A STUDY ON MERGER AND ACQUISITION

IN BANKING SECTOR OF INDIA

A Project Submitted To

University Of Mumbai for Partial Completion Of

The Degree Of
Master of Commerce

By

Pooja .A. Shandilya

1916547

Under The Guidance of

Mr.Vinod Nair

Mulund College Of Commerce

S.N.Road Mulud (West),Mumbai – 400080.

2019-2020

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 DECLARATION

I the undersigned Pooja A Shandilya hereby, declare that the wok embodied in the project
work titled “A Study on Merger and Acquisition of Banking Sectors In India”, forms my
own contribution to the research work carried out under the guidance of Mr. Vinod Nair is
a result of my own research work and has not been previously submitted to any other
Degree/Diploma to this or any other University.

Wherever references has been made to previous works of others, it has been clearly
indicated as such and included in bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Pooja A Shandilya.

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 ACKNOWLEDGEMENT

The success and final outcome of this project required a lot of guidance and assistance from many people
and I am extremely privileged to have got this all along the completion of my project. All that I have done is
only due to such supervision and assistance and I would not forget to thank them.
 

I take this opportunity to thank the University Of Mumbai for giving me chance to do this project.

.I would like to thank the Principal of our college Dr.Sonali Pednekar for providing the necessary facilities
required for the completion of this project.

I would like to thank our Co-ordinator Mr. B Seshadri, for his moral support and guidance.

I owe my deep gratitude to our project guide Mr. Vinod Nair, who took keen interest on my project work
and guided me all along, till the completion of this project work by providing all the necessary information
for developing a good system.

I heartily thank our College Library, for having provided various reference books and magazines related to
my project.

Lastly I would not forget to thank my family and peers for their encouragement and more over for their
timely support and guidance till the completion of our project work.

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 TABLE OF CONTENT

Contents
CHAPTER 1 - INTROUCTION---------------------------------------------------------------------------------------5
CHAPTER 2 - REVIEW OF LITERATURE----------------------------------------------------------------------21
CHAPTER 3 -RESEARCH METHODOLOGY------------------------------------------------------------------24
CHAPTER 4 - DATA REPRESENTATION AND ANALYSIS:----------------------------------------------27
CHAPTER 5 – FINDINGS, RECOMMENDATIONS & CONLUSION-------------------------------------45
BIBLIOGRAPHY-------------------------------------------------------------------------------------------------------48

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 Chapter 1 - INTROUCTION

BEGINNING OF BANKING IN THE WORLD

The word “bank” is derived from the word “Bancus or Banque” that is bench. Jews, who were considered to
be the early bankers, transacted their business on benches in the market. Some people trace the origin of the
word “bank” from the German word “Back” meaning a joint stock fund.

EARLY HISTORY OF BANKING

According to history, Babylonians had developed as banking system. The great temples were
powerful of the Greek banking institutions. In ancient Greece & Rome, the practice of granting
was widely prevalent. People used cheque & drafts to settle their accounts.

Manu, the ancient Hindu lawgiver has written exhaustive regulations governing credit. He talks
about credit installments, interest on loans and commercial papers.

During the early periods, although banking business was mostly done by private individuals,
many countries established in Barcelona in 1941. During 1407, the bank of Genoa was
established. The bank of Amsterdam was established in 1609 to meet the needs of the merchants
of the city. It accepted deposits, which could be drawn on demand.

BRITISH BANKING

The origin of modern banking in Britain can be traced back across four centuries and the history
of the Royal Bank of Scotland Group’s past constituents perfectly illustrates the story of the
industry’s development. English banking may correctly be attributed to the London gold smiths.
The received their valuables and fund for safe custody and issued receipts. These notes, in the
course of time, became payable to bearer of demand and hence enjoyed considerable circulation.
However, in the course of time, gold smiths were ruined. This lead to the growth of private
banking and establishment of “Banking of England” in 1694.

HISTORY OF INDIAN BANKING

According to Indian banking history, The British East India Company established “The
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Hindustan Bank” in Calcutta and Bombay in 1870, was the earliest Indian Bank banking in India
on modern lines started with the establishment of three presidency banks under Presidency
Bank’s act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras.

IMPERIAL BANK OF INDIA

The first major event in the history of banking in India took place in 1919 when the presidency
banks were amalgamated and “Imperial bank of India” was set up. Banking companies
Inspection ordinance was passed in January, 1946 and in February, 1946 the Banking
Company’s restriction of Branches Act was passed. In 1949, the Banking companies Act was
passed which was later amended to read as Banking Regulation Act.

RESERVE BANK OF INDIA

Reserve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was constituted
as an apex bank without major government ownership. Banking Regulations Act was passed in
1949. This regulation brought Reserve Bank of India under government control. Under the act,
RBI got wide ranging powers for supervision &control of banks. The Act also vested licensing
powers & the authority to conduct inspections in RBI.

NATIONALIZATION OF BANKS

On 19 July 1969, the Government acquiring ownership and control of 14 major banks in the country an
Ordinance. This was done to bring commercial banks in to the mainstream of economic development with
definite social obligations and objectives. Later, on 5 April 1980, six more commercial banks were
nationalized.

AUTOMATION IN BANKING SECTOR

In recent years there has also been considerable change in the functioning of banks. There has
been an increase in the amount of technology used by these institutions e.g. some banks use cash
dispensers and offer twenty four hours cash withdrawal facility, instant account details and
money transfer through computer network. Because of much more competition in the banking
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sector, services have to be sold in ways never done earlier.

 Today, customers do all their banking transactions while sitting at home.

 Banks are introducing Automatic Teller Machine (ATM) cards.
 Debit and credit cards are used as well.
This promises to change the face of banking forever.

THE ORGANIZED BANKING SYSTEM IN INDIA CAN BE BROADLY DIVIDED INTO

THREE CATEGORIES

(i) Commercial banks,

(ii) Regional Rural Banks and
(iii) Co-operative banks.

The Reserve Bank of India is the supreme monetary and banking authority in the country
and has the responsibility to control the banking system in the country. It keeps the
reserves of all commercial banks and hence is known as the “Reserve Bank”.

MERGER & ACQUISITION

This project is about the mergers and acquisitions in banking industry. A merger occurs when two
companies combine to form a single company. A merger is very similar to an acquisition or takeover, except
that in the case of a merger existing stockholders of both companies involved retain a shared interest in the
new corporation. By contrast, in an acquisition one company purchases a bulk of a second company’s stock,
creating an uneven balance of ownership in the new combined company.

Recent years have also brought about a change in the nature and quality of employment in the
sector. As far as retail banking is concerned, most of the Indian private sector banks are
becoming more aggressive. They are following the acquisition route for getting more and
more retail customers. During the last few years the Indian Banking system has witnessed
some very high profile mergers, such as the merger of ICICI Ltd. with its banking arm ICICI
Bank Ltd. the merger of Global Trust Bank with Oriental Bank of Commerce and more
recently the merger of IDBI with its banking arm IDBI Bank Ltd.

