SSRN Id4015714

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http://dx.doi.org/10.13140/RG.2.2.17549.67043
A STRATEGIC IMPACT ANALYSIS OF MERGER OF SBI WITH

ITS ASSOCIATES
PAYEL GHOSH, RITUPARNA DAS
Electronic copy available at: https://ssrn.com/abstract=4015714

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Table of content
Serial Content Page
Number Number
1 abstract 6
2 Chapter 1 introduction 8-10
3 Chapter 2 Literature Review 12-13
4 Chapter 3 An overview of merger 15-24
5 Chapter 4 A brief profile of banks 26-31
6 Chapter 5 Research issues 33
Aims and Objective of the research 33-34
7 Chapter 6 Sources of data 36
Methodology Period of study 36
Parameter 37-43
Data collection technique 43-44
Data analysis technique 44-45
8 Chapter 7 Analysis of merged bank in pre merger 47-66
Data analysis and era
interpretation Analysis of financial statement of SBI: 66-71
Comparing pre and post merger era

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Analysis of SBI’s performance in stock 71-74
market
9 Chapter 8 Conclusion and recommendation 76-77
10 Reference 78-79

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Abstract
The Banking industry is undergoing unprecedented changes driven by consolidation through
mergers and acquisitions all over the world. India is no exception. Banking industry is
undergoing unprecedented changes driven by consolidation by means of mergers and
acquisitions all over the world. One of the principle objectives behind the merger and
acquisitions in banking sector is to reap the benefits of economies of scale. Merger of SBI
with its 5 associate banks namely State Bank of Bikaner and Jaipur (SBBJ), State Bank of
Hyderabad (SBH), State Bank of Mysore(SBM), State Bank of Patiala(SBP), State Bank of
Travancore(SBT) and Bharatiya Mahila Bank which took place on 1 April, 2017 is the largest
merger in history of Indian Banking Industry. With this step SBI has entered into the list of
top 50 global banks. The focus of this paper has been placed on reasons of this merger and
also, after effects of merger has also been discussed. The paper examined the impact of
merger on SBI considering its financial statement as well as the performance on stock
market.
Keywords:
Merger, SBI, associate banks, financial ratios, pre merger, post merger, stock

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Chapter 1:
Introduction

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Introduction
Indian enterprises were subjected to strict control regime before 1990s. This has led to
chaotic growth of Indian corporate enterprises during that period. The reforms process
initiated by the Government since 1991, has influenced the functioning and governance of
Indian enterprises which has resulted in adoption of different growth and expansion strategies
by the corporate enterprises. In that process, mergers and acquisitions (M&A s) have become
a common phenomenon. The key factors behind the changing trends of mergers and
acquisitions are favorable government policies, buoyancy in economy, dynamic attitude of
Indian entrepreneurs like achieving synergies, to get good market share, cross selling,
economies of scale, resource transferring and reducing tax liability. The latest trend in the
Indian corporate sector is that Indian businesses are acquiring foreign companies. With the
increasing numbers of Indian companies opting for mergers and acquisitions that generates
efficiency, productivity, cost saving, etc. India is now one of the leading nations in the world
in terms of mergers and acquisitions.
Merger and Acquisition is one of the major aspects of corporate finance world.
M&A in financial sector of India appear to be driven by the objective of leveraging the
synergies arising out of the consequences of M&A process. However, such structural changes
in the financial system can have some public policy implications. Banking sector plays a

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crucial role in the economic growth and development of a nation. Globalization, deregulation
of economies coupled with technological development has changed the banking landscape
dramatically. The important roles of banks are economic growth, expansion of the economy
and provide funds for investment. In the recent times banking sector has been undergoing a
lot of changes in terms of regulation and effects of globalization. With the fast changing
environment, the banking sector is resorting to the process of consolidation, corporate
restructuring and strengthening to remain efficient and viable. For this, Mergers and
Acquisitions have become the preferred strategy for growth in the size of banks which in turn
play a significant role in entering the global financial market.
Banking industry is undergoing unprecedented changes driven by
consolidation by means of mergers and acquisitions all over the world. One of the principle
objectives behind the merger and acquisitions in banking sector is to reap the benefits of
economies of scale. Moreover, mergers and acquisitions in the banking industry have resulted
in large universal banks in terms of total assets, products, and geographical diversification.
There have been several reforms in the Indian banking sector, as well as quite a few
successful mergers and acquisitions, which have helped it, grow manifold. The first and the
most successful example of merger are of New Bank of India merging with the Punjab
National Bank (PNB). This was the first merger between nationalized banks. And then there
were a lot of mergers in banking industry which exemplified that mergers are beneficial for
an industry.

