A PROJECT REPORT ON

Merger of Banks

PROJECT REPORT

Submitted by

Divya
Manmohansingh
Gusain
2022020
MMS – Finance
Batch 2022-24

In partial fulfillment for the award of the degree

OF

MASTER OF MANAGEMENT STUDIES

Under the Guidance of Prof. Minal Parekh

Finance

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 DECLARATION

I, Miss Divya Manmohansingh Gusain hereby declare that this project report is the
record of authentic work carried out by me during the period of my study and has not
been submitted to any other University or Institute for the award of any
degree/diploma etc.

Signature:

Student: Divya Manmohansingh Gusain

Date:

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 CERTIFICATE

This is to certify that the project submitted in partial fulfilment for the award of
master’s in management studies of Rohidas Patil Institute of Management Studies
is a result of the bonafide research work carried out by Miss Divya
Manmohansingh Gusain under my vision and guidance, not any part of this report
has been submitted for the award of any other degree, diploma, fellowship or other
similar titles or prizes.

Signature: Signature:

Student: Divya Manmohansingh Gusain Mentor: Prof. Minal Parekh

Date: Date:

Signature:

Director: Dr. Vanita Malik

Date:

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 ACKNOWLEDGEMENT

With candour and pleasure, I take the opportunity to express my sincere thanks and
obligation to my esteemed learner who allowed me to conduct this project I would
like to thank my faculty mentor, Prof. Minal Parekh who was always there to help
and guide me whenever I needed help.

Also, I would like to thank Rohidas Patil Institute of Management Studies for
providing me with an opportunity to write a report on “Merger of Banks” where I
got to know the ‘Potential of the Banking Industry’. It is because of their
professional guidance and cooperation, which it would not have been possible for
me to complete my report.

No significant achievement can be a solo performance, especially when it comes to

preparing a project of this nature, this project is by no means an exception. I believe
that if it were not for the support, confidence and encouragement of many people,
this report would look very different to what it looks like today.

Finally, I am obliged to acknowledge the support, patience & encouragement of my

parents and as always nothing in my life would be possible without them.

Thank You!

Divya Gusain
MMS – Finance
2022020

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 EXECUTIVE SUMMARY

The rapidly expanding Indian banking industry places a premium on mergers and acquisitions as a
means of sector consolidation. Reducing costs and increasing revenue are two ways to do this. Why is
consolidation necessary in Indian banking, and what are the next challenges? That is the crucial
element to consider here. Because of their centrality to the process of policy-making essential to the
expansion of Indian banking, the central government's involvement must also be carefully considered
throughout.

Banks have been doing some M&A deals on their own accord as of late. After financial sector reforms
were introduced in 1991, the first consolidation to occur was the merging of Times Bank with HDFC
Bank. Banks have made deliberate attempts to consolidate and develop via mergers and acquisitions,
such as the Bank of Madura merging with ICICI Bank, the Centurion Bank of Punjab joining together
with Bank of Punjab to become Centurion Bank of Punjab, and the recent choice of Lord Krishna
Bank to unite with Federal Bank.

Would the Indian banks benefit more from expanding their size? Even the largest banks in India are
considered little fish in a world where influence is based on size and where borders are becoming more
porous. A large portion of India remains unbanked. There is a significant size disparity within the
Indian banking sector, even when compared to other countries. The top 25 banks, including 18
controlled by the government, control almost 85% of the industry's assets.

Mergers and acquisitions (M&A) are essential in the Indian banking business for reasons such as
stability, return to shareholders, compliance with regulatory rules, etc. In addition, merging with M&A
offers these Indian banks the chance to become a universal bank. Strategic investments may be feasible
in situations when conventional mergers and acquisitions are not an option, and mergers themselves
may serve as a tool for strategic planning. Size "contributes much to remaining ahead of the
competition" in today's fast-paced, flexible, and customer-responsive business and economic climate.
Here, the role of mergers and acquisitions (M&As) as a means to strengthen competitive positions
becomes apparent, with "Partnering for competitiveness" serving as an acknowledged strategic
rationale in support of such deals.

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When it comes to opening up the economy to foreign firms, deregulation is crucial. Before allowing
foreign firms to join the market, a thorough analysis should be conducted, taking into account
instances from other economies worldwide.

It is important to take human resources into account as well, making sure that workers' interests are not
compromised as a result of any given merger. Not to mention all the other dangers that must be
thought about.
Companies in the private sector must understand the need of inorganic growth, preferably free from
external interference, as shown by mergers such as Centurion Bank and Bank of Punjab as well as
CBOP and Lord Krishna Bank.

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 OBJECTIVE OF THE STUDY

The Indian banking industry has been through a flurry of mergers and acquisitions (M&As) recently.
The goal of this study was to take a look at the many reasons why banks decide to combine or acquire
one another. Banking industry mergers and acquisitions often aim to save costs, increase efficiency,
create economies of scale, broaden client base and market coverage, introduce new products, and
specialize in existing ones. There are a lot of things to think about when trying to assess what variables
a bank uses to make its merger decision. Because of the significance of staying ahead of the
competition and capitalizing on new possibilities, particularly in rapidly developing emerging
countries, it is crucial to expand into new markets as a result of globalization. There could be a single
or several factors that lead to a merger. To evaluate the synergies and improved margins that follow a
merger, it is critical to understand the precise motivations behind it. The maximization of shareholder
value is the primary driver behind bank mergers and acquisitions. Boosting a bank's market
dominance, operational efficacy, and risk diversification helps accomplish this. In the case of weak,
badly managed banks being bought by stronger, more professionally run banks, mergers tend to
increase efficiency. Due to careful analysis of some criteria, the majority of mergers and acquisitions
in India's banking industry have been fruitful and have produced synergy. Mergers initiated by
Nirmala Sitharaman improve risk management and non-performing assets while reducing the cost of
banking operations. The management of both short-term and long-term liquidity is much easier for a
bigger bank. Potential advantages of the combination include access to a new pool of customers,
enhanced company power, a larger portion of the market, and better technology. Even a huge bank can
compete on a global scale. As they expand their operations internationally, Indian banks might become
more well-known. Mergers often have the added benefit of lowering operational costs. Mergers
between stronger banks allow the weaker ones to reap the benefits of economies of scale. Consider a
little town that is home to the State Bank of India, Bank of Inda, and a syndicate bank. By
consolidating all of the locations into one, a merger may increase efficiency while decreasing
operating expenses.

