CHAPTER-1

INTRODUCTION
 Introduction to mergers and acquisitions of bank of baroda

Bank of Baroda is one of the largest public sector banks in India, with a rich history spanning over a
century. Over the years, the bank has grown both organically and through strategic mergers and
acquisitions. These M&A activities have played a significant role in expanding Bank of Baroda's
reach, enhancing its capabilities, and strengthening its position in the Indian banking industry.

One of the notable mergers involving Bank of Baroda took place in 1996 when it merged with the
New Bank of India. This merger helped Bank of Baroda to augment its customer base, expand its
branch network, and improve its operational efficiency. The amalgamation also brought together the
complementary strengths and resources of both banks, allowing them to offer a wider range of
products and services to their customers.

In recent years, Bank of Baroda was involved in another significant merger. In 2019, the Indian
government initiated the merger of Bank of Baroda with Vijaya Bank and Dena Bank. This
amalgamation created the third-largest bank in India in terms of assets. The merger was aimed at
consolidating the operations of these three banks to achieve synergies, improve operational
efficiency, and enhance the overall competitiveness in the banking sector.

Through this merger, Bank of Baroda significantly expanded its branch network and customer base. It
gained access to Vijaya Bank's strong presence in South India and Dena Bank's customer base in
western India. The consolidation also resulted in cost savings and the ability to leverage economies
of scale, thereby enhancing the bank's profitability.

The mergers and acquisitions pursued by Bank of Baroda demonstrate the bank's strategic focus on
growth and its commitment to strengthening its market position. These activities have helped the
bank to enhance its product offerings, expand its geographical presence, and improve its overall
competitiveness in the Indian banking sector. By integrating the resources and capabilities of the
merged entities, Bank of Baroda has been able to provide a wider range of services and better serve
the needs of its customers.
 Abstract
Banking Industry in India witnessed a large-scale merger in recent times, which was earlier often
sought out solution in the corporates to improve the efficiency and profitability. Bank mergers and
acquisitions are more often witnessed across Europe and America. We have witnessed few
acquisitions/mergers in the past few decades after liberalization. Present situation of mergers in the
Banking Industry is primarily due to the failure of some banks with respect to recovery of loans. This
would result in incurring losses and failing to meet the liquidity needs of the deposits side. There have
been mergers both in Public Sector Banks and Private Sector Banks. It is also observed that some
private banks have been acquired by public sector banks in the interest of depositors and investors.
This research paper focuses on and analyses the factors that lead to the merger of Bank of Baroda,
Vijaya Bank and E-Dena Bank. The possible advantages and disadvantages are inferred. Seven
years financial data before the merger decision of the three banks is collected for this analysis. Data
analysis is done using the financial tools such as Ratio Analysis and Trend Analysis. Various ratios
indicating the health of Advances side
of the bank and its profitability are calculated. The trend of NPAs and the recovery patterns are
studied. The suitability of merger decision with its after effects are proposed to be concluded.

Meaning and definition

Mergers and acquisitions (M&A) are strategic transactions in which companies combine their
operations or assets through various means such as mergers, acquisitions, consolidations, or
takeovers. These transactions are aimed at achieving synergies, expanding market presence,
increasing shareholder value, or gaining a competitive advantage.

Bank of Baroda (BOB) is a prominent Indian public sector bank with a rich history dating back to
1908. Over the years, the bank has engaged in several significant mergers and acquisitions to
enhance its operations and strengthen its position in the banking industry. Here are some notable
instances of mergers and acquisitions involving Bank of Baroda:

Bank of Baroda is one among the foremost outstanding banks in Asian nation, having its total assets
as Rs 1,43,146 Crores as on 31st March 2007.The bank was based by prince Sayajiro Gaekwad
three (also known as Shrimant Gopal rao Gaekwad) then prince of Baroda on 20th of July 1908 with
a paid capital of RS ten lacs. From its introduction in an exceedingly little building of Baroda, the bank
has return an extended thanks to accomplish its current position united of the foremost vital banks in
Asian nation. On 19thof July 1969, Bank of Baroda was nationalized by the govt of Asian nation with
13 alternative industrial banks. The bank offers a good array of tailored and specialized repaired to
fulfill the various desires of its customers and these services have categorized into personal Banking,
Business Banking, company Banking, International Banking, Treasury Banking and Rural Banking
Services. Bank of India merged with Dena Bank and Vijaya Bank.