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The most recent and largest merger in the history of banking industry was of State Bank
of India with its 5 associate banks namely State Bank of Bikaner and Jaipur (SBBJ), State
Bank of Hyderabad (SBH), State Bank of Mysore(SBM), State Bank of Patiala(SBP), State
Bank of Travancore(SBT) and Bharatiya Mahila Bank. It was on 1st April 2017 that "the SBI
opened as 'one bank' and will continue to operate in the same manner as before, post-merger"
- Bhattacharya told the media i . Shri Arun Jaitely is confident that the bank will become
global player due to this step of its merger with its five associate banks and Smt. Arundhati
Bhattacharya, Chairperson of SBI, expects that profits of Bank shall increase by Rs. 3000
crore in upcoming 3 years.ii
In history of SBI it is not the first time when SBI has merged with other banks. Earlier in
2008, State Bank of Saurashtra was merged with SBI and in 2010 State Bank of Indore was
merged with SBI. In fact, SBI came into existence when Bank of Bengal, Bank of Madras
and Bank of Bombay amalgamated to form Imperial Bank of India in 1921 which was
subsequently converted to State Bank of India in 1955.
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Chapter 2:
Literature review
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Literature review
Many studies have investigated the various reasons for Merger and Acquisitions
(M&A‟s) to take place, Just to look the effects of Merger and Acquisitions on India.
The work of Rao and Rao (1987) is one of the earlier attempts to analyses mergers in
India from a sample of 94 mergers orders passed during 1970-86 by the MRTP Act 1969. In
the post 1991 period, several researchers have attempted to study M&As in India. Some of
these prominent studies are; Beena (1998), Roy (1999), Das (2000), Saple (2000), Basant
(2000), Kumar (2000), Pawaskar (2001) and Mantravedi and Reddy (2008)
Sinha Pankaj & Gupta Sushant (2011) studied a pre and post analysis of firms and
concluded that it had positive effect as their profitability, in most of the cases deteriorated
liquidity. It also indicated the positive effects on the basis of some financial parameter like
Earnings before Interest and Tax (EBIT), Return on share holder funds, Profit margin,
Interest Coverage, Current Ratio and Cost Efficiency etc.
Kuriakose Sony & Gireesh Kumar G. S (2010) in their paper, they assessed the
strategic and financial similarities of merged Banks, and relevant financial variables of
respective Banks were considered to assess their relatedness. The result of the study found
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that only private sector banks are in favor of the voluntary merger wave in the Indian
Banking Sector and public sector Bank are reluctant toward their type of restructuring.
Anand Manoj & Singh Jagandeep (2008) studied the impact of merger announcements
of five banks in the Indian Banking Sector on the share holder bank. These mergers were the
Times Bank merged with the HDFC Bank, the Bank of Madurai with the ICICI Bank, the
ICICI Ltd with the ICICI Bank, the Global Trust Bank merged with the Oriental Bank of
commerce and the Bank of Punjab merged with the centurion Bank. The announcement of
merger of Bank had positive and significant impact on share holder’s wealth.
Mantravadi Pramod & Reddy A. Vidyadhar (2007) evaluated that the impact of
merger on the operating performance of acquiring firms in different industries by using pre
and post financial ratio to examine the effect of merger on firms. They selected all mergers
involved in public limited and traded companies in India between 1991 and 2003, result
suggested that there were little variation in terms of impact as operating performance after
merger.
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Chapter 3:
A brief overview of merger
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A brief overview of merger
Merger is defined as combination of two or more companies into a single company where
one survives and the others lose their corporate existence. The survivor acquires all the assets
as well as liabilities of the merged company or companies. Generally, the surviving company
is the buyer, which retains its identity, and the extinguished company is the seller. Merger is
also defined as amalgamation. Merger is the fusion of two or more existing companies. All
assets, liabilities and the stock of one company stand transferred to Transferee Company in
consideration of payment in the form of:
Equity shares in the transferee company,
Debentures in the transferee company
Cash,
Or, a mixture of the above modes.
Merger is a financial tool that is used for enhancing long-term profitability by expanding
their operations. Mergers occur when the merging companies have their mutual consent as
different from acquisitions, which can take the form of a hostile takeover. Managers are
concerned with improving operations of the company, managing the affairs of the company
effectively for all round gains and growth of the company which will provide them better
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deals in raising their status, perks and fringe benefits. If we trace back to history, it is
observed that very few mergers have actually added to the share value of the acquiring
company and corporate mergers may promote monopolistic practices by reducing costs, taxes
etc.
Types of merger:
There are five commonly-referred to types of business combinations known as mergers:
conglomerate merger, horizontal merger, market extension merger, vertical merger and
product extension merger. The term chosen to describe the merger depends on the economic
function, purpose of the business transaction and relationship between the merging
companies.
➢ Conglomerate: A merger between firms that are involved in totally unrelated
business activities. There are two types of conglomerate mergers: pure and mixed.
Pure conglomerate mergers involve firms with nothing in common, while mixed
conglomerate mergers involve firms that are looking for product extensions or
market extensions.
Example
A leading manufacturer of athletic shoes, merges with a soft drink firm. The
resulting company is faced with the same competition in each of its two markets
after the merger as the individual firms were before the merger. One example of a
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conglomerate merger was the merger between the Walt Disney Company and the
American Broadcasting Company.
➢ Horizontal Merger: A merger occurring between companies in the same
industry. Horizontal merger is a business consolidation that occurs between firms
who operate in the same space, often as competitors offering the same good or
service. Horizontal mergers are common in industries with fewer firms, as
competition tends to be higher and the synergies and potential gains in market
share are much greater for merging firms in such an industry.
Example
A merger between Coca-Cola and the Pepsi beverage division, for example,
would be horizontal in nature. The goal of a horizontal merger is to create a new,
larger organization with more market share. Because the merging companies'
business operations may be very similar, there may be opportunities to join certain
operations, such as manufacturing, and reduce costs.
➢ Market Extension Mergers: A market extension merger takes place between two
companies that deal in the same products but in separate markets. The main
purpose of the market extension merger is to make sure that the merging
companies can get access to a bigger market and that ensures a bigger client base.
Example
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A very good example of market extension merger is the acquisition of Eagle
Bancshares Inc by the RBC Centura. Eagle Bancshares is headquartered at
Atlanta, Georgia and has 283 workers. It has almost 90,000 accounts and looks
after assets worth US $1.1 billion.
Eagle Bancshares also holds the Tucker Federal Bank, which is one of the ten
biggest banks in the metropolitan Atlanta region as far as deposit market share is
concerned. One of the major benefits of this acquisition is that this acquisition
enables the RBC to go ahead with its growth operations in the North American
market.
With the help of this acquisition RBC has got a chance to deal in the financial
market of Atlanta, which is among the leading upcoming financial markets in the
USA. This move would allow RBC to diversify its base of operations.
➢ Product Extension Mergers: A product extension merger takes place between
two business organizations that deal in products that are related to each other and
operate in the same market. The product extension merger allows the merging
companies to group together their products and get access to a bigger set of
consumers. This ensures that they earn higher profits.
Example
The acquisition of Mobilink Telecom Inc. by Broadcom is a proper example
of product extension merger. Broadcom deals in the manufacturing Bluetooth
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personal area network hardware systems and chips for IEEE 802.11b wireless
LAN.
Mobilink Telecom Inc. deals in the manufacturing of product designs meant
for handsets that are equipped with the Global System for Mobile
Communications technology. It is also in the process of being certified to produce
wireless networking chips that have high speed and General Packet Radio Service
technology. It is expected that the products of Mobilink Telecom Inc. would be
complementing the wireless products of Broadcom.
➢ Vertical Merger: A merger between two companies producing different goods or
services for one specific finished product. A vertical merger occurs when two or
more firms, operating at different levels within an industry's supply chain, merge
operations. Most often the logic behind the merger is to increase synergies created
by merging firms that would be more efficient operating as one.
Example
A vertical merger joins two companies that may not compete with each other,
but exist in the same supply chain. An automobile company joining with a parts
supplier would be an example of a vertical merger. Such a deal would allow the
automobile division to obtain better pricing on parts and have better control over
the manufacturing process. The parts division, in turn, would be guaranteed a
steady stream of business.
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Impacts of merger
I. Growth: Companies that desire rapid growth in size or market share or diversification
in the range of their products may find that a merger can be used to fulfill the
objective instead of going through the time consuming process of internal growth or
diversification. The firm may achieve the same objective in a short period of time by
merging with an existing firm.
II. Synergy: The merged entity has better ability in terms of both revenue enhancement
and cost reduction. Mergers and Acquisition allows firms to obtain efficiency gains
through cost reductions (cost synergies) & revenue increases (revenue synergies).
III. Enhanced Managerial Skills: Occasionally a firm with good potential finds it unable
to develop fully because of deficiencies in certain areas of management or an absence
of needed product or production technology. If the firm cannot hire the management
or the technology it needs, it might combine with a compatible firm that has needed
managerial, personnel or technical expertise.
IV. Acquiring New Technology: To stay competitive, companies need to stay on top of
technological developments and their business applications. By buying a smaller
company with unique technologies, a large company can maintain or develop a
competitive edge.
V. Broader Array of Products: When two firms merge they have diversified variety of
products and after the merger each consumer in both the firms will be benefited with
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the range of products or services to choose from M&A’s help firms to widen its
consumer portfolio but it also leads to a more diversified range of services.
VI. Income Tax Advantages: In some cases, income tax consideration may provide the
financial synergy motivating a merger. Tax concessions act as a catalyst for a strong
bank to acquire distressed banks that have accumulated losses and unclaimed
depreciation benefits in their books.
VII. Domination: Companies also engage in M&A to dominate their sector. However, a
combination of two behemoths would result in a potential monopoly, and such a
transaction would have to run the gauntlet of intense scrutiny from anti-competition
watchdogs and regulatory authorities
Merger and acquisition in India
M&As, have played an important role in the transformation of the industrial sector of
India since the Second World War period. The post-war period is regarded as an era of
M&As. large number of M&A s occurred in industries like jute, cotton textiles, sugar,