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 CONTENT LIST

SR.NO CONTENT PAGE.NO

1 INTRODUCTION
1.1 INTRODUCTION OF BANKS
10-14
1.2 INDIAN BANKING - AN OVERVIEW
1.3 MERGER & ACQUISITION - A GLOBAL PHENOMENON
1.4 MERGER & ACQUISITION – AN OVERVIEW
2 OBJECTIVES AND SCOPE
2.1 WHO CONSTITUTE A MERGER
2.2 THE ANTICOMETITIVE THRESHOLD
2.3 MARKET DEFINITION
2.4 EVALUTIVE CRITERIA
2.5 THE EFFICIENCY EXCEPTION
15-31
2.6 M&A IN BANKING INDUSTRY
2.7 M&A IN INDIAN BANKING
2.8 WHY MERGERS IN BANKING
2.9 CONSOLIDATION IN INDIAN BANKING
2.10 IS BIGGER BETTER?
2.11 MERGERS IN PRIVATE AND PUBLIC BANKS
2.12 M&A IN INDIAN BANKING SECTOR AS AN OPPORTUNITY
2.13 ROLE OF STRATEGIC INVESTMENT
2.14 MERGERS AS A SOURCE OF COMPETITIVE ADVANTAGE
3 LIMITATIONS
3.1 SIZE, CHALLENGES, OPPORTUNITIES AND THREATS 32-35
3.2 THE INDIAN SCENERIO-DEREGULATION
4 THEORETICAL PERSPECTIVE
4.2 VALUE CREATED BY MERGER
4.2 COST AND BENEFIT OF MERGER
36-42
4.3 CROSS BORDER M&A IN BANKS
4.4 UNDERLYING THEORIES IN MERGER & ACQUISITION
4.5 STAGES OF MERGERS AND ACQUISITION PROCESS
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5 METHODOLOGY AND PROCEDURE OF WORK

5.1 AMALGAMATION BETWEEN TWO BANKING COMPANIES

5.2 MOTIVE OF MERGER IN INDIAN BANKING 43-48
5.3 MANAGED TRANSITION
5.4 CURRENT INVESTMENT BANKING SCENERIO IN INDIA
5.5 MOST FAMOUS MERGER IN INDIAN BANKING
6 MERGER BETWEEN PUNJAB NATIONAL BANK WITH ORIENTAL
BANK OF COMMERCE AND UNITED BANK OF INDIA
49-54
6.1 INTRODUCTION
6.2 MERGER SUMMARY
7 LEARNING OUTCOMES 55-56
8 CONCLUSION 57
9 REFERENCES 58

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 INTRODUCTION

One of the most visible signs of a state of economy is the banking sector. A bank's independence and
capacity to borrow money from other banks and lend to corporations significantly affects the pace of
economic development. Significant changes occurred in US banking after deregulation in the 1970s,
with banks becoming bigger and more diverse. Additionally, banks from other industrialized countries
started operating in increasingly competitive markets not long after. Around the same time, in the last
decade of the twentieth century, developing nations did the same. As a result of financial sector reforms
that began in 1992, the Indian banking industry has also seen several changes, much like the US
business. Several factors have contributed to the rapid expansion of the banking sector, including rising
incomes and spending power among consumers and businesses alike, a marked improvement in the
penetration of credit relative to more developed markets, and the fact that international institutions
continue to lead the pack when it comes to innovative new products and services.

Intense competition is anticipated to cause consolidation in the Indian banking industry, although
international banks won't join the race until at least 2009. By implementing new corporate governance
standards and BASEL II, the banking system would become more stable and open. Financial institutions
are rapidly embracing technology in order to streamline operations, reduce costs, provide round-the-
clock service, and personalize products and services based on customer preferences. New market
segments are opening up opportunities for banks to expand into, and provide customers with even more
varied and exciting products and services.

After a lengthy period of public sector dominance, Indian banking has evolved to a point where private
banks and public banks coexist, each having adapted to the new climate. The Indian banking sector has
shown some success in responding to shifting market conditions, but it still faces formidable obstacles.
In order to accommodate the rapid expansion of the banking industry in India, sector consolidation via
mergers and acquisitions is crucial. Doing this may be accomplished by lowering expenses and raising
income. Here, the most crucial parts are the reasons for the necessity for consolidation in Indian banking
and the challenges that lie ahead. Critical to this process is the involvement of the federal government,
which must be scrutinized throughout because of the vital role they play in formulating the policies
needed to expand Indian banking.
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Has the consolidation of Indian banks started? As a result of liberalization and globalization, would
banks see mergers and acquisitions as a viable strategy for growth and survival? Do you think Indian
banks will voluntarily consent to being acquired by an outside bank? Are reforms to our legislative
structure necessary to ease mergers and acquisitions in India's banking sector? Is the expectation that
shareholder value would rise necessarily associated with M&A dealings? We need to examine these and
other concerns about the Indian banking industry's future possibilities.