A Merger is an agreement that unites two existing companies into one new company. Mergers are
commonly done to expand a company’s reach, expand into new segments, or gain market share.
All of these are done to please shareholders and create value.

B. Objectives
1) To know the reasons of BOB merger with Dena bank and Vijaya bank.
2) To study the financial performance of BOB, Dena and Vijaya before merger.
3) To study the benefits of BOB merger with Dena bank and Vijaya bank.

C. Scope Of The Study

The present study is based on the reasons for merging of BOB, Dena bank and Vijaya bank.

D. Need For The Study

The present study is an attempt to find out the reasons for the raise of merger deal between BOB,
Dena bank and Vijaya bank and
the reasons for merging.

E. Methodology Of The Study

1) Data Collection: The study is based on secondary data and it is taken from different sources as
follows.
a) Websites, Magazines, Books, Articles & Journals.
b) 10 years values of net profits and EPS have been used to measure the trend analysis of Bank of
Baroda, Vijaya bank and Dena bank.
c) Data analysis was done with the help of graphical representation

2) Graphical Representation: To Represent the Processing Data, following graphs are used:
a) Column charts
b) Line charts
THE REASONS OF BOB MERGER WITH DENA BANK AND VIJAYA BANK

1) The number of public sector banks are very high: Before 2014 the number of public sector banks
are 27.that is 19 banks which are exclusively owned by government of India that is nationalized
banks. A part From that we have 1 State Bank of India, 5 associate banks of SBI,1 IDBI, and another
entity was 1 Bharathiya Mahila bank. So put together there are 27 public sector banks. Whichever
angle u look at it the number of public sector banks are very high.

2) Recapitalization need will come down: The requirement in terms of recapitalization for government
of India is also increasing. In the year 2014 the government of India announced that they will provide
a recapitalization of around 70,000 cr but in a span of 5 years that is through budgetary allocation. In
the first two years they allocated 25,000 cr and in the next two years they allocated 10,000 cr . So
basically government of India said they will provide recapitalization till 2019. But over a period of time
the government of India is realised that this amount of 70,000 cr is not sufficient for the banking
sector. As a result of this last year itself the government of India has extended this particular idea of
recapitalization from 70,000 cr to more than 2.1 lakh cr.

3) Regulatory burden will come down: It is becoming burned for RBI to regulate all the participants in
the banking sector. On one side RBI has to regulate differentiated banks, RBI has to regulate regional
rural banks, RBI has to regulate scheduled commercial banks which are private sector banks as well
as public sector banks. Since the number of banking units have kept on increasing the burden to
regulate also has increased on the shoulders of RBI. So What if the number of banks under the public
sector banks are reduced the burden on the shoulders of RBI will also come down. So regulatory
burden on RBI also will come down.

4) The NPA’s are very high: The most important concern for the banking sector presently is non-
performing assets. The burden of non-performing assets are very high. The NPA’s as already
mentioned will continue to increase even in this particular financial year and when the NPA’s
increases the burden on RBI the burden on the government of India as well as the pressure on banks
themselves will also increase. So basically, if the public sector banks are reduced by the concept of
either privatisation or mergers. The banks can use economies of scale but essentially the banks will
able to use economies of scale the assets will be pulled in NPA’s to certain extent can be controlled.
 THE BENEFITS OF BOB WITH DENA BANK AND VIJAYA BANK:
1) As the three nationalized banks, Bank of Baroda NSE -0.12% Dena Bank and Vijaya Bank merged
to form the second largest
public sector bank in the country, the unified management Monday said it would benefit customers,
as well as employees in a
big way.

2) Vijaya Bank was founded in Karnataka's Dakshina Kannada district in 1931 by A B Shetty.