insurance, banking, electricity and tea plantation. It has been found that, although there were
a large number of M&A s in the early post independence period, the anti-big government
policies and regulations of the 1960s and 1970s seriously deterred M&As. This does not, of
course, mean that M&As were uncommon during the controlled regime. The deterrent was
mostly to horizontal combinations which, result in concentration of economic power to the
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common detriment. However, there were many conglomerate combinations. In some cases,
even the Government encouraged M&As; especially for sick units. Further, the formation of
the Life Insurance Corporation and nationalization of the life insurance business in 1956
resulted in the takeover of 243 insurance companies. There was a similar development in the
general insurance business. The national textiles corporation (NTC) took over a large number
of sick textiles units (Kar 2004).
The functional importance of M&As is undergoing a sea change
since liberalization in India. The MRTP Act and other legislations have been amended paving
way for large business groups and foreign companies to resort to the M&A route for growth.
Further The SEBI (Substantial Acquisition of Shares and Take over) Regulations, 1994 and
1997, have been notified.
M&As as a strategy employed by several corporate groups like R.P. Goenka,
Vijay Mallya and Manu Chhabria for growth and expansion of the empire in India in the
eighties. Some of the companies taken over by RPG group included Dunlop, Ceat, Philips
Carbon Black, and Gramophone India. Mallya‟s United Breweries (UB) group was straddled
mostly by M&As. Further, in the post liberalization period, the giant Hindustan Lever
Limited has employed M&A as an important growth strategy. The Ajay Piramal group has
almost entirely been built up by M&As. The south based, Murugappa group built an empire
by employing M&A as a strategy. Some of the companies acquired by Murugappa group
include, EID Parry, Coromondol Fertilizers, Bharat Pulverising Mills, Sterling Abrasives, and
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Cut Fast Abrasives etc. Other companies and groups whose growth has been contributed by
M&As include Ranbaxy Laboratories Limited and Sun Pharmaceuticals Industries
particularly during the latter half of the 1990s. During this decade, there has been plethora of
M&As happening in every sector of Indian industry. Even, the known and big industrial
houses of India, like Reliance Group, Tata Group and Birla group have engaged in several
big deals.
Merger and acquisition laws: Indian perspective
Most of the mergers and acquisitions have been successful in elevating the functional
competence of companies but on the flip side this activity can lead to formation of
monopolistic power. The anticompetitive results are accomplished either by synchronized
effects or by one-sided effects. Many countries have propagated Mergers and Acquisitions
Laws to control the operations of the trade units within.
Laws Governing Mergers and Acquisitions in India
Mergers and Acquisitions in India are governed by the Indian Companies Act, 1956,
under Sections 391 to 394. Although mergers and acquisitions may be instigated through
mutual agreements between the two firms, the procedure remains chiefly court driven. The
approval of the High Court is highly desirable for the commencement of any such process
and the proposal for any merger or acquisition should be sanctioned by a 3/4th of the
shareholders or creditors present at the General Board Meetings of the concerned firm.
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Indian antagonism law permits the utmost time period of 210 days for the companies for
going ahead with the process of merger or acquisition. The allotted time period is clearly
different from the minimum obligatory stay period for claimants. According to the law, the
obligatory time frame for claimants can either be 210 days commencing from the filing of the
notice or acknowledgment of the Commission’s order.
The entry limits for companies: The entry limits are allocated in context of asset worth
or in context of the company’s annual incomes. The entry limits in India are higher than the
European Union and are twofold as compared to the United Kingdom. The Indian mergers
and acquisitions laws also permit the combination of any Indian firm with its international
counterparts, providing the cross-border firm has its set up in India.
There have been recent modifications in the Competition Act, 2002. It has replaced the
voluntary announcement system with a mandatory one. Out of 106 nations which have
formulated competition laws, only 9 are acclaimed with a voluntary announcement system.
Voluntary announcement systems are often correlated with business ambiguities and if the
companies are identified for practicing monopoly after merging, the law strictly order them
opt for demerging of the business identity.
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Chapter 4:
A brief profile of the banks
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State bank of India is an Indian multinational, public sector banking and financial services
providing company. It is a government owned corporation with it’s headquarter in Mumbai,
Maharashtra. On April 1, 2017 the state bank of India which was largest bank, merged with
its five associates and Bharatiya Mahila bank.
• State Bank of Hyderabad:
Hyderabad State Bank was established on 8 August 1941 under the Hyderabad
State Bank Act, by last Nizam of Hyderabad, Mir Osman Ali Khan now the new
state of Telangana. It is one of the five associate banks of State Bank of India and
is one of the scheduled banks in India. In 1956, the Reserve Bank of India took
over the bank as its first subsidiary and renamed it as State Bank of Hyderabad.
Since 1956 it has been a subsidiary and largest associate bank of SBI. The bank
has performed well in the past decades, winning several awards for its banking
practices. SBH has over 2,000 branches and about 18,000 employees. The Bank's
business has crossed Rs. 2.4 trillion as on 31.12.2015 with a net profit of Rs. 8.12
billion. The bank has performed well in the past decades, winning several awards
for its banking practices.
• State Bank of Mysore:
State Bank of Mysore was established in the year 1913 as The Bank of Mysore
Ltd. under the patronage of Maharaja Krishna Raja Wadiyar IV, at the instance of
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the banking committee headed by the great EngineerStatesman, Bharat Ratna Sir
M.Visvesvaray. During 1953, "Mysore Bank" was appointed as an agent of
Reserve Bank of India to undertake Government business and treasury operations,
and in March 1960, it became a subsidiary of the State Bank of India under the
State Bank of India (subsidiary Banks) Act 1959. Now the bank is an Associate
Bank under State Bank Group and the State Bank of India holds 92.33% of
shares. The Bank's shares are listed in Bangalore, Chennai, and Mumbai stock
exchanges. This bank has 976 branches and 10627 employees (June 2014) and the
Bank has 772 branches (79%) in Karnataka State. The bank's turnover in the year
2013-2014 was around US$19 Billion and Profit about US$46 Million.
• State Bank of Patiala:
Bhupinder Singh, Maharaja of Patiala State, founded the Patiala State Bank on 17
November 1917 to foster growth of agriculture, trade and industry. The bank
combined the functions of a commercial bank and those of a central bank for the
princely state of Patiala. The bank had one branch at Chowk Fort, Patiala, and
undivided India. The formation of the Patiala and East Punjab States Union in
1948 led to the bank being reorganized, being brought under the control of the
Reserve Bank of India, and being renamed Bank of Patiala. On 1 April 1960
Bank of Patiala became a subsidiary of State Bank of India and was renamed
State Bank of Patiala. Presently, State Bank of Patiala has a network of 1445
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service outlets, including 1314 branches, in all major cities of India, Particularly
in north India.
• State Bank of Bikaner and Jaipur:
SBBJ came into existence on 1963 when two banks, namely, State Bank of
Bikaner (established in 1944) and State Bank of Jaipur (established in 1943),
were merged. Both these banks were subsidiaries of the State Bank of India under
the State Bank of India (Subsidiary Bank) Act, 1959. On 25 April 1966 SBBJ
took over Govind Bank (Private) Ltd., Mathura, established on 8 February 1963.
In 1984 SBBJ sponsored and established Ganganagar Kshetriya Gramin Bank as
a Regional Rural Bank. Thereafter, in 1985 SBBJ opened the Bikaner Kshetriya
Gramin Bank, the second Regional Rural Bank sponsored by it. The third
Regional Rural Bank, sponsored by SBBJ was Marwar Gramin Bank, which
covered the districts of Pali, Jalore and Sirohi. On 12 June 2006, SBBJ merged all
three regional rural banks that it sponsored under the name MGB Gramin Bank,
with headquarters in Jodhpur. It is an associated bank of State Bank of India. As
of 2015, SBBJ had 1,360 branches, mostly located in the state of Rajasthan, India.
Its branch network out of Rajasthan covers all the major business centres of India.
In 1997, the bank entered the capital market with an Initial Public Offering of 13,
60,000 shares at a premium of Rs 440 per share. For the year 2015-16 the net
profit of the company was 850.60 Crore.
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• State Bank of Travancore:
SBT was established in 1945 as the Travancore Bank Ltd, at the initiative of
Travancore Divan C. P. Ram swami Iyer. Following popular resentment against
his dictatorial rule, the bank no longer credits his role. Instead, the Bank now
considers the Maharaja of Travancore as the founder, though the king had little to
do with the founding. Although the Travancore government put up only 25% of
the capital, the bank undertook government treasury work and foreign exchange
business, apart from its general banking business. Its registered office was at
Madras. In 1960, it became a subsidiary of State Bank of India under the SBI
Subsidiary Banks Act, 1959, enacted by the Parliament of India.
State Bank of India
HISTORY OF STATE BANK OF INDIA
The roots of the State Bank of India rest in the first decade of 19thcentury, when the
Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The
Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay (incorporated
on 15 April 1840) and the Bank of Madras (incorporated on 1 July1843). All three Presidency
banks were incorporated as joint stock companies, and were the result of the royal charters.
These three banks received the exclusive right to issue paper currency in 1861with the Paper
Currency Act, a right they retained until the formation of the Reserve Bank of India. The
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Presidency banks amalgamated on27 January 1921, and the reorganized banking entity took
as its name Imperial Bank of India. The Imperial Bank of India continued to remain a joint
stock company. Pursuant to the provisions of the State Bank of India Act (1955), the Reserve
Bank of India, which is India's central bank, acquired a controlling interest in the Imperial
Bank of India. On 30 April 1955the Imperial Bank of India became the State Bank of India.
The Govt. of India recently acquired the Reserve Bank of India's stake in SBI seas to remove
any conflict of interest because the RBI is the country's banking regulatory authority.
KEY STRENGTHS OF SBI
State Bank of India is a banking behemoth and has 20% market share in deposits and loans
among Indian commercial banks. State Bank of India (SBI) is an Indian multinational, public
sector banking and financial services company. It is a government-owned corporation. As of
2016-17, it had assets of 30.72 trillion (US$460 billion) and more than 14,000 branches,
including 191 foreign offices spread across 36 countries, making it the largest banking and
financial services company in India by assets. The company is ranked 232nd on the Fortune
Global. 500 list of the world's biggest corporations as of 2016.
SBI provides a range of banking products through its network of branches in India and
overseas, including products aimed at non-resident Indians (NRIs). SBI has 14 regional hubs
and 57 Zonal Offices that are located at important cities throughout India. (D Satyanarayana,
2017)
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The merger of SBI and its associates and BMB was the first ever largest merger in banking
industry. With this merger:
• SBI has entered into the league of top 50 global banks.
• It has now 24,017 branches and 59,263 ATMs serving over 42 crore customers.
• SBI is now a banking behemoth with an asset book of Rs 37 lakh crore.
• The merged entity will have one-fourth of the deposit and loan market, as the
SBI's market share will increase from 17% to 22.5-23%.
• SBI's asset base is now five times larger than the second largest Indian bank,
ICICI Bank.