INTRODUCTION

INDIAN M&A M&A

BANKING A AN
AN GLOBAL OVERVIEW
OVERVIEW PHENOMEON

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 Indian Banking-An Overview

A monetized economy cannot function without the banking sector. You can tell a lot about the
economy's growth from the state of this industry.

By virtue of the Banking Regulation Act of 1949, the Indian banking sector is regulated. The tireless
work and far-sightedness of lawmakers have resulted in remarkable changes to this industry since 1949.
After the 14 banks were nationalized in 1969, the reforms could begin. The next step was to identify
priority areas and provide financial backing to them. The 1980 nationalization of six more banks marked
the second stage. But what really changed the banking industry in 1993 was the opening up of services
to private sector banks. Around this time, eight brand-new, highly professional banks joined the market,
each equipped with cutting-edge technology. Around this period, electronic financial transfers, ATMs,
and debit and credit cards were introduced to the Indian market.

MERGER AND ACQUISITION A GLOBAL PHENOMENON

To alleviate some of the financial strain on the government, the PJ Nayak Panel proposed privatizing
state-run banks in 2014 as part of their effort to rethink and reform the country's financial institutions.
Since state and public sector banks (PSBs) rely on government assistance to remain functioning,
combining several smaller and public banks into one larger bank has the dual benefit of increasing
operational efficiency and expanding the government bank's reach across the nation.
Merging PSBs with state banks strengthens their regional presence and, according to the RBI, expands
the branch network. This would improve India's banking system by establishing internationally
competitive, strong, and adequately financed banks. Acquisitions and mergers are driven by what? In
theory, there are two main reasons for consolidation. One is a desire to maximize value for stakeholders,
while the other is a desire to avoid doing so. In an ideal capital market, every business action would
increase the value for shareholders. Maximizing value is achieved by either growth or decrease of costs.

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 MERGER AND ACQUISITION AN OVERVIEW

In corporate strategy and corporate finance, the term "mergers and acquisitions" (or "M&A") describes
the process of acquiring another company or merging two or more existing ones to facilitate the fast
expansion of one or more companies within the same industry without the need to establish a new legal
entity.

Acquisition

The process by which one firm (the "target") is purchased by another (an acquisition, takeover, buyout, or
"merger"). The status of the acquiring or merging company's listing on a public market determines
whether the transaction is considered public or private. The target company's board of directors, workers,
and shareholders will determine the perception of a transaction as friendly or hostile based on the
communication and reception of the deal. It is common practice, however, for merger and acquisition
(M&A) talks to occur behind a "confidentiality bubble," with limited information flow as a result of the
need to protect sensitive information.

As opposed to a hostile takeover, in which the target company is either not interested in being purchased
or isn't aware of the offer until it's made, a friendly acquisition involves the businesses working together
throughout the negotiation process. A hostile acquisition may, and often does, resolve peacefully if the
acquirer can convince the acquiree company's board to ratify the agreement. Typically, this necessitates a
tightening of the terms of the offer. When one corporation buys out another, it's called an acquisition. On
rare occasions, nevertheless, a smaller firm may acquire the management of a larger, more well-
established one while keeping the larger company's name. This is known as the purchase might also take
the form of a reverse merger. Research shows that half of all acquisitions fail, highlighting how difficult it
is to achieve acquisition success. The acquisition process is very complex since it is affected by several
variables. To further manage a company's assets, a variety of structures are used, each with its own set of
tax and regulatory implications:

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After purchasing the target company's shares, the buyer gains control of the business. With full ownership
comes complete control over the company's assets, but with full ownership also comes full responsibility
for any debts or risks that the acquired business may have incurred in the past or encountered in its
current business climate.

All of the target company's assets are purchased by the buyer. The target company distributes the
proceeds from the sale to its shareholders either via dividends or liquidation. If the buyer acquires all of
the assets of the target firm, the target company will be left with nothing but a shell. By framing the deal
as an asset acquisition, the buyer can "cherry-pick" the assets it wants while avoiding the liabilities and
assets it does not. In cases where future, unquantifiable damage judgements are a potential consequence
of foreseen liabilities, such as those involving faulty product lawsuits, employee benefits or terminations,
or environmental harm, this might be of paramount importance. Stock transactions are often structured as
like-kind exchanges or other arrangements that are tax-free or tax-neutral for both the buyer and the
seller's shareholders, which is a major advantage over this structure because many jurisdictions,
especially those outside the US, impose taxes on transfers of individual assets.

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 SCOPE AND OBJECTIVE

➢ WHO CONSTITUTE A MERGER

➢ THE ANTI-COMPETITIVE THRESHOLD
➢ MARKET DEFINITION
➢ EVALUATIVE CRITERIA
➢ THE EFFICIENCY EXCEPTION
➢ M&A IN BANKING INDUSTRY
➢ WHY MERGERS IN BANKING?
➢ CONSOLIDATION IN INDIAN BANKING
➢ IS BIGGER BETTER?
➢ MERGERS IN PRIVATE AND PUBLIC BANKS
➢ M&A IN THE INDIAN BANKING SECTOR AS AN OPPORTUNITY
➢ ADOPTION OF M&A AS A KEY STRATEGIC TOOL
➢ ROLE OF STRATEGIC INVESTMENT
➢ MERGERS AS A SOURCE OF COMPETITIVE ADVANTAGE

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WHO MAKE UP A MERGER

A scheme for the amalgamation of any nationalized bank with any other nationalized bank or any other
banking institution may be devised by the Central Government in consultation with the Reserve Bank of
India (RBI) under the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and
1980, among other things.