Basically, a merger involves a marriage of two or more banks. It is generally accepted that

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mergers promote synergies. This project is all about the factors motivating mergers and
acquisitions, its procedure, its impact on employment, working condition & consumer, its
obstacles and the examples of mergers and acquisitions of banks in India.

CONCEPTUALIZATION:

The phrase mergers and acquisitions or M&A refers to the aspect of corporate finance strategy
and management dealing with the merging and acquiring of different companies as well as
other assets. Usually mergers occur in a friendly setting where executives from the respective
companies participate in a due diligence process to ensure a successful combination of all
parts. Historically, though, mergers have often failed to add significantly to shareholder value.

Although the economic consideration are similar for both Mergers & Acquisitions but the
legal procedure involved in Mergers and Acquisitions are different

A) Mergers: The term merger or amalgamation refers to a combination of two or

more corporate (in this case banks) into a single entity. Mergers are governed by
companies Act, the court & law.
B) Acquisition: This may be defined as an act of acquiring effective control by one
corporate over the assets or management of the other corporate without any combination
of both of them. Acquisitions are a regulated activity by SEBI.

DIFFERENCE BETWEEN MERGER AND ACQUISITION

Basically, there is no difference between merger and acquisition. Both relate to an investment
in acquisition of a bank/company. The difference lies only in the operational process of
acquisition. In merger, one bank gets merged with the other losing its own identity by way of
share transactions/asset/liability transfers. In acquisition/takeover, one company/a group of
companies acquires the controlling interest on ownership of capital without making any
corporation to lose its own individual identity.

But in the eyes of law, the operational process marks a big difference. While merger is
covered regulated/covered by the Companies Act, 1856, the acquisition/takeover is
regulated/covered by the takeover norms prescribed by SEBI. As such, the process is
supervised by the High Court and the Registrar of Companies, while the process of

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acquisition/takeover is undertaken as per norms of SEBI.

“Acquisition refers to buying out another company and taking it into the fold of the acquiring
company. This is done by paying the acquired company, the value of its capital and depending
upon the circumstances, a premium over the capital amount.

Acquisitions and mergers both involve one or multiple companies purchasing all or part of
another company. The main difference between a merger and an acquisition is how they are
financed.

Basically, a merger involves a marriage of two or more banks. It is generally accepted that
mergers promote synergies. The basic idea is that the combined bank will create more value
than the individual banks operating independently. Economists refer to the phenomenon of the
“2+2 = 5” effect brought about by synergy.
The resulting combined entity gains from operating and financial synergies.

Mergers & Acquisitions can take place:

 By purchasing assets

 By purchasing common shares

 By exchange of shares for assets

 By exchanging shares for shares

REASONS FOR MERGERS AND ACQUISITIONS:

 SYNERGY
Synergy is the magic force that allows for enhanced cost efficiencies of the new business.

Synergy takes form of revenue enhancement & cost saving.

 STAFF REDUCTION
Merger tends to mean job losses from accounting, marketing & other departments.

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  ECONOMIES OF SCALE
A bigger company places a bigger order of various items & can save more cost & in better

negotiation position.

 ACQUIRING NEW TECHNOLOGY

To stay competitive, companies need to stay on top of technological development. By buying a

smaller company with unique technology, a larger company can develop a competitive edge.

 IMPROVED MARKET REACH & INDUSTRY VISIBILITY

A merge may extend two companies marketing & distribution opportunities. Capital can raise

easily in a bigger company than a smaller company.

 INCREASED MANAGERIAL SKILLS

Occasionally a firm will have good potential that is finds it unable to develop fully because of
deficiencies in certain areas of management or an absence of needed product or production
technology

CLASSIFICATION OF MERGERS

HORIZONTAL MERGER VERTICAL MERGER CONGLOMERATE MERGER

MARKET -EXTENSION PURCHASE MERGER

PRODUCT- EXTENSION CONSOLIDATION MERGERS

Horizontal Mergers

This type of merger involves two firms that operate and compete in a similar kind of
business. The merger is based on the assumption that it will provide economies of scale
from the larger combined unit.

Vertical Mergers

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 Vertical mergers take place between firms in different stages of
production/operation, either as forward or backward integration. The basic reason
is to eliminate costs of searching for prices, contracting, payment collection and
advertising and may also reduce the cost of communicating and coordinating
production. Both production and inventory can be improved on account of efficient
information flow within the organization.

a) Market-extension occurs when two companies that sell the same products in

different markets merge.

b) Product-extension occurs when two companies that sell the different but related

products in the same market merge.

Conglomerate Mergers

Conglomerate mergers are affected among firms that are in different or unrelated
business activity. Firms that plan to increase their product lines carry out these types of
mergers. Firms opting for conglomerate merger control a range of activities in various
industries that require different skills in the specific managerial functions of research,
applied engineering, production, marketing and so on. This type of diversification can be
achieved mainly by external acquisition and mergers and is not generally possible
through internal development. These types of mergers are also called concentric mergers.
Firms operating in different geographic locations also proceed with these types of
mergers.

a) Purchase mergers occurs when one company purchase other company. The

purchase is made either by cash or through the issue of some kind of debt

instrument, and the sale is taxable.

b) Consolidation mergers occur when a brand new company is formed and both

companies are bought & combined under the new entity. Tax terms are the same as

those of a purchase merger.

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 WAYS OF ACQUISITION

CONSIDERATION BY ASSETS REVERSE MERGER

Consideration-

A company can buy another company with cash, with stock, or a combination of two.

By assets-

In a smaller deal, a company can acquire all the assets of another company

Reverse Merger-

In this type of acquisition, a deal that enables a private company to get publicly listed in a

relatively short time period.

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IMPACT OF M&As ON WORKING AND EMPLOYMENT CONDITIONS

Most importantly, integrating differing company systems and procedures requires

harmonization of various aspects of terms and conditions of employment: pay scales, job
titles, entitlements and other benefits, job descriptions, reporting and supervisory lines are
all subject to revision to ensure common practice in the newly combined organization.

a. M&A’s, remuneration and other compensation issues

Two conflicting aims appear to characterize current practices in
financial sector remuneration: the need to reduce labor costs within a context of increasing
competition and decreasing profitability and the necessity to compensate and adequately
reward employee performance and commitment within an environment of continuous and
challenging change.

b. M&A’s and working time :

Banks’ adoption of the retailing model is encouraging them to adjust their hours to customer requirements,
extending opening hours on at least one day a week and even opening some branches on traditionally closed
days such as Sundays – a trend which has aroused strong trade union reactions in a number of countries. It
goes without saying that M&As can provide an opportunity for management to opt for more customer-
friendly working hours like ICICI Bank from 8am to 8pm.

a. M&A’s as factors of stress and demotivation

M&As generate high levels of staff anxiety and stress as their working world is turned upside down, their
jobs come under threat and their career prospects and professional competence are called into question. Not
surprisingly, it is much easier for managers to convince shareholders about the merits of proposed mergers
than it is to persuade their own staff.