Apart from these facts, there are many perceived gains as well: the government, as
shareholder, feels that now it will have six less capital-hungry banks to worry about. It was
expected that a larger institution will be better equipped to deal with sticky loans, thereby
enabling fresh credit outflows to productive sectors. Thus Productivity and efficiency are also
among the expected benefits (Ms.Jaspreet Kaur, 2017)
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Chapter 5:
Research issues and objective
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Research issues
As a result of Indian economic liberalization, and rapidly changing business environment,
there has been a spurt in the M&As in India. This gives rise to certain issues in the sphere of
mergers and acquisitions which need to be investigated.
❖ Has the M&A strategies resorted by Indian enterprises affected their performances?
❖ Do the shareholders benefit from M&As?
Aims and objective of the study
Aims of the research
The main aim of this project is to analyze the impact of merger and acquisition on the
operating performance of SBI.
Objective of the research
➢ To critically analyze the impact of merger on the operating performance of SBI.
➢ To strategically evaluate the impact on shareholder’s wealth post merger.
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➢ To study the important factors influencing companies to undergo merger and
acquisition.
➢ To evaluate the banks performance in terms of profitability.
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Chapter 6:
Methodology
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Research methodology
Sources of data
The study is based on secondary data. The financial and accounting data of the banks are
collected from their financial annual and quarter report to examine on the performance of SBI
bank. Data are also collected from the Bombay stock exchange, National Stock Exchange,
Securities and Exchange Board of India, Business Standard, Yahoo Finance and Money
Control for the study.iii
However, for the descriptive analysis data from economics times, The Hindu has been used
for the study.
Period of the study
To compare the performance of SBI four years pre merger and four years post merger
financial ratio are computed and compared. Four years pre merger and four years’ post
merger data of SBI stock price, Bankex, Bank-Nifty and Nifty-50 data are collected for
examine the performance of SBI in stock market. Five years data of financial ratio of State
bank of Mysore, State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of
Patiala, State Bank of Travancore and Bharatiya Mahila Bank are collected to analyses the
reason behind the merger of these banks with SBI.
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Parameters
To compare the performance of SBI some financial ratio are computed and collected:
➢ Current ratio: The current ratio is a liquidity ratio that measures a
company's ability to pay short-term obligations or those due within one
year. It tells investors and analysts how a company can maximize
the current assets on its balance sheet to satisfy its current debt and other
payables.
Current Ratio=Current assets/ Current liabilities
a ratio between 1.5 and 3 is generally considered healthy.
➢ Quick ratio: The quick ratio measures a company's capacity to pay its
current liabilities without needing to sell its inventory or obtain additional
financing. The higher the ratio result, the better a company's liquidity and
financial health; the lower the ratio, the more likely the company will
struggle with paying debts.
Ratio of 1:1 is held to be the ideal quick ratio indicating that the business
has in its possession enough assets which may be immediately liquidated
for paying off the current liabilities.
➢ Net profit margin (%): The net profit margin, or simply net margin,
measures how much net income or profit is generated as a percentage of
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revenue. It is the ratio of net profits to revenues for a company or business
segment.
Net profit margin= (net income/revenue)*100
a general rule of thumb, a 10% net profit margin is considered average.
➢ Credit deposit ratio: this ratio conveys how much of each rupee of deposit
is going towards credit markets. A higher growth in credit deposit ratio
suggests credit growth is rising quickly, which could lead to excessive
risks and leveraging on the borrowers side. In case of banks, it could imply
that there will be a rise in NPAs when economic cycle reverses.
Credit -Deposit Ratio = (Total bank credit)/Aggregate Deposits (Demand
+ Time Deposits)
This ratio typically lies between 70-75%
➢ Return on equity: Return on equity (ROE) is a measure of financial
performance calculated by dividing net income by shareholders' equity.
Because shareholders' equity is equal to a company’s assets minus its debt,
ROE is considered the return on net assets.
Return on Equity= Net Income /Average Shareholders’ Equity
A healthy ROE should be 15-20
➢ Net profit: net income is the profit that remains after all expenses and costs
have been subtracted from revenue. Net income or net profit helps investors
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determine a company's overall profitability, which reflects on how
effectively a company has been managed.
➢ Capital adequacy ratio: Capital Adequacy Ratio (CAR) is the ratio of a
bank’s capital in relation to its risk weighted assets and current liabilities.
there fore,
Capital Adequacy Ratio = (Tier I + Tier II + Tier III (Capital funds)) /Risk
weighted assets
As per RBI the minimum CAR should be 8.0%, A bank with a high
capital adequacy ratio is considered to be above the minimum
requirements needed to suggest solvency.
➢ Earnings per share: Earnings per share (EPS) are calculated as a company's
profit divided by the outstanding shares of its common stock. EPS indicates
how much money a company makes for each share of its stock, and is a
widely used metric to estimate corporate value. A higher EPS indicates
greater value because investors will pay more for a company's shares if
they think the company has higher profits relative to its share price.
➢ % Gross NPA’s: Gross non-performing assets refer to the sum of all the
loans that have been defaulted by the borrowers within the provided period.
Gross NPA Ratio is the ratio of total gross NPA to total advances (loans) of
the bank.
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➢ % net NPA’s: net non-performing assets are the amount that results after
deducting provision for unpaid debts from gross NPA. Net NPA to
Advances (loans) Ratio is the ratio of Net NPA to advances.
➢ Return on assets: Return on assets (ROA) is an indicator of how profitable
a company is relative to its total assets.
Return on Assets=Total Assets/Net Income
Generally, over 5% ROA is considering being good.
➢ Operating profit ratio: The operating return on assets ratio (ROA) is used
to calculate the percentage rate of return a business gets on its assets. The
ratio measures the ability of a business to use its assets to generate
operating income.
To compare the performance in stock market data are collected of the followings:
➢ SBI stock price
➢ Bankex
➢ Bank-Nifty
➢ Nifty-50
To analyses the pre merger performance of SBT, SBH, SBBJ, SBP, SBM and BMB data are
collected of the followings:
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➢ Capital adequacy ratio: Capital Adequacy Ratio (CAR) is the ratio of a
bank’s capital in relation to its risk weighted assets and current liabilities.
there fore,
Capital Adequacy Ratio = (Tier I + Tier II + Tier III (Capital funds)) /Risk
weighted assets
As per RBI the minimum CAR should be 8.0%, A bank with a high
capital adequacy ratio is considered to be above the minimum
requirements needed to suggest solvency.
➢ Cash deposit ratio: Cash-deposit ratio of scheduled commercial banks is
the ratio of cash in hands and balances with the RBI as percentage of
aggregate deposits.
Cash-Deposit Ratio = (cash in hand + balances with RBI)/Aggregate
Deposits (Demand + Time Deposits).
The ratio ranges between 6.9 per cent (old private sector banks) and 9.2
per cent (new generation private sector banks).
➢ Credit deposit ratio: this ratio conveys how much of each rupee of deposit
is going towards credit markets. A higher growth in credit deposit ratio
suggests credit growth is rising quickly, which could lead to excessive
risks and leveraging on the borrowers side. In case of banks, it could imply
that there will be a rise in NPAs when economic cycle reverses.
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Credit -Deposit Ratio = (Total bank credit)/Aggregate Deposits (Demand
+ Time Deposits)
This ratio typically lies between 70-75%
➢ Priority sector advances/total sector advances (%): As per RBI its limit is
40%
➢ Interest income/total assets: The "Interest income to total assets ratio"
reflect banks' reliance on interest from bank lending as a source of funding.
A high ratio is a good indicator.
➢ Operating profit/total assets: The operating return on assets ratio (ROA) is
used to calculate the percentage rate of return a business gets on its assets.
The ratio measures the ability of a business to use its assets to generate
operating income.
➢ Return on assets: Return on assets (ROA) is an indicator of how profitable
a company is relative to its total assets.
Return on Assets=Total Assets/Net Income
Generally, over 5% ROA is considering being good.
➢ Return on equity: Return on equity (ROE) is a measure of financial
performance calculated by dividing net income by shareholders' equity.
Because shareholders' equity is equal to a company’s assets minus its debt,
ROE is considered the return on net assets.
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Return on Equity= Net Income /Average Shareholders’ Equity
A healthy ROE should be 15-20
➢ Return on investment: Return on investment (ROI) is a performance
measure used to evaluate the efficiency or profitability of an investment or
compare the efficiency of a number of different investments.
ROI= (Current Value of Investment−Cost of Investment)/
Cost of Investment
The rate should to be 10%
➢ Net non performing assets/ net advances: RBI has defined NPAs as assets
that stop generating income for them. Net NPA to Advances (loans) Ratio
is the ratio of Net NPA to advances. It is used as a measure of the overall
quality of the bank's loan book.
Data collection technique
Data of SBI stock price, Bankex, Bank-Nifty and Nifty-50 for examine the performance
in stock market of SBI are collected from the website of BSE, NSE and Yahoo Finance for
the period 2nd April 2013 to 2nd April 2021.
Data of Net profit, Capital adequacy ratio, Earnings per share, % gross
NPA’s, % net NPA’s, Return on assets and Operating profit ratio of SBI are collected from
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BSE, Business Standard, money control and quarter financial report of SBI from FY13 to
FY20 are collected quarterly basis.
Data of Current ratio, Quick ratio, Net profit margin (%), Credit deposit
ratio and return on equity of SBI from 2014-2015 to 2019-2020 are collected on yearly basis
from the website of Business Standard and money control.
Data of Capital adequacy ratio, Cash deposit ratio, Credit deposit ratio,
Priority sector advances-total sector advances (%), Interest income/total assets, Operating
profit/total assets, Return on assets, Return on equity, Return on investment and Net non
performing assets/ net advances of State bank of Mysore, State Bank of Hyderabad, State
Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank of Travancore and Bharatiya
Mahila Bank are collected from the website of CEIC data base for the period 2013-2017 on
yearly basis.
However, MS-Excel has been used for all these data collection.
Data analysis technique
In this study two software are used for the purpose of data analysis
I. STATA
II. MS-Excel
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For the fundamental analysis with financial ratio of SBI t-two sample unequal variance test
for mean has been conducted for each parameter. After that mean value of pre merger period
and mean value of post merger period compared with the help of percentage change in the
mean value of post merger period.
For equity share analysis of SBI stock price is regressed with Bankex,
Bank-Nifty and Nifty-50 for pre merger and post merger period with the help of Stata
software and then compared.
To conduct an analysis of pre merger condition of State bank of Mysore,
State Bank of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Patiala, State Bank
of Travancore and Bharatiya Mahila Bank graphs are made with the help of MS-Excel.
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Chapter 7:
Data analysis and interpretation
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Data analysis
1. Analysis of merged bank in pre merger era
Findings:
a. State Bank of Hyderabad (SBH)
CAPITAL ADEQUACY RATIO

