Mergers and Acquisitions of Banks in India: The Post-Globalization Era

:

Introduction:

The banking Industry in India has been in the process of transformation and

consolidation since the adoption of liberalization, privatization, and globalization in 1991. Keeping in view the technological changes and the inefficiency of banks in India, Narsimaham Committee-II recommended mergers and acquisitions as the only viable route to strengthen banks in the emerging scenario. Since then mergers and acquisitions have become important for the Indian banking system and the banks are in a race to increase their sizes in order to enhance their asset bases and profits, which also help them to match the global benchmarks. Thus, the key motivations behind mergers and acquisitions in India are to have enhanced size to enjoy economies of scale and scope, access to large amount of funds, wider penetration, and global presence. One plus one makes three: this equation is the special alchemy of a merger or an acquisition. The key principle behind buying a company is to create shareholder value over and above that of the sum of the two companies. Two companies together are more valuable than two separate companies - at least, that's the reasoning behind M&A. This rationale is particularly alluring to companies when times are tough. Strong companies will act to buy other companies to create a more competitive, cost-efficient company. The companies will come together hoping to gain a greater market share or to achieve greater efficiency. Because of these potential benefits, target companies will often agree to be purchased when they know they cannot survive alone.

Oct2006. It is felt that larger banks will be able to benefit from the economies of scale and will benefit in terms of profitability by taking on larger projects. This study has evaluated the efficiency of the public sector banks operating in India for a period of five years (1997-2001) using the Data Envelopment Analysis (DEA). Singh Mann. 6 Issue 2: Lately there has been a focus on consolidation of banks operating in India. 2. influence in new regions where the merging entity lacked presence and extended product portfolios and thus have provided a better vehicle for growth. Literature Review: ³An Empirical Analysis of Bank Mergers in India: A Study of Market Driven versus NonMarket Driven Mergers´. The . ³DOES BANKS' SIZE MATTER IN INDIA?´. In line with the market expectation. To study the various bank mergers since 1991. it is has investigated if there exists any relationship between the efficiency and size of the banks. Kohli. efficiency becomes a matter of increasing concern. JanJun2008. Journal of Services Research. Vol. Gunjan M.Objective: 1. but they have improved the balance sheet variables of merging banks and have provided these banks an edge over the competitors in terms of geographic dispersion. Further. To study the pre-merger and post-merger performance of banks. Sanjeev. forced mergers have not added any value to both the balance sheet and profitability variables of merged banks in the post merger period. The empirical results indicate that markets have reacted negatively to the announcement of forced mergers while the reaction has been positive to that of market driven mergers. Bikramjit. Reena. Vol. Decision (0304-0941). Although market driven mergers have not immediately improved the profitability of merged banks. As the size increases. 35 Issue 1: In this study they empirically evaluated the synergistic gains from bank mergers by dividing them into two categories of forced mergers and market driven mergers.

etc. Though major sectors like Banking. Craig M Wasserman. which they need to take. besides briefly touching upon recent M&A in the service sector. explains some of the pitfalls to be avoided and highlights the paths. IT and Airline have shown tremendous ups and downs in M&A activity. role of CEOs. Edward D Herlihy. Lawrence S Makow. clarity of disclosures towards which management has to be sensitive and also about executive compensation and employee benefit aspects and private equity transactions in financial services. Financial services sector M&A activity demonstrates that the convergence of banking. Jeannemarie O¶ Brien. besides discussing key considerations in strategic merger combinations. securities. competitive advantages gained by mergers and acquisitions in service sector etc. education etc. ³Financial Institutions Development: M&A Activity in Financial Services-2006 Review and 2007 Outlook´. ³Retail Banking Mergers and Acquisitions: Strategic Choices´-Cap Gemini Financial Services: This article examines strategic choices for banks going in for M&A. The year 2006 saw a robust activity of financial institutions mergers and acquisitions across the globe. Nicholas G Demmo and Mathew M Guest: This article looks at mergers and acquisitions activity in financial services. is a reality and that the competitive pressures remain strong. in order to achieve success in . other sectors like insurance. It also explains the objectives of the business entities in service sector. being an ever-evolving concept. The article also speaks about earning guidance.results of the study suggest that no conclusive relationship can be established between the efficiency and size of the banks. which look forward to participating in M&A activities. issues of directors. E Mrudula and Krishna Kishore Puranam: This article is a curtain raiser that discusses factors responsible for mergers and acquisitions. hospitality. commercial finance and consumer finance industries. have recognized that organic growth may not be enough to deliver their growth agenda and are looking for M&A to meet their objectives. ³M & A in Services Sector´. which was expected to continue into the year 2007. Mergers and acquisitions have become a means of increasing shareholder value as well as the efficiency of business operations by offering plenty of benefits and tremendous value arising out synergies gained by merging independent business entities. Richard K Kim.

websites of RBI. The report will be case study based and will like to portray the pre-merger as well as post merger-scenario. b) Ratio Analysis  Profitability Ratios:  Liquidity Ratios  Activity Ratios  Solvency/Leverage Ratios c) Share Prices movements: Pre-merger as well as Post-merger. NSE etc. BSE. cross border and global to market consolidation. Scope. Chapter 2: The Indian Banking Scenario: Post-Globalization Chapter 3: Mergers and Acquisitions in the Indian Banking Sector: . Reasons for failure and diversifications are complex and can be attributed mostly to losing something important like critical people. The research will be carried out through: a) Horizontal Analysis or Trend Analysis: Facilitated by showing changes between years and can also be carried out by computing trend percentages of several years' financial data in terms of a base year. Limitation and Literature Review. Despite a high failure rate. The strategic choices of M&A range from changing landscape. unrealized benefits. successful M&A can pay large dividends. hidden losses. Research Design: The research will be based on the collection of secondary information from various sources like previously published articles. geographic options further divided into domestic. cultural barriers and power struggles are other factors that can undermine the most promising M&A activities. It will also reflect the movement of the stock market in and around the merger. avoiding decisions. Uncontrolled costs. customers and market confidence. financial reports of banks. Chapterization: Chapter 1: Introduction. The most successful acquiring banks have clearly established and understood the acquisition process to ensure good strategic decisions both before the acquisition decision and also at the integration stage after the deal is complete.M&A activity. Objective.

com´ ³www.in´ ³www. Acquisitions and Business Valuation´ Ravindhar Vadapalli.bseinidia.moneycontrol. E Mrudula ³Mergers. ³Creating value from Mergers and Acquisitions´.com´ ³www. Acquisition and Corporate Restructuring´ Prasad G Godbole.a)Issues and Implications b)Regulatory Issues in Bank Mergers in India Chapter 4: Case Study 1 Chapter 5: Case Study 2 Chapter 6: Case Study 3 Chapter 7: Findings Chapter 8: Conclusion and Recommendations Chapter 9: Bibliography References : ³Mergers and acquisitions in Services Sector´ V V Ramani.org.google. ³Mergers.rbi. ³ICFAI READER´ ³Finance India´ ³www.com´ ³www.icicidirect. Sundarshanam.com´ ³www.nseindia.com´ .