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 b. M&A’s and job security

Not surprisingly, empirical evidence shows that workers everywhere are feeling increasing
insecurity in their employment. Companies are restructuring and downsizing more often,
increasingly replacing full-time jobs with part time, casual or temporary jobs and outsourcing.

IMPACT OF M & As ON CONSUMERS

New technology and the increased ability of financial institutions to offer a wider range of
products and services have benefited those with the means to access them. Consumers with a
regular income and a good credit history are able to borrow money more readily and cheaply
than ever before, although this has often lead to widespread debt encumbrance. Consumers of
retail services with more restricted incomes, with poor credit histories or unstable social
backgrounds, are finding it more difficult to get access to the mainstream financial services
sector traditional banking services.

A process that has run in parallel to that of merger and acquisition activity within the financial
services sector has been that of 'demutualization'. Insurance companies and building societies
have been prominent mutual organizations, which are effectively 'owned' by their members,
that is, by consumers who held policies or debt products and who have the right to vote on
policy and other matters at Annual General Meetings.

REACTIONS BY CONSUMERS TO MERGERS:

Again, it is virtually impossible to determine the exact impacts of specific mergers and
acquisitions on levels of customer loyalty from the available evidence. This kind of
information is highly sensitive, and is not easily released by firms. However, it is generally
known that the industry sees declining levels of customer loyalty as a problem, although
levels of customer mobility vary markedly between sectors. Levels of mobility are relatively
high in price- sensitive sectors such as car and household insurance, whereas it is lower for
more complex products such mortgages and lower still for banking services. In all product
areas a growing number of consumers are prepared to move their business from one firm to
another. Although on the whole financial service customers tend to be highly conservative, it
tends to be the more affluent and financially literate customers that are most prepared to shop
around for products and to relocate their financial activities if necessary

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MERGERS & ACQUISITIONS IN BANKING SECTOR

As far as retail banking is concerned, most of the Indian private sector banks are becoming
more aggressive. They are following the acquisition route for getting more and more retail
customers, NPAs notwithstanding. So do you think you are fighting an uneven battle, because
firstly the rules do not allow you to acquire Indian banks and secondly, there are restrictions
on the number of branches you can open? The only way to expand in India will be to acquire
a foreign bank overseas (which has operations in India).

During the last few years the Indian Banking system has witnessed some very high profile
mergers, such as the merger of ICICI Ltd. With its banking arm ICICI Bank Ltd. The merger
of Global Trust Bank with Oriental Bank of Commerce and more recently the merger of
IDBI with its banking arm IDBI Bank Ltd.

Foreign banks are likely to succeed in their niche markets and be the innovators in terms of
technology introduction in the domestic scenario. While their focused operations, lower but
more productive employee force etc. will stand them good, possible acquisitions of PSU
banks will definitely give them the much needed scale of operations and access to lower cost
of funds. These banks will continue to be the early technology adopters in the industry, thus
increasing their efficiencies. Also, they have been amongst the first movers in the lucrative
insurance segment. Already, banks such as ICICI Bank and HDFC Bank have forged alliances
with Prudential Life and Standard Life respectively. This is one segment that is likely to
witness a greater deal of action in the future. In the near term, the low interest rate scenario is
likely to affect the spreads of majors. This is likely to result in a greater focus on better asset-
liability management procedures. Consequently, only banks that strive hard to increase their
share of fee-based revenues are likely to do better in the future.

Some of the past merged banks are -

Grind lay Bank merged standard charted Bank,

Times Bank with HDFC Bank,
Bank of Madura with ICICI Bank

Nedungadi Bank Ltd. With Punjab National Bank

Global Trust Bank merged with Oriental Bank of Commerce.

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CHALLENGES AND OPPORTUNITIES IN INDIAN BANKING SECTOR

In a few years from now there would be greater presence of international players in Indian
financial system and some of the Indian banks would become global players in the coming
years. Also competition is not only on foreign turf but also in the domestic field. The new
mantra for Indian banks is to go global in search of new markets, customers and profits. But to
do so the Indian banking industry will have to meet certain challenges. Some of them are –

Foreign banks –

India is experiencing greater presence of foreign banks over time. As a result number of issues
will arise like how will smaller national banks compete in India with them, and will they
themselves need to generate a larger international presence? Second, overlaps and potential
conflicts between home country regulators of foreign banks and host country regulators: how
will these be addressed and resolved in the years to come? It has been seen in recent years that
even relatively strong regulatory action taken by regulators against such global banks has had
negligible market or reputational impact on them in terms of their stock price or similar metrics.

Greater capital market openness –

An important feature of the Indian financial reform process has been the calibrated opening of
the Capital account along with current account convertibility. It has to be seen that the volatility
of capital inflows does not result in unacceptable disruption in exchange rate determination with
inevitable real sector consequences, and in domestic monetary conditions. The vulnerability of
financial intermediaries can be addressed through prudential regulations and their supervision;
risk Management of non-financial entities. This will require market development,

Technology is the key –

IT is central to banking. Foreign banks and the new private sector banks have embraced
technology right from their inception and continue to do so even now. Although public sector
banks have crossed the 70%level of computerization, the direction is to achieve 100%.
Networking in banks has also been receiving focused attention in recent times. Most recently the
trend observed in the banking industry is the sharing of ATMs by banks. This is one area where

16
perhaps India needs to do significant ‘catching up’. It is wise for Indian banks to exploit this
globally state-of-art expertise, domestically available, to their fullest advantage.

Consolidation –

We are slowly but surely moving from a regime of "large number of small banks" to "small
number of large banks." The new era is one of consolidation around identified core
competencies i.e., mergers and acquisitions. Successful merger of HDFC Bank and Times Bank;
Stanchart and ANZ Grindlays; Centurion Bank and Bank of Punjab have demonstrated this
trend. Old private sector banks, many of which are not able to cushion their NPA’s, expand their
business and induct technology due to limited capital base should be thinking seriously about
mergers and acquisitions.

Public sector banks -

It is the public sector banks that have the large and widespread reach, and hence have the
potential for contributing effectively to achieve financial inclusion. But it is also they who face
the most difficult challenges in human resource development. They will have to invest very
heavily in skill enhancement at all levels: at the top level for new strategic goal setting; at the
middle level for implementing these goals; and at the cutting edge lower levels for delivering the
new service modes.

Reach and innovation –

Higher sustained growth is contributing to enhanced demand for financial savings opportunities.
Also industrial expansion has accelerated; merchandise trade growth is high; and there are vast
demands for infrastructure investment, from the public sector, private sector and through public
private partnerships. Thus, the banking system has to extend itself and innovate. Banks will have
to innovate and look for new delivery mechanisms and provide better access to the currently
under-served. Innovative channels for credit delivery for serving new rural credit needs will
have to be found. Greater efforts will need to be made on information technology for record
keeping, service delivery, and reduction in transactions costs, risk assessment and risk
management.

Risk management –

Banking in modern economies is all about risk management. The successful negotiation and implementation
17
of Basel II Accord is likely to lead to an even sharper focus on the risk measurement and risk management at
the institutional level. Sound risk management practices would be an important pillar for staying ahead of
the competition. Banks can, on their part, formulate ‘early warning indicators’ suited to their own
requirements, business profile and risk appetite in order to better monitor and manage risks.