12.6 12.36
12.4
12.2 12
12
11.72
11.8 11.62
11.6
11.4 11.26
11.2
11
10.8
10.6
2013 2014 2015 2016 2017
Fig 1.a.1: capital adequacy ratio of state bank of Hyderabad
CASH DEPOSIT RATIO

6 5.63 5.55
5.16
4.75
5 4.45
4
3
2
1
0
2013 2014 2015 2016 2017
Fig 1.a.2: cash deposit ratio of state bank of Hyderabad
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CREDIT DEPOSIT RATIO

100
79.29 80.04 80.71 80.27
80
55.94
60
40
20
0
2013 2014 2015 2016 2017
Fig 1.a.3: credit deposit ratio of state bank of Hyderabad
PRIORITY SECTOR ADVANCES/TOTAL

SECTOR ADVANCES (%)
50 44.67
35.82 37.67
40 33.72 35.08
30
20
10
0
2013 2014 2015 2016 2017
Fig 1.a.4: priority sector advances/total sector advances (%) of state bank of Hyderabad
INTEREST INCOME/TOTAL ASSETS

12
9.79 9.7 9.34
10 8.89
8.04
8
6
4
2
0
2013 2014 2015 2016 2017
Fig 1.a.5: interest income/total assets of state bank of Hyderabad
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OPERATING PROFIT/TOTAL ASSETS

2.5 2.19
1.97 2.06
1.94
2 1.78
1.5
0.5
0
2013 2014 2015 2016 2017
Fig 1.a.6: operating profit/total assets of state bank of Hyderabad
RETURN ON ASSETS
1.5
0.99
1 0.84
0.7 0.65
0.5
0
2013 2014 2015 2016 2017
-0.5
-1
-1.5
-1.55
-2
Fig 1.a.7: return on assets of state bank of Hyderabad
RETURN ON EQUITY
30
17.7
20 12.74 14.66
10.65
10
0
2013 2014 2015 2016 2017
-10
-20
-30
-28.62
-40
Fig 1.a.8: return on equity of state bank of Hyderabad
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RETURN ON INVESTMENT
8.4
8.19 8.22
8.2
8
7.8
7.61
7.6 7.49 7.48
7.4
7.2
7
2013 2014 2015 2016 2017
Fig 1.a.9: return on investment of state bank of Hyderabad
NET NON PERFORMING ASSETS/

NET ADVANCES
14 12.84
12
10
8
6
3.12 3.37
4 2.24
1.61
2
0
2013 2014 2015 2016 2017
Fig 1.a.10: NPA/net advances of state bank of Hyderabad
From the above ten figures it is noticed that, capital adequacy ratio of state bank of
Hyderabad have decreased in 2017 from the previous years. Though Cash deposit ratio
remains more or less same but it is quite low from the standard range. In 2017 credit deposit
ratio was 55.94% which is significantly lower than the standard value of this indicator.
Priority sector lending has also increased over the years and cross the limit (decides by RBI).
The interest earning from total assets as well as operating profit has fallen over the years. In
2017 ROA and ROE was respectively -1.55 and -28.62. Over the five years the return from
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investment was pretty low from the standard value. Net NPA to net advances ratio was
increased to 12.84 in 2017, which indicates the bad loan has increased in 2017.
b. State bank of Mysore