A Level of Anticompetitive Ness

If the merging parties are likely to have significantly more market power over a large portion of a market
for at least two years compared to what would happen if the merger didn't happen, then the merger is
likely to significantly reduce competition. Possessing market power may be done either alone or in
tandem with other businesses. The Director has expressed concerns about the merging parties' potential to
unilaterally use market power in most of the mergers that would have considerably reduced competition
or prohibited competition. Nevertheless, according to the Guidelines, a merger may also make it easier for
many rivals to exert joint market power, either by an open agreement or arrangement or through other
actions that allow companies to coordinate their actions without being explicitly stated. The primary
component of competition that is considered when determining the likelihood of a merger's impact on
market power is pricing. However, when market rivalry is vital to service, quality, variety, promotion, or
innovation, it is possible to significantly prohibit or reduce competition along these dimensions.

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 Definition of the Market

Outlines the theoretical basis for the method used to define the market and explains the several factual
criteria usually considered when applying this framework to individual cases. A relevant market is often
thought of as the smallest possible geographic region and product category.

In a bank merger, two financial institutions combine their assets and liabilities to form a single institution.
Diversification, tax purposes, increased financial capacity, and several other goals are shared by both
companies in the merger. Some difficulties may arise as a result of the merger in areas such as
technology, human resources, decision-making, and provisioning. In response to the economic downturn
in India, then-finance minister Nirmala Sitharaman proposed the division of 10 public sector banks into
four separate organizations to increase liquidity, tackle the problem of nonperforming assets, and spread
risk.

Assessment Standards

Describes the many assessment factors used when estimating how a merger would affect competition in a
certain market. Market share and concentration data's importance is the primary topic of discussion. In
cases where the combined entity's post-merger market share is below 35%, challenges based on concerns
about the unilateral exercise of market power are often not entertained. In a similar vein, where the
combined market shares of the four biggest companies are less than 65%, mergers involving these
companies are unlikely to face challenges for concerns about the concentration of power in the market.
The Director will often not object to a merger if the combined company's market share is less than 10%,
even when the top four businesses' market shares may surpass 65%. This is because the Director is
concerned about the interdependent exercise of market power. Mergers that are not expected to have
anticompetitive repercussions may be identified by using these thresholds. Mergers that do need
additional study of qualitative evaluation criteria, such those mentioned in section 93, will be handled
differently. Data pertaining just to market share cannot be used to derive conclusions about the probable
impact of a merger on competition.

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The Exception for Efficiency

Discuss the strategy used in light of section 96's efficiency exemption provisions. When a combination is
determined to have the potential to significantly reduce or eliminate competition, these requirements
come into play. Quantifiable efficiency improvements connected to production are the primary emphasis
of the submission evaluation process when it comes to efficiency gains. On the other hand, qualitative
dynamic efficiencies may be given a lot of weight under certain conditions. There is a balance between
the potential benefits of the merger, which include increased overall efficiency, and the potential
drawbacks, such as reduced competition or prohibition of certain activities. To assess the extent to which
these anticompetitive effects will impact businesses, we look at the portion of the loss that will hit
consumers or businesses directly, rather than at the economy as a whole, because of the reallocation of
resources away from higher-valued activities and toward lower-valued ones.

Fintech Mergers and Acquisitions

Banks are the custodians of public funds and the banking sector is the lifeblood of any economy. As a
result, the safety of banks is more important to depositors than it is to stockholders. When a bank goes
under, it affects the whole financial system more than, for instance, a manufacturing business goes under.
The primary goal of bank regulation and supervision laws worldwide is to safeguard depositors' money.
Governmental and regulatory measures taken for the common good inevitably aided bank consolidation
in several nations. To avoid bank and financial system collapse, several nations have also implemented
massive public financing programs.
In the 1980s, the United States had widespread bank failures, prompting the government to step in and
provide extensive assistance via the Federal Deposit Insurance Corporation (FDIC). The rescue operation
received an estimated 100 billion USD. Banks were incentivized to merge by the government, which
facilitated the acquisition of failing banks' assets and liabilities. After that, market forces drove further
merger and acquisition activity in the US throughout the 90s and the 00s.

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A specialized restructuring agency in Indonesia injected massive amounts of public capital into the
country's banking sector. Bank recovery was aided by regulatory forbearance, which was a positive
development. As a stopgap solution, banks might continue operations with 4% capital adequacy, rather
than the 8% standard set by Basel. Banks were designated for imminent closure only if their capital
adequacy ratio fell below 25%. Both foreign direct investment (FDI) up to 99% and bank consolidation
were strongly supported. Ultimately, 138 banks remained in Indonesia in 2003, down from 239 in 1996.
During that time, the number of private banks decreased from 164 to 76, indicating a clear trend of
consolidation in this sector. The banks are in much better shape now that they've restructured, and they've
expanded their branch network and coverage considerably in the last few years.

The Central Bank of Malaysia, Bank Negara, put into action a well-planned financial master plan to
expand banking, level the playing field for international banks, and bolster local institutions.

Sector about the cross-border rivalry. By convincing 22 banks and 39 financing businesses to merge, the
regulator was able to establish 10 anchor banks. The second round of changes, set to begin in 2007, is
anticipated to raise the foreign direct investment ceiling from 30% to 40%.
Not just in Singapore, but also in South Korea and Malaysia, the consolidation process has been
accelerated by the three primary banking companies.
Thailand's Financial Sector Master Plan encourages foreign direct investment (FDI) to bolster the
country's banking sector and eliminates barriers to mergers and acquisitions (M&A).