Governance –

The quality of corporate governance in the banks becomes critical as competition intensifies,
banks strive to retain their client base, and regulators move out of controls and micro-regulation.
The objective should be to continuously strive for excellence. Improvement in policy
framework, regulatory regime, market perceptions, and indeed, popular sentiments relating to
governance in banks need to be on the top of the agenda – to serve our society’s needs and
realities while being in harmony with the global perspective.

RISKS ASSOCIATED WITH MERGER

There are several risks associated with consolidation and few of them are as follows: -

1. When two banks merge into one then there is an inevitable increase in the size of the
organization. Big size may not always be better. The size may get too widely and go beyond the
control of the management. The increased size may become a drug rather than an asset.
Consolidation does not lead to instant results and there is an incubation period before the results
arrive. Mergers and acquisitions are sometimes followed by losses and tough intervening periods
before the eventual profits pour in.

2. Consolidation mainly comes due to the decision taken at the top. It is a top-heavy decision
and willingness of the rank and file of both entities may not be forthcoming. This leads to
problems of industrial relations, deprivation, depression and demotivation among the employees.

3. The structure, systems and the procedures followed in two banks may be vastly different, for
example, a PSU bank or an old generation bank and that of a technologically superior foreign
bank.

4. There is a problem of valuation associated with all mergers. The shareholder of existing
entities has to be given new shares. Till now a foolproof valuation system for transfer and
compensation is yet to emerge.
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LIST OF MERGER AND ACQUISITION IN BANKING SECTOR IN INDIA

Name of the acquiring bank Bank targeted Year in which the

merger took place

Kotak Mahindra Bank ING Vyasa Bank 2014

ICICI Bank Bank of Rajasthan 2010
Ltd.
HDFC Bank Centurion Bank of 2008
Punjab
Indian Overseas Bank Bharat Overseas 2007
Bank
Federal Bank Ganesh Bank 2006
of
Kurandwad
Industrial Development Bank United Western
of Bank
India
Centurion Bank of Punjab Lord Krishna Bank
ICICI Bank Sangli Bank
Bank of Punjab Centurion Bank 2005
Industrial Development IDBI Bank Ltd. 2004
Bank of India
Bank of Baroda South Gujarat
Local
Area Bank
Oriental Bank of Commerce Global Trust Bank
Punjab National Bank Nedungadi Bank 2003
Ltd.
ICICI Bank ICICI Ltd. 2002
Bank of Baroda Banaras State
Bank Ltd.
ICICI Bank Bank of Madura 2001
HDFC Bank Ltd. Times Bank Ltd. 2000
Bank of Baroda Bareilly Co-op Ltd. 1999
Union Bank of India Sikkim Bank Ltd.
Oriental Bank of Commerce Bari Doab Bank 1997

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 Ltd.
Oriental Bank of Commerce Punjab Co-op Ltd. 1996
State Bank of India Kashinath State 1995
Bank
Bank of India Bank of Karad Ltd. 1994
Punjab National Bank New Bank of India 1993
Source: http://www.ibpsexamadda.org.in/banking-awareness-49-mergers-
and-acquisitions-of-banks-7469/

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 Chapter 2 - REVIEW OF LITERATURE

1. Suchismita Mishra, Arun, Gordon and Manfred Peterson (2005) examined the contribution
of the acquired banks in only the non-conglomerate types of mergers (i.e., banks with
banks), and finds overwhelmingly statistically significant evidence that non conglomerate
types of mergers definitely reduce the total as well as the unsystematic risk while having no
statistically significant effect on systematic risk.

2. Ms. Astha Dewan (2007) focused on the post-merger financial performance of the
acquirer companies in India and performance of firms going through mergers in Indian
industry. The merger cases for the year 2003 have been taken for the analysis. The
financial data has been collected for six years from 2000-06. Pre-merger and post-merger
financial ratios have been examined using paired sample t test. The results of the analysis
reveal that there is significant difference between the financial performance of the
companies before and after the merger. Further, it has been found that the type of industry
does seem to make a difference to the post-merger operating performance of acquiring
firms.

3. Pramod Mantravadi & Vidyadhar Reddy (2008) studied the impact of mergers on the
operating performance of acquiring corporates in different industries, by examining some
pre- merger and post-merger financial ratios, with the sample of firms chosen as all
mergers involving public limited and traded companies in India between 1991 and 2003.
The results from the analysis of pre- and post- merger operating performance ratios for the
acquiring firms in the sample showed that there was a differential impact of mergers, for
different industry sectors in India. Type of industry does seem to make a difference to the
post-merger operating performance of acquiring firms.

4. Kannan R. (2008) in this study “The impact of mergers and acquisition on personal
sector banks on international economy” has studied that Mergers and Acquisition are a
really necessary market entry strategy moreover as growth strategy. This gift era is thought
as competition, goes for merger, and enjoys generally monopoly. relief and technological
advances area unit more and more pushing the banking sector towards larger globalization
to enhance the operational flexibility of banks, that is crucial within the competitive
atmosphere that banks operate in. the government conjointly proposes to recapitalize weak

21
banks. The recapitalization of weak banks has not yielded the expected ends up in the past
and therefore ought to be joined to a viable and time sure restructuring arrange. The
method of merger and acquisition is taken in several banks in Asian nation like- Times
bank united with HDFC Bank, Bank of Madura with ICICI bank, etc. The investigator has
created a trial to live the changes within the profit and money position of the higher than
banks and has calculated many ratios and tested them within the lightweight of ‘T-Test’, to
understand the acceptance and rejection of the developed hypothesis. The investigator has
found that overall the merger and acquisition doesn't result the money position of banks
except once weaker and non-viable banks area unit united with a financially sound and
profit creating bank in such case the profit of the later bank are going to be affected.

5. Egl Duksait and Rima Tamosiunien (2009) described the most common motives for
company’s decision to participate in mergers and acquisitions transactions. The reason is
growth, synergy, access to intangible assets, diversification, horizontal and vertical
integration and so on arises from the primary company’s motive to grow. Most of the
motivations for mergers and acquisitions feature serve as means of reshaping competitive
advantage within their respective industries. However, it may be that some of the motives
identified affect some industries more than others, and in that sense they can be expected to
be associated with a greater intensity of mergers and acquisitions in certain sectors rather
than others.

6. Jagdish R. Raiyani (2010) in her study investigated the extent to which mergers
lead to efficiency. The financial performance of the bank has been examined by analyzing
data relevant to the select indicators for five years before the merger and five years after
the merger. It is found that the private sector merged banks are dominating over the public
sector merged banks in profitability and liquidity but in case of capital adequacy, the
results are contrary. Further, it was observed that the private sector merged banks
performed well as compared to the public sector merged banks.

7. Dr. V. K. Shobhana and Dr. N. Deepa (2011) made a probe into the fulfilment of
motives as vowed in the merger deals of the nine select merged banks. The study uses
Summary Statistics, Wilcoxon Matched Paired Signed Rank Test and‘T’ test for analysis
and interpretation of data pertaining to the five pre and post-merger periods each. The
result indicates that there has been only partial fulfilment of the motives as envisaged in the
merger deals.