3) Dena Bank, named after its founder Devkaran Nanjee, came into being in 1938 in Mumbai.

4) The consolidated bank, which went into effect from Monday, will be the second largest public
sector bank in the country having
wider geographical reach with 9,500 plus branches, the bank officials said.

5) It would have more than 13,400 Automated Teller Machines and above 85,000 employees to serve
over 120 million customers,
said the officials at a press conference here to share details about the merger.

6) "The 120+ million customers will experience superior banking services and benefit from wider
product range including cash
management solution, supply chain financing, financial planning, wealth management," said Birendra
Kumar, general manager
of Bank of Baroda zonal office here.

7) Kumar added that the employees will benefit from the diverse opportunities.

8) "The service conditions of the employees will not be impacted and the interests of employees will
be fully protected.

9) The best of HR practices adopted by each of the banks will be examined for adoption," Kumar
said.

10) Bank of Baroda was established in July 20, 1908 in erstwhile Baroda, now known as Vadodara in
Gujarat.
 MERGERS BANK OF BARODA

Continuing its merger plan for public sector banks, the government has finally completed the mega-
merger of one weaker lender Dena Bank and anchor lender Vijaya Bank with a 111-year-old Bank of
Baroda (BOB). All these banks are different from each other, have different business operations, hold
different positions and have different experiences. This would be second biggest merger plan of
centre, after largest lender State Bank of India (SBI) acquisition with its own six associated banks.
Dena Bank and Vijaya Bank on their official website stated that the process of amalgamation
promises to leverage the specific skills of each bank and imbibe their best practices. This mega entity
has the ability to do more and reach further to fulfil customers with world-class offerings backed by
robust processes. While there won’t be much material change in BOB considering it is the acquirer,
the implementation of taking under Vijaya Bank and Dena Bank will be something to watch for. That
said, even customers of Vijaya Bank and Dena Bank will see changes in their way of carrying a
financial transaction.

1) Number Of Public Sector Banks Will Come Down: By 2014 there are 27 public sector banks and
presently the number has been dragged down to 21 and with this particular merger this will further
come down to 19. The problem with the present structure of the public sector banks is these public
sector banks account for more than 90% of the total NPA’s in the banking sector and this
is the very huge disadvantage or huge burden on the public sector banks. As the NPA’s keeps
increasing the financials of the banking sector will be effected.

2) Regulatory Pressure will come Down: It is becoming burned for RBI to regulate all the participants
in the banking sector. On one side RBI has to regulate differentiated banks, RBI has to regulate
regional rural banks, RBI has to regulate scheduled commercial banks which are private sector banks
as well as public sector banks. Since the number of banking units have kept on increasing the burden
to regulate also has increased on the shoulders of RBI. So regulatory burden on RBI also will come
down.

3) Recapitalisation Burden will come Down: The requirement in terms of recapitalisation for
government of India is also increasing. In the year 2014 the government of India announced that they
will provide a recapitalisation of around 70,000cr butin a span of 5 years that is through budgetary
allocation. In the first two years they allocated 25,000 cr and in the next two years they allocated
10,000 cr.

4) The Penetration/ Reach of These Banks will Increase: The three banks Vijaya bank is more
dominant or more present in southern India where as Dena bank and Bank of Baroda are more
present in the western India. When merging these three entries the penetration of the new entity is
going to increase across India. And more importantly Bank of Baroda is considered to be more
dominant in terms of FOREX earnings as well as technology driven tools. These tools as well as the
earnings in FOREX will benefit the new entity. So basically, this type of merger will promote
penetration or reach of these particular banks.
5) Dena Bank Will Be Pulled Out Of Problem: As Dena bank is a weak bank. The NPA’s of Dena
bank very recently reported were 22% of total loans given by bank and it was put in prompt corrective
action and RBI has basically stated that Dena bank will not be allowed to lend in the market. So what
we have done is take Dena bank merger it with the strong banks such as Vijaya bank and Bank of
Baroda. As a result of this Dena bank will be pulled out of this particular problem of very high NPA’s.
The NPA’s of Dena bank were the 5th largest in terms of the banking sector.