For more than 15 years, Japan's economy remained flat, and the country's financial system almost
collapsed. When it came to international finance, Japan was home to some of the biggest names. Banks
practically sought government assistance as nonperforming asset levels skyrocketed due to the economic
downturn. If borrowing rates had been low, or close to zero, it would have made their plight a little easier.
Nevertheless, with the support of generous government funding and an atmosphere of very loose
monetary policy, the banking sector has made a full recovery in the last few years.

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Three major banks—Mitsubishi UFJ, Mizuho, and Sumitomo Mitsui—have emerged as a consequence
of the consolidation process that began as a restructuring plan. Today, nonperforming assets (NPAs) have
decreased to 2% from 8.4% in 2002, which is an acceptable level. Increases over the 8% Basel
Benchmark have been recorded in capital adequacy ratios. There has been an improvement in the loan
portfolio and banks have begun to display profits. Since Japanese banks continue to rely mostly on
interest revenue from low-margin business loans and their ratings remain low, they may still have a way
to go.

The government of Japan is now considering privatizing the postal agency, a fascinating event since it
serves as both a postal service and a financial institution, housing the biggest collection of household
savings in the world. There was a period when the Housing Loan Corporation, which oversaw the postal
agency's advances, controlled approximately half of Japan's mortgage loans. The privatization process
includes winding down this corporation and transferring its assets to the banking system. Yacho Bank, a
new financial institution that would arise from the privatization of the postal service, has the potential to
become one of the biggest banks in the world.

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 M&A in Indian Banking

The announcement of mergers by Nirmala Sitharaman, the minister of finance, is significant for
both consolidation and growth. Indian banks need to be more global if the country is to compete on
a global scale. The issue of mergers is handled by the government. A merger may be a win-win if
the vision, people, and culture of the two companies are a good fit. According to the Banking
Regulation Act of 1949, the process of merging banks is carried out. The process of merging two
public sector banks may begin at any time. After the government and RBI have finalized the merger
plan, it must be presented to parliament for approval. The merger proposal may be approved or
rejected by Parliament. Any combination between public and private banks must first be approved
by parliament. Mergers are beneficial because bigger banks can better compete on a global scale.
Merging companies may raise the bar for professionals. Regionally focused banks will be able to
increase their coverage area as a result of the merger. All employees are now subject to the same
terms of employment and pay rates as a result of the merger. These financial institutions have
merged:

The United Bank of India, the Oriental Bank of Commerce, and the Punjab National Bank.
Canara Bank and the syndicated bank.

Corporation Bank, Andhra Bank, and Union Bank of India

Allahabad Bank and Indian Bank!

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Why Mergers in Banking?

Achieving Cost Reduction

a) Cost reduction through economy of Scale- Consolidation helps in scaling up operations,

thereby reducing per-unit cost
b) Cost reduction through economy of Scope- This is achieved through synergy involved in
the ability to offer multiple products using the same infrastructure. Example: Banks can offer
insurance and investment products using their branch network and thereby achieve an
economy of scope
c) Cost reduction through rationalization of manpower. The merged entity will be able to
identify the right persons to manage critical functions from a larger pool of human resources.
d) Risk reduction. The merged entity will be able to reduce credit risk by spreading it across
wider geographies or product ranges.
e) Cost reduction through possible reduction in tax obligations
f) Cheaper sourcing of inputs with increased bargaining power with vendors and suppliers
g) Ability to enter new business areas with reduced initial cost as compared to a new set-up.

Increasing Revenue

a) A bigger entity will be able to serve a large customer better. By offering more services and
taking a bigger share in the business of the customer the bank will be able to increase the
revenue per customer
b) Product diversification will facilitate one-stop stopping by the bank’s customers.
c) A larger customer base will generate more revenue
d) Greater visibility in the marketplace will enhance the ability to attract new customers.
e) A bigger size and share in the market will boost the bank’s ability to raise product prices without
losing customers.

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Consolidation in Indian Banking

The mega consolidation, which took effect from April 1, 2020, saw 10 PSBs consolidate into
four — Oriental Bank of Commerce and United Bank of India merged with Punjab National
Bank; Syndicate Bank merged with Canara Bank; Andhra Bank and Corporation Bank merged
with UBI; and Allahabad Bank with Indian Bank. The lack of size and scale acts as a major
inhibitor to the Indian banks competing against the foreign banks. Currently, the banking
sector is very strictly regulated, limiting the growth of foreign banks in India. Indian banks
require approval from RBI for expanding overseas. These measures have shielded the Indian
banks from competing with foreign banks.
With India strongly pushing for liberalizations and globalizations, this situation is bound
to change. Besides achieving scale and size, consolidation can reduce the cost of operations
through economies of scale, for example, the effective use of manpower and offering multiple
products using the same infrastructure. The larger banks are in a better position to manage
credit risk by spreading it across geographies and multiple product range. The bigger entities
are also in a better position to attract customers and provide diversified products to the
customers.

Is Bigger Better?