13.5
13.12 13.11
12.92
13
12.44
12.5
12
12
11.5
11
2013 2014 2015 2016 2017
Fig 1.b.1: capital adequacy ratio of state bank of Mysore
CASH DEPOSIT RATIO

8 7.35 7.49
7 6.09 6.26
6 5.47
5
4
3
2
1
0
2013 2014 2015 2016 2017
Fig 1.b.2: cash deposit ratio of state bank of Mysore
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90
86.94 86.76
84.57
85 82.45
80
76.43
75
70
2013 2014 2015 2016 2017
Fig 1.b.3: credit deposit ratio of state bank of Mysore
PRIORITY SECTOR ADVANCES-TOTAL

SECTOR ADVANCES (%)
26 25.28
25
24 23.21
23 22.23 22.45
21.72
22
21
20
19
2013 2014 2015 2016 2017
Fig 1.b.4: priority sector advances/total sector advances (%) of state bank of Mysore

8.5 8.25
8.12
7.94
8
7.44
7.5
6.93
7
6.5
6
2013 2014 2015 2016 2017
Fig 1.b.5: interest income/total assets of state bank of Mysore
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OPERATING PROFIT/TOTAL
ASSETS
2.2 2.14
2.1
2.1
2.01
2 1.96
1.91
1.9
1.8
1.7
2013 2014 2015 2016 2017
Fig 1.b.6: operating profit/total assets of state bank of Mysore
RETURN ON ASSETS
1.2
0.97
1
0.8 0.65 0.68
0.6 0.46 0.41
0.4
0.2
0
2013 2014 2015 2016 2017
Fig 1.b.7: return on assets of state bank of Mysore
RETURN ON EQUITY
20
15.43
15
10.03 10.62
10 7.3
6.31
5
0
2013 2014 2015 2016 2017
Fig 1.b.8: return on equity of state bank of Mysore
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9
8.52
8.5
8.2
8.03 8
8
7.5
7.19
7
6.5
2013 2014 2015 2016 2017
Fig 1.b.9: return on investment of state bank of Mysore
NET NON PERFORMING ASSETS/ NET

ADVANCES
5
3.81 3.71
4
3 2.57
2.1 2.12
2
1
0
2013 2014 2015 2016 2017
Fig 1.b.10: NPA/net advances of state bank of Mysore
By interpreting the above figures it is visible that, capital adequacy ratio of State Bank of
Mysore has increased in 2017, cash deposit ratio has also rise to 6.26 in 2017 from 2013 but
it does not lies in the significant range of this indicator. Credit deposit ratio as well as
operating profit on total assets has fallen from 2013. However, there is a sharp fall in private
sector lending as well as interest income on total assets in 2017 from 2013. ROA, ROE and
return on investment has decrease over the years. Net NPA ratio has increased to 3.71 in
2017.
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c. State Bank of Patiala

12.5
12.06
12
11.5 11.12 11.18
10.88
11
10.38
10.5
10
9.5
2013 2014 2015 2016 2017
Fig 1.c.1: capital adequacy ratio of state bank of Patiala
CASH DEPOSIT RATIO

10 9.08
8
5.73 5.2
6 4.52 4.8
4
2
0
2013 2014 2015 2016 2017
Fig 1.c.2: cash deposit ratio of state bank of Patiala

100
83.23 84.68 86.03
76.84
80 69.47
60
40
20
0
2013 2014 2015 2016 2017
Fig 1.c.3: credit deposit ratio of state bank of Patiala
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SECTOR ADVANCES (%)
50
41.74
36.1 38.43 38.41
40
31.33
30
20
10
0
2013 2014 2015 2016 2017
Fig 1.c.4: priority sector advances/total sector advances (%) of state bank of Patiala

10 9.24 9.12 8.97
8.42
7.66
8
0
2013 2014 2015 2016 2017
Fig 1.c.5: interest income/total assets of state bank of Patiala

1.6 1.49 1.47
1.39
1.4 1.3
1.14
1.2
1
0.8
0.6
0.4
0.2
0
2013 2014 2015 2016 2017
Fig 1.c.6: operating profit/total assets of state bank of Patiala
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RETURN ON ASSETS
1 0.68
0.42 0.33
0.5
0
-0.5 2013 2014 2015 2016 2017
-1
-0.82
-1.5
-2
-2.5
-3 -2.8
Fig 1.c.7: return on assets of state bank of Patiala
RETURN ON EQUITY
20 13.17
7.8 5.41
10
0
2013 2014 2015 2016 2017
-10
-20 -12.85
-30
-40
-50 -43.75
Fig 1.c.8: return on equity of state bank of Patiala
7.7
7.64
7.65
7.6
7.55
7.55 7.52
7.5
7.5 7.48
7.45
7.4
2013 2014 2015 2016 2017
Fig 1.c.9: return on investment of state bank of Patiala
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ADVANCES
20
15.48
15
10
5 3.12 3.88 3.98

1.62
0
2013 2014 2015 2016 2017
Fig 1.c.10: NPA/net advances of state bank of Patiala
Above figures shows that, capital adequacy ratio of state bank of Patiala has decreased in
2017. Cash deposit ratio and credit deposit ratio has fallen to 5.2 and 69.47 respectively,
which is quite low to the standard value. Though priority sector lending has increased in
2017, interest income on total assets and operating profit on total assets both has deceased.
ROA and ROE has fallen to -2.8 and -43.75 respectively. Net NPA has increased to 15.48 in
2017, indicating increase in the bad loans.
d. State Bank of Bikaner and Jaipur

15
12.16 11.55 11.57
10.44
10 9
0
2013 2014 2015 2016 2017
Fig 1.d.1: capital adequacy ratio of state bank of Bikaner and Jaipur
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CASH DEPOSIT RATIO

12
10.33
10 9.13 9.24
8.54 8.27
8
6
4
2
0
2013 2014 2015 2016 2017
Fig 1.d.2: cash deposit ratio of state bank of Bikaner and Jaipur

100
86.87
79.78 82.56
77.58
80
62.33
60
40
20
0
2013 2014 2015 2016 2017
Fig 1.d.3: credit deposit ratio of state bank of Bikaner and Jaipur

SECTOR ADVANCES (%)
50 44.37
38.73 39.36
40 35.31 36.04
30
20
10
0
2013 2014 2015 2016 2017
Fig 1.d.4: priority sector advances/total sector advances (%) of state bank of Bikaner and
Jaipur
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10
9.46
9.5 9.24 9.32
9.02
9
8.5
8.08
8
7.5
7
2013 2014 2015 2016 2017
Fig 1.d.5: interest income/total assets of state bank of Bikaner and Jaipur

2.5 2.18 2.17
2.16
1.92
2 1.71
1.5
0.5
0
2013 2014 2015 2016 2017
Fig 1.d.6: operating profit/total assets of state bank of Bikaner and Jaipur
RETURN ON ASSETS
1.5
0.96 0.87
1 0.84 0.83
0.5
0
2013 2014 2015 2016 2017
-0.5
-1
-1.5 -1.22
Fig 1.d.7: return on assets of state bank of Bikaner and Jaipur
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RETURN ON EQUITY
20 16.36
14.46 13.67 13.34
15
10
5
0
-5 2013 2014 2015 2016 2017
-10
-15
-20
-25 -20.9
Fig 1.d.8: return on equity of state bank of Bikaner and Jaipur
9.5
9.11
9
8.44
8.5
8.18
8.06
7.91
8
7.5
7
2013 2014 2015 2016 2017
Fig 1.d.9: return on investment of state bank of Bikaner and Jaipur