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8. Rehana Kouser and Irum Saba (2011) explored the effects of merger on profitability of
the bank by using six different financial ratios. They have selected 10 commercial banks
that faced M&A during the period from 1999 to 2010. The lists of banks were selected
from the Karachi Stock Exchange (KSE). Quantitative data analysis techniques are used
for inference. Analysis was done by using paired t-test. The results recommend that
operating financial performance of all commercial bank’s M&A included in the sample
from banking industry had declined later.

9. Dr. P. Natarajan and k. Kalaichelvan (2011) used the share price data and financial statements of eight
select public and private sector banks, during the period between 1995 and 2004, this study examined
M&A as a business strategy and to identify the relative importance of mergers on business performance
and increased Shareholders wealth. The study showed that in a banking environment marked by
frequent mergers, such transactions directly or indirectly effects the shareholders sentiments and
increase market share (i.e.) mergers enhances performance and wealth for both the
Businesses and shareholders.

10. Sinha Pankaj & Gupta Sushant (2011) studied a pre and post analysis of corporations and over that it
had positive impact as their gain, in most of the cases deteriorated liquidity. When the amount of few
years of Merger and Acquisitions .it came to the purpose that firms could are able to leverage the
synergies arising out of the merger and Acquisition that haven't been able to manage their liquidity. That
Study analysis the comparison of pre and post analysis of the corporations. It additionally indicated the
positive effects supported some monetary parameter like Earnings before Interest and Tax (EBIT), come
on investor funds, ratio, Interest Coverage, Current magnitude relation and value potency etc.

11. Mital Menapara (2012) evaluated the impact of mergers and acquisitions on financial Performance of
Indian Corporate Sectors and examined the impact of merger and acquisitions on Return on Investment,
Profitability and Liquidity position of selected companies. The authors concluded that emerging from the
point of view financial evaluation is that the merging Companies were taken over by companies with
reputed and good management. And therefore, it was possible for the merged firms to turnaround
successfully in due course.

12. P Akhil Bhan (2015) has made an attempt to study the insight into the motives and
benefits of the mergers in Indian banking sector .This is done by examining the eight
merger deals of the banks in India during the period of reforms from 1999 to 2006 .

23
 Through the empirical methods by applying t-test and EVA value calculations the
potential of the mergers has been evaluate to study the efficiencies or benefits achieved.

Chapter 3 -RESEARCH METHODOLOGY

Research Methodology is a way to systematically solve the research problem. It may be

understood as a science of studying how research is done systematically. We study the
various steps that are generally taken by the researcher in studying the research problem
along with the logic behind it. The research methodology include over all research design,
the sampling procedure, the data collection method and analysis procedure.

For this project data has been collected from secondary sources such as website of RBI and
various banks. The data collected are of two periods i.e. financial statements of banks
before and after merger. The collected data is used to compare the financial position of the
merged banks before and after merger and analyze its impact on the merged entity.

SIGNIFICANCE & RELEVANCE OF STUDY

With the globalization of the world economy, companies are growing by merger and
acquisition in a bid to expand operations and remain competitive. The complexity of such
transactions often makes it difficult to assess all risk exposures and liabilities, and requires
the skills of a specialist advisor.

Banks are facing an increasingly competitive business environment, which is driving them
to constantly improve services and increase efficiency. Growth by cross-border Mergers
and Acquisitions (M&A) is one way for them to respond to this challenge, but a number of
serious obstacles still hamper this kind of expansion.
a) Mergers and acquisitions (M&A’s), joint ventures (JVs) and other forms of strategic
alliances have recorded a tremendous growth in recent years.
b) Acquisitions have become a generic strategy for many companies.
c) To drive the global economy and control.
d) Facilitate synergies between merged organizations,
e) Generate efficiency improvements and increase competitiveness.

24
OBJECTIVES OF THE STUDY

1. The reasons of Mergers and Acquisitions of banks in India and

2. Also to find the effects of Mergers and Acquisitions of banks.

3. To know the challenges and problems related to merger and acquisition in India.

4. To study post-merger analysis of financial performance.

RESEARCH DESIGN:

There are three types of research design: exploratory design, descriptive design, and causal design. In this
research paper, I have used descriptive research design.

SOURCES OF DATA:

There are two sources of data: primary and secondary data. I have used secondary data for merger
and acquisition in banking sector.

POPULATION:

All the merger and acquisition done in banking sector in India.

SAMPLE SIZE: No of sample taken for study is 3.

1. Merger of ICICI bank and Bank of Rajasthan.

2. Merger of Kotak Mahindra bank and ING VYSYA bank.
3. Merger of GTB with Oriental Bank of Commerce.

SAMPLING DESIGN:

There are two types of sampling design. Probability sampling design and non-probability sampling
design. I have used simple random sampling design.

25
LIMITATIONS OF STUDY:

1. Mergers & Acquisitions are hard to occur, so the information about them is very less.

2. It was not possible to cover every aspect .This poses to be a serious limitation.

3. The information was collected from secondary data, so the limitation occurred in the
exact interpretation.

4. Also the information was collected from secondary data, so sometimes the results may
be related to some specific area/aspect.

5. As the process of mergers and acquisitions of banks is kept secret with the general
public, so the exact procedure and the reasons behind them are difficult to find.

6. As the data has been taken form the books and various websites, the data available is
not recent.

7. Various financial terms related to mergers and acquisitions are the difficult to
understand.

8. It is difficult to explain specific impacts made on consumers from merger and

acquisition activity within the financial services sector.

26
 Chapter 4 - DATA REPRESENTATION AND ANALYSIS:

Introduction of the Merger Case:

1. ICICI Bank Acquired The Bank of Rajasthan (Year of Merger: 2009-10)

 Private sector lender Bank of Rajasthan on 18 may 2010 agreed to merge with ICICI Bank, India's
second largest private sector lender, Bank of Rajasthan had a market value of $296 million. The
acquisition of Bank of Rajasthan by ICICI bank was the first consolidation of country's crowded
banking sector since 2008. ICICI Bank and Bank of Rajasthan (BoR) boards cleared their merger
through an all-share deal, valued at about 30.41 billion rupees.

 ICICI offered BoR 188.42 rupees per share, in all share deal, for bank of Rajasthan, a premium of 89%
to the small lender's closing price on the previous day, valuing the business at $668 million. ICICI
offered the smaller bank's controlling shareholders 25 shares in ICICI for 118 shares of Bank of
Rajasthan.

 The Big Deal :The deal, which would give ICICI a sizeable presence in the northwestern desert state of
Rajasthan, valued the small bank at about 2.9 times its book value, compared with an Indian banking
sector average of 1.84.Bank of Rajasthan had a network of463 branches and a loan book of 77.81
billion rupees ($1.7 billion).

