.308

0.078

0.170

0.123

d.f
XY

n-1

0.147

5-1

tc

1.188

tt

2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = 1.188 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 113 -

4.6 Profitability Ratio


Every Business unit it established to earn profit and developed on that bases.Hance,
profitability ratios are the most important ratios. the management of business should find
out profitability ratios to evaluate their own performance and to get and idea of progress of
their business. the share holders, who have invested their money in the companies business,
desire to get good return on their investment.
Creditors are also interested in profitability as will assure than of interest being payed to
them in time and also of principle amount being returned to them on time. this is possible
only when business is profitable.

- 114 -

1) Net Profit Ratio (NP Ratio):


Definition of net profit ratio:
Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as
percentage.

Components of net profit ratio:


The two basic components of the net profit ratio are the net profit and sales. The net profits
are obtained after deducting income-tax and, generally, non-operating expenses and
incomes are excluded from the net profits for calculating this ratio. Thus, incomes such as
interest on investments outside the business, profit on sales of fixed assets and losses on
sales of fixed assets, etc are excluded.

Formula:
Net Profit Ratio = (Net profit / Net sales) 100

Significance:
NP ratio is used to measure overall profitability and hence it is very useful to
proprietors.
The ratio is very useful as if the net profit is not sufficient, the firm shall not
be able to achieve a satisfactory return on its investment.
This ration also indicates the firms capacity to face adverse economic
conditions such as price competition, low demand, etc.
Higher the ratio the better the profitability.

- 115 -

Table 4.8
NET PROFIT RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank Name

Before M & A After M & A Difference Square Of Difference


(x)

(y)

(x-y)

(X-Y)2

ICICI

13

11

BOB

10

11

-1

IDBI

IOB

15

10

25

OBC

12

14

-2

(source: Moneycontrol.com)

- 116 -

NET PROFIT RATIO


16
14
12

R
10
a
8
t
i
6
o

Before M & A
After M & A

4
2

0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

ANALYSIS:

Table 4.8 showing Net Profit Ratio in selected units, before 3 years and after 3 years of
merger and acquisition. In 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 its showing increasing Net profit
Ratio (2) whereas IOB showing highest negative impact because its ratio (5) has been
decreased after merger.

- 117 -

Table-4.8.1
Analysis of t-test in selected units under the study of Net profit Ratio

Mean
X

11.8

10.8

S.D
XY
1

2.39

2.15

d.f
XY
2.74

tc

tt

Result

n-1
5-1

0.816

2.776

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = 0.816 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 118 -

2) Interest Expense Ratio

It has a very intuitive interpretation. For example, an interest expense ratio of 5% indicates
that a banks gross operating expenses equal 5 % of total investment that is, total asset thus
the lower (greater) the ER the more (less) efficient a bank will be in controlling expense
Bank Management.7
FORMULA:

Table 4.9
INTEREST EXPENSE RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank Name Before M & A After M & A Difference Square Of Difference


(x)

(y)

(x-y)

(X-Y)2

ICICI

52

57

-5

25

BOB

53

48

25

IDBI

IOB

47

60

-13

169

OBC

52

58

-6

36

(source: Moneycontrol.com)

- 119 -

INTEREST EXPENSE RATIO


70
60
50

R
a 40
t
i 30
o 20

Before M & A
After M & A

10

0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

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, BOB showing the highest Interest
Expense Ratio (53) whereas IDBI 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 its showing increasing Interest
Expense Ratio (13) whereas BOB showing lowest negative impact because its ratio (5) has
been decreased after merger.

- 120 -

Table-4.9.1
Analysis of t-test in selected units under the study of Interest Expense Ratio

Mean
X

42.2

Y
46

S.D
XY
-3.8

19.82

22.28

d.f
XY
6.76

tc

tt

Result

n-1
5-1

-1.257

2.776

(H0 )

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = -1.257 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 121 -

3) Return on Asset
The return on asset means that how much contribution of asset for generating the return.
more asset is says to be good because by employing more asset the company can earn more
return and the ratio will be more positive.