ADVANCES
12 10.53
10
8
6
4 2.27 2.76 2.54 2.75
2
0
2013 2014 2015 2016 2017
Fig 1.d.10: NPA/net advances of state bank of Bikaner and Jaipur
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From the above figures it is evident that capital adequacy ratio of state bank of Bikaner
and Jaipur has decreased in 2017. Cash deposit ratio and credit deposit ratio has fallen to 8.27
and 62.33 respectively. In this bank also, though priority sector lending has increased in
2017, interest income on total assets and operating profit on total assets both has deceased.
ROA and ROE has fallen to -1.22 and -20.9 respectively. Return on investment has also
fallen to 8.06 in 2017, whereas net NPA ratio has increased to 10.53.
e. State Bank of Travancore

12.5 12.19
12 11.7 11.6
11.5
10.79 10.89
11
10.5
10
2013 2014 2015 2016 2017
Fig 1.e.1: capital adequacy ratio of state bank of Travancore
CASH DEPOSIT RATIO

6.2 5.98
6 5.86
5.8
5.6 5.37
5.4 5.26
5.2 4.99
5
4.8
4.6
4.4
2013 2014 2015 2016 2017
Fig 1.e.2: cash deposit ratio of state bank of Travancore
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100
79.75 77.69
80 75.45
64.74
60
42.39
40
20
0
2013 2014 2015 2016 2017
Fig 1.e.3: credit deposit ratio of state bank of Travancore
PRIORITY SECTOR ADVANCES-TOTAL SECTOR

50 46.89
ADVANCES (%)
38.83 37.45 39.03
40 36.3
30
20
10
0
2013 2014 2015 2016 2017
Fig 1.e.4: priority sector advances/total sector advances (%) of state bank of Travancore

9.5 9.38
9.21
9.07
9 8.73
8.5
7.93
8
7.5
7
2013 2014 2015 2016 2017
Fig 1.e.5: interest income/total assets of state bank of Travancore
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1.8 1.63
1.6 1.44
1.4 1.32 1.3 1.25
1.2
1
0.8
0.6
0.4
0.2
0
2013 2014 2015 2016 2017
Fig 1.e.6: operating profit/total assets of state bank of Travancore
RETURN ON ASSETS
1 0.66
0.5 0.29 0.32 0.31
0
2013 2014 2015 2016 2017
-0.5
-1
-1.5
-2 -1.75
Fig 1.e.7: return on assets of state bank of Travancore
RETURN ON EQUITY
20 14.94
10 6.81 6.83 5.99
0
2013 2014 2015 2016 2017
-10
-20
-30
-40
-41.25
-50
Fig 1.e.8: return on equity of state bank of Travancore
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9
8.48
8.5
8.06 8.06
8 7.7
7.5 7.31
6.5
2013 2014 2015 2016 2017
Fig 1.e.9: return on investment of state bank of Travancore

ADVANCES
12
10.22
10
8
6
4 2.78 2.77
2.04
1.46
2
0
2013 2014 2015 2016 2017
Fig 1.e.10: NPA/net advances of state bank of Travancore
From above figures it can be noticed that, capital adequacy ratio of Travancore has
increased throughout the years 2014-17. Cash deposit ratio has also but it is quite low than
the healthy value. Credit deposit ratio and interest income on total assets has decreased to
42.39 and 7.93 in 2017 respectively. Private sector lending has increased to 46.89, which has
cross the limit of healthy value. However, operating profit remains more or less same
throughout the years. ROA and ROE has fallen to -1.75 and -41.75 respectively. Return on
investment has also fallen to 7.7 in 2017, whereas net NPA ratio has increased to 10.22.
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2. Analysis of financial statement of SBI: Comparing pre and post merger
era
Hypothesis:
1. H0: There is no significant difference between pre merger and post merger value
of current ratio
H1: There is significant difference between pre merger and post merger value of
current ratio
of quick ratio
quick ratio
of net profit margin (%)
net profit margin (%)
of credit deposit ratio
credit deposit ratio
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of return on equity
return on equity
of net profit
net profit
of capital adequacy ratio
capital adequacy ratio
of earnings per share
earnings per share
of gross NPA %
gross NPA %
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of net NPA %
net NPA %
of return on assets
return on assets
of operating profit/total assets
operating profit/total assets
Findings
SL. Particulars Pre Post Change T-value t-critical
NO. merger merger (%) value
value value
1 Current ratio 0.067 0.087 0.3 4.24 2.77
2 Quick ratio 11.583 16.313 0.4 3.57 4.3
3 Net profit margin (%) 6.873 3.007 -0.6 1.24 4.3
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4 Credit deposit ratio 73.483 81.450 0.1 3.94 4.3
5 Return on equity 8.297 1.290 -0.8 2.07 3.18
6 Net profit 2631.921 2285.059 -0.1 0.29 2.07
7 Capital adequacy ratio 0.126 0.133 0.1 2.45 2.04
8 Earnings per share 17.297 2.491 -0.9 2.87 2.1
9 Gross NPA (%) 0.056 0.434 6.8 1.05 2.14
10 Net NPA (%) 0.031 0.037 0.2 1.32 2.09
11 Return on assets 0.006 -0.059 -11.5 1.05 2.14
12 Operating profit/total 0.471 0.418 -0.1 3.61 2.04
assets
Table 2.1: Post merger analysis of SBI’s financial statement
90.000
80.000
70.000
60.000
50.000
40.000 before merger