Merger Announcement, Share Price Movements and Shareholding Pattern Changes:

 
Mergers and takeovers are important events in the life of any company. Merger announcements have a
significant impact on the share prices of both the bidder and target banks. There is concrete evidence for wealth
shifting in the global arena from bidder bank shareholders to target bank shareholders and vice versa. The
present deal appears more favourable to BoR since their shareholders gained almost 90% between 07.05.2010
(the start of merger negotiations) and 23.05.2010 (Board Meeting approval)
For the purpose of analysis, the BoR share price data has been divided into three periods, viz, Period I, Period II
and Period III respectively.

Period I pertains to the point starting from February 26, 2010 (the day the RBI imposed the penalty) to May 6,
2010 (the day before merger negotiations started). On February 26th, the closing price of BoR’s scrip was 61.8
and on 6th May, it was 84.7. This is the period where the bank faced serious actions from the regulators. During
this period, the bank’s scrip value appreciated by 20.9% against the Bank Nifty return of 9.9%. BoR recorded a
price of 66.85 and 62.5 on March 8 (SEBI ban) and March 9 (RBI’s special audit order) respectively

Period II represents the time period from May 6 to May 17, 2010 (period of merger negotiations).On May 6th,
BoR’s scrip was at 84.7 and ICICI Bank was traded at 902.85. On May 17th, ICICI Bank and BoR recorded a
price of 901.1 and 82.25 respectively. It indicates that merger negotiation has a zero effect on the price of
merging entities. The Bank Nifty return for the period was 2.7%.

Period III comprises the time period after the merger announcement, i.e., May 18 to June 24, 2010. On June
24th, BoR filed the information about the merger to the Bombay Stock Exchange. On May 16th, BoR’s price
was 82.85. After the announcement of the merger, it shot up drastically to 99.45, 119.35, 131.30, 144.45, 158.9,
and 162.3 on May 17th, 18th, 19th, 20th, 21th and 24th respectively. On the contrary, ICICI’s price reduced
from 901.10 to 809.35. During the period, BoR gained about 77%, whereas ICICI lost 1.7% of its value. It is
interesting to note that Bank Nifty showed a decline of 4.6 % during this period. Short term wealth creation of
BoR can be read in line with the valuation and fixation of swap ratio. The indicative price agreed by both the
banks was 188 per share. In the light of the present analysis, it can be concluded that there was not much
vulnerability in the prices during the negotiation period. But, after the announcement, BoR’s share price
adjusted almost to the price offered by ICICI.
It is worthwhile to analyse the shareholding pattern of BoR for the 4th quarter of FY of 2009 and the first
quarter of FY of 2010 in the context of ‘unusual actions’ from the authorities. Between 31.03.2010 and
30.06.2010, the holding of institutional investors increased from 5.73% to 16.24% out of which FII’s part
increased from 2.34% to 8.95%. Both the holding of body corporate and retail investors reduced considerably.
This can be interpreted as a case of information asymmetry and insider trading.

Valuation and Adequacy of Swap Ratio

Valuation is the critical part of any M&A activity and it depends on the negotiations entered between the buyer
and the seller. It is very important for the shareholders of the firms engaged in the merger process and it is more
a relative value than an absolute value. It is multistep procedure and failure in one stage will spoil the deal. The
Federal Bank – Catholic Syrian Bank merger, which got deflected on valuation disputes in September 2009, is a
case in point. Financially speaking, valuation for a merger is a comprehensive task and is done to find out the
numerator and denominator of the following equation:

Exchange Ratio (Swap Ratio) = Company A Share Value

Company B share Value

Exchange Ratio (ER) is the ratio at which the target bank receives shares of the bidder bank in exchange of
shares in the target bank. This ratio is found by the application of different valuation models like dividend
discounting model, discounted earnings model, future maintainable profit method or the combination of these
models. But in the practical sense, valuation models are approximations and simplifications of the value based
on rational choices and demonstrations (Luca Francesco Franceschi, 2008). In this case, the swap ratio
announced was 1: 4.72 based on branch valuation. BoR’s branches are valued at 6.6 crore as compared with the
average of old private sector bank’s market capitalization to branch value of 5.4 crore.

The transaction appears to be expensive for ICICI and the premium paid was 88.5/share. The question is
whether this premium is justifiable or not.

Table 2: Relative contribution Analysis

The above table clearly indicates that the average contribution of BoR in the combined entity in terms of
various size variables is 7.4% which is higher than the actual shareholding of BOR in the combined entity (3%).
So on the basis of contribution analysis it can be argued that BoR got undervalued. But, it is to be remembered
that profitability aspect is not considered in that analysis as BoR reported a net loss of 1021 million rupees in
the financial year prior to the merger If the valuation had been based on financial parameters like book value,
market value, net profit and EPS, it should have been more favorable to ICICI Bank Also it was dilutive deal for
ICICI Bank. In all these financial aspects, BoR is far below ICICI Bank whose strategy was similar to their
previous acquisitions. Through the mergers with Bank of Madura and Sangli Bank, they increased their
geographical coverage in Tamil Nadu and Maharashtra. Out of the 263 branches of Bank of Madura, 182 were
in Tamil Nadu and out of the 198 branches of Sangli Bank, 158 were in Maharashtra only. It is obvious that
ICICI Bank’s desire to acquire a bank having strong presence in northern India was one of the major reasons for
the acquisition of BoR. The BoR’s strong CASA deposits which amount to about 40% has played major role in
the fixation of swap ratio. So if we consider all these aspects together, it can be concluded that the valuation is
fair and a favorable exchange ratio for BoR (on the basis of market price) got reflected in the stock market.
 Pre-Post Financial Results of ICICI Bank and Bank of Rajasthan Ltd

Analysis of the above financial results:

 The above table shows the position of ICICI Bank and Bank of Rajasthan Ltd during pre and post-
merger period. ICICI Bank acquired Bank of Rajasthan Ltd, raising the share Value of ICICI Bank to
new heights and making the former a stronger bank with a stronger balance sheet.

 When we start comparing the ratios of both the banks pre and post-merger, one very important ratio
which indirectly tells the strength of the companies operation is operating ratio which was 27.03% for
ICICI bank pre-merger while it was 23.71% for Bank of Rajasthan. Post-merger the ratio changed to
24.81% indicating a decline. This clearly indicates that the Company has realized some losses which
 might be due to the high costs incurred during the merger period.

 Talking about the Net ratio for the acquirer Company before merger was 10.35% while the net profit
ratio for the acquired company was 10.04%. During post-merger the average Net profit ratio was
15.91% which shows a significant increase from 10.35% to 15.91% and a clear communication that the
company has made profits after merger. It can be suggested that the company has gained monopoly and
the advantages of goodwill are helping the company gain some substantial profit.

 The pre-merger average for ROI for the acquirer Company was 67.17% while the return on investment
for the acquired company was 166.44%. Post-merger the average return on investment declined to
42.97. Also the average of Net worth before merger for the acquiring Company was 9.89% while the
return on net worth for the target company was 22.96%. After merger the average on return on net
worth slightly declined to 9.35% for the acquired company. This indicates that less was incurred at the
time of merger.
 Taking the financial condition of the banking consideration average earnings per share during pre-
merger for ICICI Bank was (35.24) while that of the target company was (8.72). Post-merger the
average earnings per share increased to (44.73). This might be attributed that the shareholders had
retained some profits or dividends to make the company a stronger financial organization.