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

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)

ICICI

1.04

1.05

-0.01

0.0001

BOB

0.97

0.79

0.18

0.0324

IDBI

0.68

0.55

0.13

0.0169

IOB

1.28

0.94

0.34

0.1156

OBC

1.34

1.02

0.32

0.1024

(source: Moneycontrol.com)

- 122 -

RETURN ON ASSET RATIO


1.6
1.4
1.2

R
1
a
t 0.8
i 0.6
o

Before M & A
After M & A

0.4
0.2
0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

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 Asset

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 IOB showing highest negative impact because its ratio (0.34) has been
decreased after merger.

- 123 -

Table-4.10.1
Analysis of t-test in selected units under the study of Return on Asset Ratio

Mean

S.D

XY

1.06

0.87

0.19

0.26

0.21

d.f
XY
0.14

tc

tt

Result

n-1
5-1

2.979

2.776

H1

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = 2.979 and tt = 2.776

So, tc

> tt

As tc is less than tt so Alternate Hypothesis (H1 ) is accepted means there is a significant


difference in mean score of selected units, before and after merger & acquisition

- 124 -

4) Interest Expense to Interest Earned Ratio


This ratio explain that how much the companys interest income infront of the interest
expense. If the interest earned is more than the interest it create a good image of the
company that its expense is less than its income.

FORMULA:

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

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)

ICICI

70.20

72.60

-2.4

5.76

BOB

64.04

55.72

8.32

69.22

IDBI

96.59

90.022

6.57

43.16

IOB

62.45

61.87

0.58

0.3364

OBC

54.07

69.56

-15.49

239.94

(source: Moneycontrol.com)

- 125 -

INTEREST EXPENSE TO INTEREST EARNED RATIO


120
100

R
a
t
i
o

80
60

Before M & A
After M & A

40
20
0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

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. In 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 its showing increasing Interest
Expense Ratio (15.49) whereas BOB showing lowest negative impact because its ratio
(8.32) has been decreased after merger.

- 126 -

Table-4.11.1
Analysis of t-test in selected units under the study of Interest Expense to Inte rest
Earned Ratio

Mean

S.D

XY

69.47

69.95

-0.48

16.22

13.02

d.f
XY
9.45

tc

tt

Result

n-1
5-1

-0.115

2.776

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = -0.115 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 127 -

5) Earning Per Share


Earnings per share is generally considered to be the single most important variable in
determining a share's price

The portion of a company's profit allocated to each outstanding share of common


stock. Earnings per share serve as an indicator of a company's profitability.

An important aspect of EPS that's often ignored is the capital that is required to generate the
earnings (net income) in the calculation. Two companies could generate the same EPS
number, but one could do so with less equity (investment) - that company would be more
efficient at using its capital to generate income and, all other things being equal, would be a
"better" company.

Formula:

Earning Per Share =

- 128 -

Table 4.12
EARNING PER SHARE RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank Name

Before M & A

After M & A

(x)

(y)

Difference
(x-y)

Square Of Difference
2

(X-Y)

ICICI

30.12

35.74

-5.62

31.58

BOB

25.84

26.70

-0.86

0.74

IDBI

7.62

10.20

-2.58

6.66

IOB

12.28

19.80

-7.52

56.55

OBC

25.34

27.71

-2.37

5.62

(Source: Moneycontrol.com)

- 129 -

EARNING PER SHARE RATIO


40
35
30

R
25
a
t 20
i 15
o

Before M & A
After M & A

10
5
0

ICICI

BOB

IDBI

IOB

OBC

Name of bank

Analysis:
Table 4.12 showing Earning Per Share in selected units, before 3 years and after 3 years 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 its 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.