1.Merger with New India Bank (1993): Bank of Baroda merged with New India Bank, a private bank
based in Mumbai, in 1993. This merger expanded Bank of Baroda's branch network and customer
base.

2.Merger with Benares State Bank (2002): Bank of Baroda acquired Benares State Bank, a regional
bank in Uttar Pradesh, in 2002. This merger helped Bank of Baroda in expanding its presence in the
state and consolidating its position.

3.Merger with South Gujarat Local Area Bank (2004): Bank of Baroda merged with South Gujarat
Local Area Bank in 2004. This merger allowed Bank of Baroda to strengthen its market share in the
Gujarat region.

4.Merger with Vijaya Bank and Dena Bank (2019): One of the most significant mergers involving
Bank of Baroda took place in 2019 when it merged with Vijaya Bank and Dena Bank. This three-way
merger created the third-largest bank in India in terms of assets. The merger aimed to improve
operational efficiency, enhance customer service, and create a stronger banking entity.

Through these mergers and acquisitions, Bank of Baroda has been able to expand its geographical
presence, diversify its product offerings, and strengthen its overall capabilities. These strategic moves
have helped the bank in adapting to changing market dynamics and positioning itself as a major
player in the Indian banking sector.

BACKGROUND OF MERGERS AND ACQUISITIONS

As of my knowledge cutoff in September 2021, Bank of Baroda (BoB) has been involved in several
mergers and acquisitions throughout its history. However, please note that I do not have access to
real-time information, so there may have been developments since then. Here is an overview of some
significant mergers and acquisitions involving Bank of Baroda:
1.Merger with Vijaya Bank and Dena Bank (2019):
In September 2018, the Government of India announced the merger of Bank of Baroda, Vijaya Bank,
and Dena Bank, creating the third-largest bank in India by assets. The merger was aimed at creating
a stronger and more competitive banking entity.

2.Acquisition of South Gujarat Local Area Bank (2011):

In 2011, Bank of Baroda acquired South Gujarat Local Area Bank, which was a scheduled
commercial bank operating in the state of Gujarat, India. The acquisition helped Bank of Baroda
expand its presence in the region.

3.Acquisition of Uganda-based Nile Bank (2007):

Bank of Baroda acquired a 100% stake in Nile Bank Limited, a commercial bank in Uganda, in 2007.
This acquisition marked Bank of Baroda's entry into the African market and allowed it to establish a
foothold in Uganda's banking sector.

4.Acquisition of Kenyan-based Bank of Africa (2004):

Bank of Baroda acquired a 76% stake in Bank of Africa (Kenya) Limited, a commercial bank in
Kenya, in 2004. This acquisition strengthened Bank of Baroda's presence in the African market and
expanded its operations in Kenya.

It's worth noting that mergers and acquisitions are subject to change, and new developments may
have occurred since my last update. For the most up-to-date and detailed information, I recommend
referring to official sources, financial news websites, or contacting Bank of Baroda directly.

Review of Literature

Among the Indian Banks, the previous researchers have worked on the pre and post-merger
valuation of performance, economies of scale, profitability, capital adequacy and expansion of
business like venturing into untapped areas. Few researches dealt with the perception of employees,
shareholders, investors, depositors and its effects.

1. Jesna Assis & Major Dr. U Abdul Khalam, in their article “Merger of Public Sector Banks in
India in 2019; a Great Revolution in Indian Banking Industry, published in 2020 have defined
Merger & Acquisition as follows.Merger and acquisition (M&A) is a transaction in which the
 ownership of companies or business organizations or their operating entities is transferred or
combined with other entities. As a method of prudent management, merger & acquisition can
allow enterprises to grow or downscale, and change the nature of their business or competitive
position.Jesna Assis & Major Dr. U Abdul Khalam in their article published in 2020 stated that
a major move that is set to redefine India's banking space, the merger of 10 public sector
banks into four has been announced by the Finance Minister, Mrs. Nirmala Sitharaman. The
merger plan includes the merger of Indian Bank with Allahabad Bank; Oriental Bank of
Commerce (OBC) and United Bank of India with Punjab National Bank (PNB); Canara Bank
with Syndicate Bank; Union Bank of India, Corporation Bank and Andhra Bank. Besides this,
the announcement of Central Government regarding the capital infusion of Rs. 55,000 crores
into the Public Sector Banks is noteworthy.