 Further the table shows that dividends payout ratio average was 30.31% for the acquirer Company
while of the target company it was 9.34%. After Merger the payout ratio changed to 31.29%. This
indicates a very slight increase in the post-merger period for the acquirer company from 30.31% to
31.29%. The average of debt-Equity ratio before merger for the acquirer company was 6.39 and that of
the target company was 25.04. Post-merger the ratio had declined to 4.10.
MERGER BETWEEN KOTAK MAHINDRA BANK AND ING VYSYA BANK (VYSYA)

 INTRODUCTION OF KOTAK MAHINDRA BANK:

Kotak Mahindra Bank is an Indian private sector banking headquartered in Mumbai, Maharashtra,
India. In February 2003, Reserve Bank of India (RBI) gave the license to Kotak Mahindra Finance Ltd., to
carry on banking business

 INTRODUCTION OF ING VYAS BANK:

ING Vysya was incorporated as Vysya Bank Limited (Vysya Bank) in 1930 in Bangalore, Karnataka, in
Southern India. In 2002, ING Vysya came into existence when the ING Group acquired a major stake in
Vysya Bank. This was the first acquisition of an Indian bank by any foreign bank. ING Vysya offered
various financial services under four business segments, Treasury, Corporate / Wholesale Banking, Retail
Banking, and Other Banking Operations

.
 MERGER BETWEEN ING VYSYA BANK (VYSYA) AND KOTAK MAHINDRA BANK:

Vysya and Kotak announced their intention to merge their respective businesses on 20 November 2014.
On 31 March 2015 the Reserve Bank of India has approved this transaction with effect from 1 April 2015.

With the current climate of growing globalization and expanding international banks, the need to grow
has been imminent for Indian banks. In late 2014, Kotak Mahindra Bank Limited (“Kotak”), one of India’s
rapidly expanding banks, announced its all-stock acquisition of ING Vysya Bank Limited (“ING Vysya”),
structured as a merger, resulting in a single merged entity that will be India’s fourth largest bank.

 THE PARTIES:

A. Kotak Mahindra Bank Limited Established in 1985, Kotak Mahindra Finance Capital Management
Limited, the flagship company of the Kotak Group, started off as a non-banking financial services
company, initially providing financing for the purchase of automobiles. In 2003 it became the first ever
NBFC to be converted into a bank.

B. ING Vysya Bank Limited With roots as far back as the 1930s, ‘Vysya Bank’ comes with a long heritage
of banking in the trade communities of south India. In 2002, it became the first ever Indian bank to merge
with a foreign one, when it officially announced its merger with the Dutch banking giant ING Group, which
took a controlling stake in the bank. The bank has over time grown a strong presence in south India with
over 500 branches in the south. It has also, because of its ties with the ING Group, grown its presence
abroad with a presence in over 5 countries.

 CHRONOLOGY OF EVENTS:
  DETAILS OF THE MERGER:

The above chart can be analyzed as below:

 Share Exchange Ratio: 0.725 : 1

 725 shares of Kotak for every 1,000
SWAP RATIO share of ING Vysya
EFFECTIVE DATE Upon obtaining all approvals, at effective date:
 ING Vysya including its business and
branches merges into Kotak
 Kotak issues shares to ING Vysya
shareholders

TRANSFEREE BANK
TRANSFEROR BANK
MODE OF TRANSACTION
SHAREHOLDING IN KOTAK
BEFORE THE MERGER
SHAREHOLDING IN ING VYSYA
BEFORE THE MERGER
POST-MERGER SHAREHOLDING IN
KOTAK
 All shareholders (that of Kotak and
ING Vysya) participate thereafter in
the (merged)
Kotak business
Kotak Mahindra Bank Limited
ING Vysya Bank Limited
The deal was entirely carried out through a
single scheme of amalgamation merging
ING Vysya into Kotak. The merger was
carried out in accordance with
Section 44A of the BR Act and the Merger
Guidelines
Promoter Group: 40.02% Public Shareholding:
59.98%
￭ FIIs: 36.85% ￭ Mutual Funds/ UTI: 1.65%
￭ Financial Institutions/ Banks: 0.21% ￭
Foreign Banks: 4.25% ￭ Foreign Bodies:
2.04% ￭ Bodies Corporate: 3.30% ￭
Individuals: 10.27% ￭ Others: 1.41%
Promoter Group: 42.51% Public Shareholding:
57.49%
￭ FIIs: 26.98% ￭ Mutual funds/ UTI: 13.43%
￭ Financial Institutions/ Banks: 1.76% ￭
Bodies Corporate: 5.36% ￭
Individuals: 8.14% ￭ Others: 1.82%
Promoter Group: 33.99% Public Shareholding:
66.01%
￭ ING Group: 6.48% ￭ FIIs: 33.58% ￭
Domestic:
19.12% ￭ FDI: 6.83%
GLOBAL TRUST BANK AND ORIENTAL BANK OF COMMERCE.

The genesis of the GTB collapses lies in now ousted promoter Ramesh Gelli’s involvement in the
Ketan Parekh securities scam of 2001, when he gave huge unsecured loans to the stock broker and
group companies of Zee Telefilms. On March 31, 2002 GTB’s audited balance sheet for March 31,
2002, showed net worth of Rs.400.4 cr. & a profit of Rs.40 cr. However, RBI’s inspection revealed
that net worth is negative.

In view of very large variance in the assessment of GTB’s financial position as reported by auditors
and by RBI’s inspectors, an independent chartered accountant was appointed to reconcile the
position.

 GLOBAL TRUST BANK IS NOW ORIENTAL BANK OF COMMERCE

After the collapse of Global Trust Bank the RBI along with The Government of India sanctioned
the scheme for amalgamation of the Global Trust Bank Ltd. With the Oriental Bank of Commerce.
The amalgamation came in to force on August 14, 2004. All the branches of Global Trust Bank Ltd
started functioning as branches of Oriental Bank of Commerce with effect from this date.
 MONEY MATRIX OF GLOBAL TRUST BANK AND ORIENTAL BANK OF COMMERCE.

From the above table we can analyses that:

 There was a clear synergy between the two banks in terms of geographical network (as OBC is
basically a North-based bank with 689 branches while the GTB is a South-based bank with 104
branches). The OBC chief said the nationalized bank would gain in terms of market penetration as it
would get about 100 branches and one million customers on a platter.

 OBC would have benefited in terms of technology, as it would adopt the forward technology of GTB
and not go backward.
 The merger benefited OBC in terms of ATM network as their present ATM’s numbering 100 went up
by 235, taking OBC to the third position among public sector banks in terms of ATM network.

 The merger wasn’t all roses for OBC, as it was saddled with Rs. 915 crores Gross NPAs in addition to
impaired assets of Rs.300 crores from GTB.2.