- 130 -

Table-4.12.1
Analysis of t-test in selected units under the study of Earning Per Share

Mean

S.D

XY

20.24

24.03

-3.79

4.35

4.28

d.f
XY
2.71

tc

tt

Result

n-1
5-1

-3.130

2.776

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, tc = -3.130 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 131 -

7) Return on Gross Capital Employed Ratio


Return on capital employed establishes the relationship between the profit and the capital
employed. It indicates the percentage of return on gross capital employed in the business
and it can be used to show the overall profitability and efficiency of the business.
Capital employed and operating profits are the main items. Capital employed may be
defined in a number of ways. However, two widely accepted definitions are "gross capital
employed" and "net capital employed". Gross capital employed usually means the total
assets, fixed as well as current, used in business,
Gross capital e mployed = Fixed assets + Investments + Current assets

Formula:

Significance:

Return on capital employed ratio is considered to be the best measure of


profitability in order to assess the overall performance of the business.
It indicates how well the management has used the investment made by owners and
creditors into the business.
As the primary objective of business is to earn profit, higher the return on capital
employed, the more efficient the firm is in using its funds.

Table 4.13
- 132 -

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 Square Of Difference

(x)

(y)

(x-y)

(X-Y)2

ICICI

0.086

0.107

-0.021

0.000441

BOB

0.122

0.084

0.038

0.001444

IDBI

0.116

0.093

0.023

0.000529

IOB

0.097

0.099

-0.002

0.000004

OBC

0.152

0.088

0.064

0.004096

(source: Moneycontrol.com)

- 133 -

RETURN ON GROSS CAPITAL RATIO


0.16
0.14
0.12

R
0.1
a
t 0.08
i 0.06
o

Before M & A
After M & A

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. In which before merger,OBC showing the
highest Return on Gross Capital Employed Ratio (0.152) whereas ICICI 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.

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.

- 134 -

Table-4.13.1
Analysis of t-test in selected units under the study of Return on Gross Capital
Employed Ratio.

Mean

S.D

XY

0.11

0.09

0.020

0.025

0.009

d.f
XY

n-1

0.033

5-1

tc

1.370

tt

2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = 1.370 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 135 -

8) Return on Net Capital Employed Ratio


The prime objective of making investments in any business is to obtain satisfactory return
on capital invested. Hence, the return on capital employed is used as a measure of success
of a business in realizing this objective.
It indicates the percentage of return on net capital employed in the business and it can be
used to show the overall profitability and efficiency of the business.
Net capital e mployed = Fixed assets + Investments + Working capital*.
*Working capital = current assets current liabilities

Formula:

Table 4.14
RETURN ON NET 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 Square Of Difference

(y)

ICICI

0.104

0.124

-0.02

0.0004

BOB

0.138

0.093

0.045

0.002025

IDBI

0.14

0.10

0.04

0.0016

IOB

0.110

0.106

0.004

0.000016

OBC

0.165

0.094

0.071

0.005041

(source: Moneycontrol.com)
- 136 -

(x-y)

(X-Y)2

(x)

RETURN ON NET CAPITAL EMPLOYED RATIO


0.18

0.16
0.14
R 0.12
a
0.1
t
0.08
i
o 0.06
0.04

Before M & A
After M & A

0.02

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.

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.

- 137 -

Table-4.14.1
Analysis of t-test in selected units under the study of Net Capital Employed Ratio

Mean

S.D

XY

0.13

0.10

0.028

0.025

0.013

d.f
XY

n-1

0.036

5-1

tc

1.743

tt

2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = 1.743 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 138 -

9) Return on Net Worth Ratio


Return on Shareholders Investment or Net Worth Ratio:
Definition:
It is the ratio of net profit to share holder's investment. It is the relationship between net
profit (after interest and tax) and share holder's/proprietor's fund.
This ratio establishes the profitability from the share holders' point of view. The ratio is
generally calculated in percentage.

Components:
The two basic components of this ratio are net profits and shareholder's funds.
Shareholder's funds include equity share capital, (preference share capital) and all reserves
and surplus belonging to shareholders.
Net profit means net income after payment of interest and income tax because those will be
the only profits available for share holders.