India has a GDP per capita of $6,100 as of 2020, while in South Korea, the GDP per capita is
$42,300 as of 2020. Big banks may seem impersonal, but there are benefits to using national chain
banks.
Credit unions and smaller banks may have limited ATM and branch access compared with a
national bank, like Citibank or Chase.
Big banks may charge more fees than smaller banks, however. Big banks may offer their
customers more interactive, online tools than smaller banks. Here are four reasons to keep in mind
when considering your banking options. You can also learn some drawbacks of banking with large
chain banks as well as other alternatives that may be more suitable for you, depending on your
needs and goals. When you visit your own bank's ATM, you won't pay a fee for withdrawing
money, and the big banks have lots of ATMs. These ATMs are not just at the banks themselves,
but also in popular retail locations like grocery stores, convenience stores, and mass

23
merchandisers. Big banks aren't necessarily bad, and small banks and credit unions aren't
necessarily a better alternative. Each person has unique banking needs, like easy access to in-
person service, a vast network of global ATMs, or simply knowing everyone by name at your
branch. Evaluate the merits and shortcomings of the available options to find the best fit.
Big banks can provide convenience, a wide variety of services from investment accounts to
mortgage loans, and more access to ATMs, even abroad. However, larger banks may mean less
personalized customer service, higher fees, and not being committed to your specific community
in the ways that smaller, local banks and regional credit unions are.

Citibank customers can make fee-free withdrawals in over 20 countries at a Citibank ATM, or
Money Pass ATMs. Private Banks have to grapple with survival issues of their own. Being
financial intermediaries that mobilize public savings and lend them onward, banks have a
fiduciary responsibility. Hence, the ownership pattern of banks is considered crucial to protecting
the interests of depositors. As some of the private sector banks are community-based or promoter-
driven, their shareholding pattern is concentrated in the hands of a few, which raises the possibility
of misappropriation of funds. If their stakes are to be reduced, some of the smaller banks will
necessarily have to merge among themselves. Compared to public sector banks, there’s less
overlap between private banks, as they have different business models and cater to different
segments, but that also creates its shortcomings.

24
List of Mergers in Indian Banking

ANCHOR BANK BANKS MERGED

Punjab National Bank United Bank of India and Oriental Bank of Commerce
Indian Bank Allahabad Bank
Canara Bank Syndicate Bank
Union Bank of India Andhra Bank and Corporation Bank
Bank of Baroda Dena Bank and Vijaya Bank
-State Bank of Bikaner and Jaipur
-State Bank of Hyderabad

-State Bank of Mysore

State Bank of India
-State Bank of Patiala

-State Bank of Travancore

-Bhartiya Mahila Bank

Mergers in private and public banks

Given the operational and distributional inefficiencies plaguing India's commercial banks, the
government formed many committees to investigate the root causes of the problem and
recommend systemic reforms to the banking industry. When it came to improving credit delivery,
systemic banking reform was front and centre in both the 1972 Banking Commission report and
the 1978 report from the Committee on the Functioning of Public Sector Banks. Nevertheless, the
primary focus on the convergence and consolidation of the Indian banks was laid out by the
Narasimhan Committee, which was established in 1997. In addition to PSBs, the committee
recommended changes to fortify mergers between private sector banks and Non-Banking Finance
Companies. The committee also recommended establishing a large grid of 8-10 national banks in
conjunction with local banks in order to provide banking services to rural regions, and it said that
2-3 Indian institutions should be internationally oriented in order to compete with foreign banks.

25
The Indian government declared in 2019 that four PSBs will be consolidated from ten. The Bank of
Baroda absorbed Vijaya Bank and Dena Bank as part of this enormous merger. The United Bank of
India and the Oriental Bank of Commerce were combined into the Punjab National Bank. A merger
took place between Canara Bank and Syndicate Bank. The Indian Bank amalgamated with the
Allahabad Bank. The Union Bank of India merged with Andhra Bank and Corporation Bank. Six of
these PSBs merged into the State Bank of India. This group included the following financial
institutions: Bhartiya Mahila Bank, State Bank of Patiala, State Bank of Travancore, State Bank of
Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, SBT,
and SBH. Twelve PSBs were left out of the original twenty-seven after this mega-merger. The
merger of these institutions was primarily driven by the desire to create banks of the future and
reach the goal of an economy worth one trillion dollars. The less robust banks have shown
improvement after the merger. Over the four years after the merger, the average technical efficiency
of the acquiring banks rose from 90.88 to 94.24. The government's plan to strengthen the PSBs'
ability to compete on a global scale is the impetus for the consolidation. After the merger, the State
Bank of India now has a 22 per cent stake in the Indian banking sector. After the merger, Punjab
National Bank now has an 8% share of the market.

Mergers and acquisitions are also becoming common in private banks. The National Company Law
Tribunal has consented to the merger of HDFC and HDFC Bank. During FY 22–24, private sector
banks would most likely lead the charge in the next round of bank consolidation. Large private
banks have been able to expand their size via the acquisition of smaller and weaker private banks,
thanks to inorganic growth prospects created by the buoyancy of the stock markets. Additionally, it
has been suggested that a substantial shift of business towards private sector banks has occurred as a
result of the PSB mergers. Their share in the loan market has dropped significantly for the PSBs.
Private banks have been progressively increasing their share of the credit market and have
surpassed PSBs in terms of deposits and advances, capturing roughly 10% of the market in the last
five years. Due to a lack of capital inflow caused by persistent issues with asset quality, smaller
private banks have been struggling, while larger private banks have continued to increase their
market share. These smaller private banks have been compelled to merge with larger ones due in
part to the present economic downturn.

26
 M&A in the Indian Banking Sector as an Opportunity

There are two main arguments in Favor of seeing mergers and acquisitions in India's banking sector
as a promising prospect.

1. Establishing a Global Bank or Financial Supermarket

The idea of a financial supermarket chain has been gaining traction as of late, to centralize all forms
of credit and non-fund facilities under the control of a single organization (or via specialized
subsidiaries).
A financial supermarket like this would look like ICICI and ICICI Bank merging in the other
direction. ICICI Bank is now the second-largest bank in India. It provides a wide variety of services,
from traditional retail banking to more specialized investment and treasury solutions, to customers in
India and throughout the world. The same was true for IDBI and IDBI Bank. It is important to note
that to tackle the risks associated with these massive organizations and financial conglomerates,
supervisorial approaches and consolidated accounting will need to be developed and suitable barriers
will need to be constructed.