2. Kaur &Jagmeet through their article published in the Political Economy of India Journal in
2015, opined that Merger and acquisitions give a chance to banks to share their assets, lessen
their expenses and economies of huge scope tasks which are having significant ramifications
on the monetary and working presentation of banks. It is therefore that the current paper
examines the effect of mergers and acquisitions on the monetary exhibition of one open and
one private segment bank in India especially on account of the merger of Bank of Rajasthan
with the ICICI Bank on thirteenth August, 2010 and the merger of State Bank of Indore with the
State Bank of India on 26th August, 2010. The merger of Bank of Rajasthan with the ICICI
Bank was affirmed by the Reserve Bank of India on thirteenth August, 2010. All parts of Bank
of Rajasthan work as parts of ICICI Bank. The ICICI Bank paid Rs. 3000 crores for it. After the
merger, the ICICI Bank upgraded its branch system of more than 25000 branches and more
than 5600 ATMs. The merger of the State Bank of Indore with State Bank of India (SBI)
occurred on 26th August, 2010. The SBI was enrolled under the SBI Act, 1955 which engage
the bank to get some other save money with the assent of bank tried to be gained,
endorsement of the Reserve Bank of India and authorization of the focal government.

3. Kanhaiya Singh & Poonam Singh, in their article “Early Warning Signals of Merger of Banks- A
Case Study of Global Trust Bank (GTB) and Centurion Bank of Punjab (CBOP) in India”
published in 2014 stated that there are some early warning signals that can be observed
before the situation of merger of a weak entity arises. There are certain crucial ratios such as
the Net NPAs to total advances, operating profits to working funds, Capital Adequacy Ratio,
return on equity, and return on assets, Net Interest margin etc. These factors have direct link
with the financial performance of the bank. These parameters portray negative or deteriorating
signals in case of a Bank in the preacquisition period, sometimes even 3 to 4 years before the
merger. On contrary to this, positive signals may be observed with respect to the above
mentioned parameters if the merger is intended to increase synergy and business expansion
of the involved entities. The financial health of a weak bank can be brought back on track, if
the bank exercises collective measures well in advance on observing such adverse signals.
RBI has implemented the CAMELS model in order to assess the bank’s performance which is
a very useful mechanism to help the bank in exercising corrective actions.
4. V Radha Naga Sai and Dr. Syed Tabassum Sultana, in their article “Financial Performance
Analysis In Banking Sector – A Pre & Post Merger Perspective”, published in 2013analysed
the 4 years pre and post-merger financial ratios with reference to the merger of Indian
Overseas Bank, it can be observed that Net profit margin, Return on capital employed,
Operating profit margin, Return on equity and Debt- Equity ratio there is significant difference.
But, no significant difference is observed with respect to Gross profit margin. Based on the
analysis of 3 years financial ratios of pre and post-merger data of HDFC bank, no significant
difference can be observed in the Net profit margin, Return on capital employed, Operating
profit margin, Return on equity and Debt-Equity ratio before after merger. However, significant
difference can be observed in the Gross profit margin.

5. Dutta and Dawn, in their paper “Merger and acquisitions in Indian banks after liberalisation: An
analysis”, published in 2012 considered five mergers of banks for analysis. Namely, HDFC
Bank (2000), ICICI Bank (2001), Bank of Baroda (2002), Punjab National Bank (2003) and
Oriental Bank of Commerce (2004). The performance of amalgamated banks was analysed in
terms of its growth of total assets, revenue, profits, deposits, and number of employees. The
study considered four years of pre and post-merger data of the amalgamated banks to
evaluate their respective performances pre and post-merger. The study concluded that the
post-merger periods were successful and a significant increase was observed in the total
assets, revenue, profits, deposits, and in the number of employees of the anchor organizations
of the banking industry in India.