Significance:
This ratio is one of the most important ratios used for measuring the overall
efficiency of a firm.
As the primary objective of business is to maximize its earnings, this ratio
indicates the extent to which this primary objective of businesses being
achieved.
This ration is of great importance to the present and prospective
shareholders as well as management of the company.
This ratio reveals how well the resources of the firm are being used, higher
the ratio, better are the result.

- 139 -

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

Bank Name

Before M & A After M & A Difference Square Of Difference


(x)

(y)

(x-y)

(X-Y)2

ICICI

0.13

0.08

0.05

0.0025

BOB

0.19

0.12

0.07

0.0049

IDBI

0.01

0.11

-0.01

0.0001

IOB

0.26

0.19

0.07

0.0049

OBC

0.23

0.15

0.08

0.0064

(source: Moneycontrol.com)

- 140 -

RETURN ON NET WORTH RATIO


0.3
0.25

R
a
t
i
o

0.2
0.15
Before M & A
After M & A

0.1
0.05

0
ICICI

BOB

IDBI

IOB

OBC

Name of bank

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 IDBI 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.

- 141 -

Table-4.15.1

Analysis of t-test in selected units under the study of Return on Net Worth Ratio

Mean

S.D

XY

0.16

0.13

0.034

0.099

0.042

d.f
XY

n-1

0.076

5-1

tc

1.004

tt

2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = 1.004 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquis ition

- 142 -

4.7 Du-Pont Analysis


4.7.1 Introduction of Du-Pont Model
Description
A method of performance measurement that was started by the DuPont Corporation in the
1920s. The

DuPont Model is a technique that can be used to analyze the profitability of a

company using traditional performance management tools. To enable this, the DuPont
model integrates elements of the Income Statement with those of the Balance Sheet.

The analysis of the DuPont tree (by looking at each branch and its figures) allows the
manager/investor to identify the key drivers, as well as their impact on the ROI and ROE. It
identified weaknesses simultaneously show up potential for improvement. It is especially
well suited for benchmarking. It is also known as "DuP ont identity"
Usage of the DuPont Frame work. Applications

The model can be used by the purchasing department or by the sales department to examine
or demonstrate why a given Return was earned. Can be used to convince management that
certain steps have to be taken to professionalize the purchasing or sales function.

Compare a firm with its colleagues.

Analyze changes over time.

Teach people a basic understanding how they can have an impact on the Company
results.

Show the impact of professionalizing the purchasing function.

- 143 -

Benefits

Simplicity.
A very good tool to teach people a basic understanding how they can have an
impact on results.

Can be easily linked to compensation schemes.

Limitations of the DuPont analysis. Disadvantages

Based on accounting numbers, which are basically not reliable.

Does not include the Cost of Capital.

Although the DuPont analysis offers a clear overview of the most relevant drivers of the
ROI and their interconnection, it can not replace a detailed analysis. The figures and ratios
may only indicate general tendencies and developments.

- 144 -

1) RETURN ON EQUITY SHARE CAPITAL

Return on equity measures a corporation's profitability by revealing how much profit a


company generates with the money shareholders have invested. It shows what percentage of
profit is earned on the capital invested by ordinary Shareholders The amount of net
income returned as a percentage of shareholders equity.

Return on equity (ROE) is a closely watched number among knowledgeable investors. It is


a strong measure of how well the management of a company creates value for its
shareholders.

The ROE is useful for comparing the profitability of a company to that of other firms in the
same industry.

Formula:

Return on equity share capital =

- 145 -

Table 4.16
RETURN ON EQUITY SHARE CAPITAL RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank Name

Before M & A

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)2

ICICI

301.15

357.42

-56.27

3116.31

BOB

258.78

266.06

-7.28

53

IDBI

76.19

102.04

-25.85

668.22

IOB

1.49

1.98

-0.49

0.241

OBC

2.53

2.77

-0.24

0.0576

(source: Moneycontrol.com)

- 146 -

RETURN ON EQUITY SHARE CAPITAL RATIO


400
350
300

R
250
a
t 200
i
150
o

Before M & A
After M & A

100
50

0
ICICI

BOB

IDBI

IOB

OBC

Name of bank

ANALYSIS:

Table 4.1 showing Return on Equity Share Capital Ratio in selected units, before 3 years
and after 3 years of merger and acquisition. In which before merger, ICICI showing the
highest Return on Equity Share Capital Ratio (301.15) whereas IOB showing the lowest
ratio (1.49) as compare to other banks and after merger ICICI showing highest Return on
Equity Share Capital Ratio (357.42) whereas IOB showing lowest ratio (1.98) as compare
to other banks.