2. Proficiency in Technology

Competitors in the banking industry, both new and old, bring different sets of skills to the table. It
follows that mergers would benefit both sides by allowing them to acquire knowledge in areas where
they are weak. There has been a significant imbalance in India's retail banking industry, which is
disproportionately serving urban areas and is expanding at a CAGR (Compound Annual Growth
Rate) of around 18–20%. Considering the demographics of the target audience, technological
advancements will play a pivotal role in the future of banking. Even smaller but no less significant
state-owned banks in India are implementing advanced core banking systems. Another possible
justification for mergers and acquisitions is that smaller banks may not be able to maintain the
spending required to adopt technological platforms.

27
As more and more countries' economies and marketplaces become interdependent, global banking is
becoming a reality. Thanks to innovations in technology, the boundaries between countries no longer
exist in the financial services industry, fueling a rapid increase in the globalization of finance.

Thanks to innovations like SWIFT and the proliferation of online and mobile banking, the world of
international finance is now within reach, and financial goods and services may be advertised on a
worldwide scale.

The anticipated liberalization of financial services under the WTO will hasten the spread of
globalization in the next years. The 1997 Financial Services Agreement (FSA) includes India as one
of its members. Banks and other members of India's financial industry may make use of this to their
advantage and grow their businesses in exchange. Thus, a simple solution would be to undergo
sufficient rebuilding to get the required technology and gain an early-mover advantage in globalizing
Indian banks.

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ROLE OF STRATEGIC INVESTMENT

There can also be a possibility of Strategic Investments where traditional M&A is not possible.
Strategic Partnership occurs when majority or full ownership is not available. This could lead to
reduced initial financial commitment. There is also the possibility of future expansion. This would
also allow studying the market i.e. getting to know the local government and the domestic market.
A Strategic Partnership would also help to evaluate the target company better. For successful
partnerships, there need to be good macroeconomic conditions and market conditions and also
good deal conditions viz reasonable market valuation, willing buyer and seller and also
commercial standards in the non-price business terms.
For serious buyers, acquiring a strategic stake is a viable alternative even though the ultimate aim
is to have full control and ownership.
Macroeconomic factors Accommodating regulations & practical-minded government Strong
underlying economic growth Workable business infrastructure (e.g. legal, communications &
accounting framework)

29
 ➢ Macroeconomic Factors

Mergers as a source of competitive advantage

Loan competition, individual reserve management, and collective liquidity risk as a result of bank
mergers and their model.
The interbank money market acts as a refinancing mechanism in the event of liquidity shocks, and
banks compete with one another in terms of varied lending rates. spend more than their savings.
Market share, cost efficiency, and the distribution of liquidity shocks are all factors that may be
impacted by mergers.

30
Through the process of solving the model with and without the merger, we evaluate the potential
impact of bank consolidation on interbank money market liquidity.
The Concept
Take a three-date (T=0,1,2) economy with N banks (N > 3), plenty of business owners, and lots of
people putting money into the system. No agent poses any danger. In this approach, banks must rely
on deposit financing to support their investments, since they do not own any capital. At T = 0, each
bank raises an amount of deposits Di and invests an amount Li in loans to entrepreneurs and an
amount Ri in liquid reserves. Therefore, Li + Ri = Di is the accounting identity for the balance sheet.

31
 LIMITATIONS

SIZE, THE INDIAN

CHALLENGES, SCENARIO
OPPORTUNITIES DEREGULATION
AND THREATS

Size Challenges and Final Balance of Opportunities and Threats

After a merger, the profitability of many banks falls short of what is typical in the sector. The
associated parties' response to the merger announcement is mostly unfavourable. The four pillars upon
which mergers rest are profitability (ROA, ROE), creditworthiness, asset mix, and operational
expenditure management. Management has difficulty throughout the merger process with performance
and controllability. The majority of retail banks aim to achieve economies of scale via growth, which
they do by increasing the breadth and depth of their product offerings or the size of their distribution
networks. However, size does not always correlate with profitability. On occasion, the exact opposite
might happen when this expansion effort is made. It is easy to understate the costs associated with a
top-heavy structure, and the difficulty of managing big operations might cancel out any advantages.

32
Lenders, stockholders, and regulators are unable to see what's happening in the financial sector due to
the opaqueness of transactions and the dispersed character of assets and liabilities, particularly at
megabanks.

strict regulation. Big banks also face competition from online banking services. Furthermore, under
the current setup, regulation is crucial to prevent catastrophic system breakdowns like the one that
occurred in Southeast Asia in 1977. So, being on the large side presents difficulties for the
government, owners, managers, and regulatory and oversight agencies when it comes to running the
show. The development of universal banks is favored by the ultimate cost-benefit analysis of
mergers. The shift towards universal banks is supported by the potential advantages of scope or scale
economies, the increase in income, and the additional stability.

33
 The Indian Scenario-Deregulation

There is a lot of upheaval happening right now in the Indian financial sector. In the future, this
sector may be significantly altered by several innovations, changes in the Indian economy, and
deregulations. The Reserve Bank of India (RBI) has outlined plans to progressively open up this
industry to international banks with the modifications they have in mind.

Among these rules and regulations, you may find the following suggestions: - Raising the limit on
bank voting rights - Making private bank mergers and acquisitions easier You should let
international banks establish their branches in India.
A vague indication to financial institutions that they may allow trading in commodities and
commodity derivatives.