after merger
30.000
20.000
10.000
0.000
QUICK RATIO NET PROFIT CREDIT RETURN ON EARNING PER
MARGIN (%) DEPOSIT EQUITY (%) SHARE
RATIO
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Fig 2.1
0.500
0.400
0.300
0.200
0.100
before merger
0.000
after merger
-0.100
Fig 2.2
The above analysis shows, the performance of SBI before merger and after merger with SBH,
SBM, SBBJ, SBP, SBT and BMB. The evolution is made on the basis of financial ratio.
From the above analysis it could be noted that, the null hypothesis is rejected in case of
current ratio, capital adequacy ratio, and operating profit/ total assets. For others cases it s
accepted. However, there is an increase in current ratio, quick ratio, credit deposit ratio, and
capital adequacy ratio, gross and net NPA % in post merger period. The net profit margin,
return on equity, earnings per share, net profit and return on assets has fallen in post merger
period.
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3. Analysis of SBI’s performance in stock market
Hypothesis
The SBI stock price has regressed with Bank-Nifty, Bankex and Nifty-50 for both pre
and post merger period. In order to know the relation between Bank-Nifty, Bankex
and Nifty-50 with SBI the model is designed as follows:
𝑌 = 𝛽0 + 𝛽1 𝑋1 + 𝛽2 𝑋2 + 𝛽3 𝑋3…………………. (3.1)
Where, Y= SBI stock price
𝑋1= bank nifty
𝑋2= Bankex
𝑋3= Nifty-50
𝛽𝑖 = coefficient values, i=0, 1, 2, 3
To do, the regression analysis the study has considered some hypothesis
H0: 𝛽𝑖 =0, i=0, 1, 2, 3
H1: 𝛽𝑖 ≠0, i=0, 1, 2, 3
Where, 𝛽𝑖 =0 implies that the variable is not correlated with SBI stock price
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And, 𝛽𝑖 ≠0 implies that the variable has relation with SBI stock price and, for one unit change
in that variable will cause change in SBI stock price by 𝛽𝑖 units.
Findings
Before merger After merger
Variables Beta Significance Beta Significance
coefficient coefficient
Co-efficient 102.34 Significant 74.28 Significant
Bank –Nifty -0.343 Significant 0.026 Significant
Bankex 0.311 Significant -0.007 Significant
Nifty-50 -0.009 Significant -0.025 Significant
Table 3.1: output of regression analysis of SBI’s performance on stock market
The above result is obtained, when the SBI stock price is regressed with Bank-Nifty, Bankex
and Nifty-50 taking sample of 4 years. From the above result it could be evaluated that beta
coefficient of Bank-Nifty has increased in post merger period, whereas, beta coefficient of
other two variables i.e., Bankex and Nifty-50 has decreased after merger.
So, the regression equation of pre merger period;
𝑆𝐵𝐼 = 102.34 − 0.343𝐵𝑎𝑛𝑘𝑛𝑖𝑓𝑡𝑦 + 0.311𝐵𝑎𝑛𝑘𝑒𝑥 − 0.009𝑁𝑖𝑓𝑡𝑦50…… (3.2)
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And, the regression equation of post merger period:
𝑆𝐵𝐼 = 74.28 + 0.026𝐵𝑎𝑛𝑘𝑛𝑖𝑓𝑡𝑦 − 0.007𝐵𝑎𝑛𝑘𝑒𝑥 − 0.025𝑁𝑖𝑓𝑡𝑦50…….. (3.3)
Adjusted R square
0.782
0.78
0.778
0.776
0.774
0.772
0.77
0.768
0.766
0.764
0.762
pre merger post merger
Fig 3.1: adjusted R2
With reference to the above figure we can easily say that R2 of the company reduced after the
merger, this implies the factors we took in our model now explain less variation in the stock.
It is to be noted that reduced R2 will not make the model meaningless.
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All the above mentioned assumptions of regression are validating with this model and thus it
is good model for conducting research.
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Chapter 8:
Conclusion
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Conclusion and recommendation
The union cabinet has approved the merger of SBI, the country’s largest lender, and its
associate banks- a move which is expected to bring the state-owned entity at peer with global
lender. The merged entity will have an asset base of about Rs. 37 lakhs crore, with nearly
24,000 branches and about 58,700 ATMs across the country. To summarize all it could be
noted that, the financial health of State bank of Hyderabad, State Bank of Mysore, State Bank
of Patiala, State Bank of Bikaner and Jaipur, State Bank of Travancore and Bharatiya Mahila
Bank was not favorable for a firm. It has seen that net NPA ratio has increased in 2017. Due
to huge bad loans an internal reconstructing had required otherwise in upcoming years few of
them may not survive in market. Most of the bank’s profitability has come down quite in the
previous few years. In many of cases bank’s getting negative return from assets and equity,
EPS, interest earnings ratio also has fallen. As result of all this failure, those banks were
merged with SBI to overcome all these problems. However, the merged banks have improved
in their financial position but the performance of SBI has deteriorated after merger. In view
that profitability of SBI was going down, some profitability measures like EPS, return of
equity, net profit margin (%); return on assets, operating profit has decreased after merger.
This was mainly because of accumulated losses of associate banks which were shown in
balance sheet of the amalgamated entity and it reduced the enthusiasm of investors.
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However, the merger brought SBI in list of top 50 banks in
the world, which is a big deal. SBI merger with associate banks benefits Indian banking
industry as well as Indian Economy. However the move has many challenges. There are
several economic and strategic advantages to the merged entity. However, the new entity is
not free from challenges. It must gear up to face new challenges that are to come.
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References
1. Bharara, V., & Latwal, G. S. (2013). Indian Mergers and Acquisitions:
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impact analysis for the corporate enterprises in the post liberalisation
period. Indira Gandhi Institute of Development Research.
3. Goyal, K. A., & Joshi, V. (2011). Mergers in banking industry of India: Some
emerging issues. Asian Journal of Business and Management Sciences, 1(2), 157-
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4. Ishwarya, J. (2019). A Study on Mergers and Acquisition of Banks and a Case

Study on SBI and its Associates. International Journal of Trend in Research and
Development, September, 22, 26.
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A critical study. Company News and Notes, 25(6).
6. Mahesh, R., & Prasad, D. (2012). Post-merger and acquisition financial

performance analysis: A case study of select Indian airline
companies. International journal of engineering and management sciences, 3(3),
362-369.
7. Kuriakose, S., & Gireesh Kumar, G. S. (2010). Assessing the Strategic and
Financial Similarities of Merged Banks: Evidence from Voluntary Amalgamations
in Indian Banking Sector. Scienece & Society, 8(1).
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wealth: Evidence from Indian private sector banks. Vikalpa, 33(1), 35-54.
9. Mantravadi, D. P., & Reddy, A. V. (2008). Post-merger performance of acquiring

firms from different industries in India. International Research Journal of
Finance and Economics, (22).
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i
https://www.thehindu.com/business/Industry/sbi-five-associate-banks-bmb-merge-with-
sbi/article17757316.ece
ii
https://www.thehindu.com/business/Industry/sbi-five-associate-banks-bmb-merge-with-
sbi/article17757316.ece
iii
The websites, from which the secondary data are collected, are as follows:
➢ https://www1.nseindia.com/products/content/equities/indices/historical_index_dat
a.htm
➢ https://in.finance.yahoo.com/quote/SBIN.NS/history/?guccounter=1&guce_referr
er=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAEH5z
sflNnTeR-SoTDc6uD9ELE0BrbmUXcBh9O1-xMk9
➢ https://www.bseindia.com/Indices/IndexArchiveData.html
➢ https://sbi.co.in/web/investor-relations/reports
➢ https://www.bseindia.com/corporates/ann.html
➢ https://www.moneycontrol.com/stocks/company_info/print_main.php
➢ https://www.ceicdata.com/en/india/state-bank-of-india-and-its-associates-selected-
financial-ratios-state-bank-of-hyderabad/state-bank-of-hyderabad-financial-ratio-
operating-profitstotal-aseets
financial-ratios-state-bank-of-patiala/state-bank-of-patiala-financial-ratio-net-
nonperforming-assetsnet-advances
financial-ratios-state-bank-of-bikaner-and-jaipur
financial-ratios-state-bank-of-travancore/state-bank-of-travancore-financial-ratio
Note: This is a working paper. We are in the process of development with your
comments. Please send comments to <dr.rituparnadas@gmail.com>
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Working Paper

A STRATEGIC IMPACT ANALYSIS OF MERGER OF SBI WITH

PAYEL GHOSH, RITUPARNA DAS

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Serial Content Page

2 Chapter 1 introduction 8-10

3 Chapter 2 Literature Review 12-13

4 Chapter 3 An overview of merger 15-24

5 Chapter 4 A brief profile of banks 26-31

6 Chapter 5 Research issues 33

Aims and Objective of the research 33-34

7 Chapter 6 Sources of data 36

Methodology Period of study 36

Data collection technique 43-44

Data analysis technique 44-45

8 Chapter 7 Analysis of merged bank in pre merger 47-66

Data analysis and era

interpretation Analysis of financial statement of SBI: 66-71

Comparing pre and post merger era

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Analysis of SBI’s performance in stock 71-74

9 Chapter 8 Conclusion and recommendation 76-77

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The Banking industry is undergoing unprecedented changes driven by consolidation through

undergoing unprecedented changes driven by consolidation by means of mergers and

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acquisitions are favorable government policies, buoyancy in economy, dynamic attitude of

in terms of mergers and acquisitions.

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environment, the banking sector is resorting to the process of consolidation, corporate

play a significant role in entering the global financial market.

Banking industry is undergoing unprecedented changes driven by

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crore in upcoming 3 years.ii

subsequently converted to State Bank of India in 1955.

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Interest Coverage, Current Ratio and Cost Efficiency etc.

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A brief overview of merger

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A brief overview of merger

consideration of payment in the form of:

Equity shares in the transferee company,

Debentures in the transferee company

Or, a mixture of the above modes.

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There are five commonly-referred to types of business combinations known as mergers:

➢ Conglomerate: A merger between firms that are involved in totally unrelated

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American Broadcasting Company.

➢ Horizontal Merger: A merger occurring between companies in the same

industry. Horizontal merger is a business consolidation that occurs between firms

service. Horizontal mergers are common in industries with fewer firms, as

share are much greater for merging firms in such an industry.

would be horizontal in nature. The goal of a horizontal merger is to create a new,

operations, such as manufacturing, and reduce costs.