Impact of merger is the highest positive in ICICI because its showing increasing Return on
Equity Share Capital Ratio (56.27) where as OBC showing the lowest positive ratio (0.24).

- 147 -

Table-4.16.1
Analysis of t-test in selected units under the study of Return on Equity Share Capital
Ratio

Mean
X

S.D
XY

5 128.03 146.05 -18.03

142.76

159.92

d.f
XY

n-1

23.79

5-1

tc

tt

-1.695 2.776

Result

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, t c = -1.695 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 148 -

2) Return on Investment
Return on Investment show the relationship between profit and the investment that generates the
profit. It is one of the most widely used measures of company performance. As a quantitative
measure of investment and results, ROI provides a companys management with a simple tool
for examining performance.ROI allows management to cut out the guesswork and replace it
with mathematical calculation, which can then be used to compare alternative uses of invested
capital. Return on investment is a very popular metric because of its versatility and

simplicity

Thus ROI is a performance measure used to evaluate the efficiency of an investment or to


compare the efficiency of a number of different investments.

Formula

Uses of ROI

Creditors and Owne rs

ROI is used by creditors and owners to do the following:


1. Assess the companys ability to earn an adequate rate of return.
2. Provide information about the effectiveness of management.
3. Project future earnings.

Managers
Managers can use ROI at different levels to help them make decisions regarding
how best to maximize profits and add value to the company.

- 149 -

Managers use ROI to do the following:


1. Measure the performance of individual company segments when each segment
is treated as an investment center.
2. Evaluate capital expenditure proposals.
3.Assist in setting management goals.

Table 4.17
RETURN ON INVESMENT RATIO IN SELECTED UNIT
(Before 3 years and After 3 years of M&A)

Bank Name

Before M & A

After M & A

Difference

Square Of Difference

(x)

(y)

(x-y)

(X-Y)

ICICI

20.39

24.03

-3.64

13.25

BOB

14.36

17.53

-3.17

10.05

IDBI

22.07

24.84

-2.77

7.67

IOB

19.33

25.49

-6.16

37.95

OBC

19.77

19.86

-0.09

0.0081

(source: Moneycontrol.com)

- 150 -

RETURN ON INVESMENT RATIO


30

25

R 20
a
t 15
i
o 10

Before M & A
After M & A

0
ICICI

BOB

IDBI

IOB

OBC

Name of Bank

ANALYSIS:

Table 4.17 showing Return on Investment Ratio in selected units, before 3 years a nd after 3
years of merger and acquisition. In which before merger,IDBI showing the highest Return
on Investment Ratio (22.07) whereas BOB showing the lowest ratio (14.36) as compare to
other banks and after merger IOB showing highest Return on Investment Ratio (25.49)
whereas BOB showing lowest ratio (17.53) as compare to other banks (0.09).

Impact of merger is highest positive in IOB because its showing increasing Return on
Equity Share Capital Ratio (6.16) where as OBC shows the lowest positive ratio.

- 151 -

Table-4.17.1
Analysis of t-test in selected units under the study of Return of Investment Ratio

Mean

S.D

XY

19.18

22.35

-3.17

2.89

3.48

d.f
XY
2.17

tc

tt

Result

n-1
5-1

-3.265

2.776

H0

=4

Null Hypothesis: (H0 )


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

Ho: 1 = 2
H1: 1 2
At 5% level of significance, here, tc = -3.265 and tt = 2.776

So, tc

< tt

As tc is less than tt so Null Hypothesis (H0 ) is accepted means there is no significant


difference in mean score of selected units, before and after merger & acquisition

- 152 -

4.8 REFERENCES
1. www.accountingformanage ment.com
2. www.investopedia.com
3. www.wikipedia.com
4. By S.N.CHAND (Dictionary of economics)
5. http://www.scribed.com
6. Jordan: strategy for adjustment & Growth.
7. By Timothy W.Koch, S Scott macdonales.