 The Capital Adequacy Ratio of OBC, which stood at 14.47% at the time of the merger, was expected to
come down to 13.1%.3.

 OBC’s asset quality, which is one of the best in the banking industry, was likely to be impaired with
the merger.
 MERGER OF BOB, DENA BANK AND VIJAYA BANK

Introduction

 The government recently announced the merging of Bank of Baroda, Vijaya Bank and Dena Bank.

 Cleaning of the balance sheet and minimizing NPAs is the objective of the latest merger announced
by the government.

 The strategy which the government has adopted is merging one weak bank with its stronger
Counterparts.

 In this case, the weaker bank is Mumbai-based Dena Bank.

Significance

 For the first time, we are witnessing a merger of three PSBs which can be a precursor to other such
moves.

 The three banks involved consist of two strong and one Prompt Corrective Action (PCA) bank (Dena
Bank).

 It is seen as an attempt to revive a relatively weaker bank with two healthier ones.

 While two banks crisscross one another in geographical space, the third becomes strategically
significant being based in the south

 The merger comes at a time when all PSBs are walking the thin edge negative profits.

 The success of this merger, according to analysts, is crucial for future such attempts.

Positives

 Capital will be higher when merged together and will give a feeling of a stronger bank.

 Large banks with larger lending capacity

  It will provide efficiencies of scale and help improve the quality of corporate governance for the
banks.

 The merged entity will have a market share of about 6.8 per cent by loans, according to data as of
March 2018, making it the third largest bank in the system.

 Improvement in operational efficiency.

 Cost of funds for the merged entity is expected to come down.

 Bigger banks can attract more Current Account, Savings Account (CASA) deposits.

 Banks will have the capacity to raise resources without depending on the State exchequer.
 Improve the capacity of the banking system to absorb shocks that the markets may cause to it.

Need for Consolidation

 PSBs are highly fragmented, especially in comparison with other key economies.

 The merger will enable the government to pay closer operational attention to the enlarged institution,
as is the case with SBI.

 To protect the financial system and depositors’ money.

 To build capacity to meet credit demand and sustain economic growth

 The need to bridge geographical gaps.

 In 1991 Narasimhan Committee suggested that India should have fewer but stronger PSBs.

Concerns / Challenges

 Integration of technology platforms and cultures of these organizations.

  Aligning the distribution of professionals in the merged bank and handling of human resources.

 As issues on seniority are structured and important in a public sector set-up, ensuring that there is
harmony would be a challenge.

 Rationalization of physical infrastructure.

 Dena Bank came under prompt corrective action of the RBI in May 2017 in view of high Net NPA
and negative RoA (return on assets).

 Bank of Baroda is the largest among the three and will take a hit on its asset quality.

 The other challenge is customer retention which we saw in SBI’s recent merger with its associate
banks.

 For the banking system as a whole, things cannot change as the capital remains unchanged.

 The quantum of Gross NPA (GNPA) cannot change and will still have to be addressed.

 Mergers are not the panacea in the context of PSBs.

Way Forward

 Without addressing the governance issues in the banks, merging two or three public sector banks may
not change the architecture.

 Unless there is a change in the operating structures, mergers will may not deliver the desired results in
the long run.
 Giving the PSBs autonomy along with accountability.

 Merged entity will require capital support from the government, otherwise such a merger would not
improve their capitalization profile.

 The merger will yield the desired results if these banks rationalized their branches, looked to reduce
costs and handled people issues well.
As the Financial Year of the above merger is yet to complete there were no financial reports available
and so only an overview of the same is given in this project.
BENEFITS DERIVED FROM MERGER AND ACQUISITION

After studying various cases of mergers in the banking sector a large number of benefits can be seen which
Are as follows:

a) Better corporate governance.

(Global Trust Bank / Oriental Bank of Commerce)

b) Increase in the network / branches.

(Bank Of Madura / ICICI)

c) Increase in customer base.

(Bank of America / Fleet Boston)

d) Reduction in NPA.

(Nedungadi Bank / Punjab National Bank)

e) Compliance with statutory requirement.

(Global Trust Bank / Oriental Bank of Commerce)

f) Fulfilling more responsibility towards society.

(Bank of Madura / ICICI)

g) Improved financial position.

(Global Trust Bank / Oriental Bank of Commerce)

 CHAPTER 5 – FINDINGS, RECOMMENDATIONS & CONLUSION

FINDINGS

 A combination of factors - increased global competition, regulatory changes, fast

changing technology, need for faster growth and industry excess capacity - have
fueled mergers and acquisitions (M&A) in recent times.

 The M & A phenomenon has been noticeable not only in developed markets like the
US, Europe and Japan but also in emerging markets like India.

 Major acquisitions have strategic implications because they leave little scope for trial
and error and are difficult to reverse.

 Moreover, the risks involved are much more than financial in scope. A failed merger
can disrupt work processes, diminish customer confidence, damage the company’s
reputation, cause employees to leave and result in poor employee motivation levels. So
the old saying, discretion is the better part of valor, is well and truly applicable here.

 A comprehensive assessment of the various risks involved is a must before striking an

M&A deal. Circumstances under which the acquisition may fail including the worst
case scenarios should be carefully considered.

 Even if the probability of a failure is very low but the consequences of the failure are
significant, one should think carefully before rushing to complete the deal.
RECOMMENDATION

Nothing can guarantee that the shiny new company will bring with it untold riches, nor can
you assure yourself that you won't be exposing your most sensitive information assets to risk
by coupling your network infrastructures. What you can do is mitigate the risk of a costly and
embarrassing security breach. Link it to your financial due diligence and make it happen.

 Assess the Business Risk

 Thoroughly evaluate your liquidity and financial capability.

 Analyze the external perimeters

 Review the company's security program

 Review critical applications

 Put together the perfect team.

 Make sure information can be shared securely and efficiently.

 Learn how security intelligence is gathered and systems are monitored

CONCLUSION

Mergers or acquisitions succeed or fail not due to one or two factors but due to multiple factors. Hence while
studies may look at certain factors, they do not negate the existence of other factors. Managers need to look
at various factors that would impact the success or failure of a merger at various stages.

Sensitizing managers to these factors would be one contributor to the success of a merger. It is equally
important to have an adequate performance management system that would assess the success of merger
through integration, operational, cultural and financial measures (Wolf, 2003).

While various streams may take a partisan view of measures of success, an integrative assessment is
required to assure the long term success of a merger. Apart from end-of-process measures, it is important to
develop success measure at each stage of the merger process. This will ensure that the merger team gets
timely information on the success or failure of a merger. Based on the review above, the measure can be
developed and tested to provide the review support to managers.
 BIBLIOGRAPHY
Books:-

1. Weston, J. Fred, Weaver, Samuel C, 20014, Mergers & Acquisitions, ISBN-10: 0071435379

2. Khan M. Y,2015, Financial Services, ISBN-10: 9339221869

3. Boeh ,Kevin K .& Beamish, Paul W ,2007, Mergers and acquisitions text and cases

4. Gaplin and Henron, 2005, The Complete Guide to Mergers and Acquisitions, ISBN: 1118827236
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