- 153 -

Chapter-5
SUMMARY
FINDING AND
SUGGESTION

- 154 -

Summary

Chapter-1
Research Methodology
In this chapter we include the reason for selecting the topic A Comparative Study On
impact of Merger and Acquisition in Indian banking Sector and followed by the objective
of the study and to conduct the study which type of method we used for collecting the data
and technique of selecting sample. further it includes ratio analysis, statistical analysis and
Du-Pont analysis as tools of analysis for comparing the financial performance of selected
units. And finally this chapter concludes with the significance and limitation of the study.

Chapter-2
History and Development of
Merger and Acquisition
This chapter consist brief introduction of merger and acquisition followed by classification,
motives and reason of merger and acquisition. it also includes history and trend of merger
and acquisition. And at last it represents the regulation, legal and decisional procedure
regarding the merger and acquisition.

- 155 -

Chapter-3
History and Development of
Industry and selected Units

This chapter includes history of banking sector followed by the list of banks in India. here
we also represent major merger and acquisition during the period of 1969-2006 in banking
sector. Finally it shows the history of selected units (ICICI, BOB, IDBI, IOB, and OBC)
and their merger and acquisition.

Chapter-4
Financial Analysis
This chapter include introduction of financial analysis, need, significance and parties
involved in it. and it also mentioned the meaning, significance and uses of ratio analysis and
in ratio analysis we include liquidity ratio which indicate the liquidity position of selected
units. Liquidity ratios which we used are:
1) Cash Deposit ratio
2) Deposit to owner Fund ratio
3) Loan to Deposit ratio
4) Fixed Asset to Fixed capital ratio
5) Debt to Equity ratio
6) Debt to Asset ratio
7) Interest coverage ratio

- 156 -

And profitability ratio which indicates the profitability of selected units these ratios are:
1) Net Profit ratio
2) Return on gross capital employed ratio
3) Return on net capital employed ratio
4) Interest expense ratio
5) Earning per share ratio
6) Interest expense to interest earned ratio
7) Return on net worth ratio
8) Return on asset ratio

Further it includes Du-Pont analysis to know Return on Equity Share Capital and Return on
Investment of selected units.

- 157 -

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.
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 tre nd 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 IDBI 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.
- 158 -

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.

- 159 -

Suggestions:
1. The given result shows that ICICI banks 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 IDBIs as well as IOBs 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 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.

- 160 -

Bibliography
References:
Books
1) Rajesh 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

Delhi,

New

Age International limited.


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.

Magazines
1) Bloomberg-Business week
2) BNET-Business Publication

News Paper
The Economic Times
(12th march,2011)

- 161 -

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://www.scribd.com/doc/30210590/Capstone-m-a-IN-BANKS-IN-INDIA
http://www.authorstream.com/Presentation/pratikdotia9-704672-merger-and-acquisition/
http://finance.mapsofworld.com/merger-acquisition/corporate.html
http://ejbe.org/EJBE2010Vol03No05p27KAUR-KAUR.pdf
http://en.wikipedia.org/wiki/Mergers_and_acquisitions
http://finance.mapsofworld.com/merger-acquisition/india.html
http://findarticles.com/p/articles/mi_m1094/is_n2_v31/ai_18667993/
http://www.bank2020.info/banking/bank-mergers-and-acquisitions/
http://www.scribed.com
www.investopedia.com
www.accountingformanagement.com
http://www.financeformulas.net/Loan-to-Deposit-Ratio.html

- 162 -

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

OBC

Oriental Bank of Commerce

ROE

Return on Equity

ROI

Return on Investment

SGLB

South Gujarat Local area Bank

UWB

United Western Bank

- 163 -