Granting the ability to vote following the amount of stock held. This was not always the case, and it
was a big obstacle for international banks looking to set up shop in India.

When it comes to managing risk, Indian banks have always been on the cautious side, staying away
from commodities, real estate, and derivatives. The need for loans and innovative financial
products, however, has expanded outside the purview of private sector banks (PSBs). To supply
these more modern goods and services to clients, also suggests that there is room for consolidation
across different types of sectoral banks and financial institutions.

Several concerns have arisen as a result of the deregulation of this industry; these concerns have
been the subject of heated discussion among political and financial experts. One such concern is the
regulation of foreign banks' entrance into the country, which is particularly pressing in light of the
current trend of consolidation within this sector.

34
Specifically addressed is the matter of whether or not foreign banks should be allowed to establish
subsidiaries and engage in bank buy-outs. Banks in India were still hesitant to expand their
operations there due to a 10% cap on voting rights that applied regardless of ownership, even though
the FDI maximum had been increased to 74%. The Reserve Bank of India (RBI) has come up with a
plan to remove this voting rights limit, facilitate private bank mergers and acquisitions, and open the
Indian market to international banks looking to establish subsidiaries.

35
 THEORETICAL PERSPECTIVE

VALUE CREATED BY MERGER

COST AND BENEFIT OF MERGER
CROSS BORDER M&A IN BANKS
UNDERLYING THEORIES IN MERGER & ACQUISITIONS
STAGES OF MERGER & ACQUISITION INTEGRATION PROCESS

Value created by Merger

The acquiring company will see the value in a merger if it increases shareholder value. The term
"economic advantage" (EA) is used to describe a situation in which a merger results in a higher present
value for the combined business than for the enterprises considered separately. For instance, if firms P
and Q were to join, their individual values would be Vp and Vq, and their combined value would be
Vpq, the economic benefit would arise if:

Equation Vpq>(Vq+Vp)

This is what it will amount to:

Vpq - (Vq+Vp) is equal to EA.

Say that company Pac buys up company Q. Prior to the merger, P will have to pay Q something,
maybe in cash, but after the merger, it will get VQ, which is the present value of Q. Therefore, the
price tag for merging P is:

If the benefits of the merger outweigh the costs, then P has a positive net economic advantage (NEA).

36
Thus

Net economic advantage = economic advantage-cost of merging NEA = (Vpq-(Vq+Vp))

Represent the benefits resulting from operating efficiencies and synergy when two firms merge. If the
acquiring firm pays cash equal to the value of the acquiring firm value of the acquired firm.

i.e. cash paid-Vq=0.

Then the entire advantage of the merger will accrue to the shareholder of the acquiring firm. In
practice, the acquiring firm and the acquired firm may share the advantage between themselves.

The acquiring firm can issue shares to the target firm instead of paying cash. The effect will be the
same if the share is exchanged in the ratio of cash-to-be-paid to the combined value of the merged
firms.

COST AND BENEFIT OF MERGER

A capital investment decision for business A' and a capital disinvestment decision for company B' are
constituted when company A buys company B. Therefore, both businesses must determine the
decision's NPV.

It is necessary to determine the cost and benefit of the merger to determine the NPV to firm 'A'. The
merger's advantage is proportional to the disproportion between the two entities' values and the value
of the merged entity (PVab). Benefit= (PVab)-(PVa+PVb) is one way to put it.

From company A's perspective, the cost of the merger may be estimated assuming that firm B's pay is
paid in cash.

The cost is equal to the cash minus the PVb. Benefit = NPV for AThis is the formula for the cost: -
Cost = (PVab - (PVa + PVb)) • (Cash-PVb)
37
The cost of the merger for company A' and the net present value of the merger, as seen through the
eyes of firm B, are identical. Hence,

NPV to B is equal to the difference between cash and PVb.

Present value of A and B when remuneration is in stock

It was assumed in the preceding case that remuneration is paid in cash. But in the actual world, stock is
the standard method of payment. Merger costs must be meticulously estimated in such circumstances.
As an example, let's say that Company A intends to buy Firm B. The following data pertains to
companies before the merger:

Share price in the market

Class A, B, Rs. 50, Rs. 20

Five million two hundred fifty thousand shares

Assuming Company A's Market Value Is $25,000,000 Given that Company B has a market value of $5
million

The estimated profits from the merger have a present value (PV) of 5 million rupees. To the
shareholders of Business B, firm A extends an offer of 1,25,000 shares.
Here, we define the cost as:

Investment = PVab - PVb

Where A is the percentage that B's shareholders got from the amalgamated firm. As seen above, B's
stake in the merged company is 0.2 per cent (Alpha = 1,25,000/ (5,00,000+1,25,000)).

With the assumption that the merger's advantages will add up to the total of the individual firms'
current values, we may calculate the merged entity's market value.

38
After that,

Total value of PVab = PVa + PVb + Benefit = 25 + 5 + 5= 35 million Indian rupees Total cost =
PVab minus PVb = 0.2*35-5= 2,000,000 Indian rupees
Thus

Return on investment (NPV) to A = Benefit - Cost = 5-2 = 3 million rupees The net present value to
B is equal to the cost to A, which is 2 million.

Cross Border M&A in Banks

Indian banks' desire to expand their reach abroad is one of the many new drivers of mergers and
acquisitions (M&A) in the financial sector. The number of Indians living and working outside of
India has increased dramatically in the past 20 years. The desire of international expats to work in
India has recently increased, which is a new trend. Financial services for international money
transfers and other cross-border consumer goods are of interest to both of these groups. Additional
companies are seeking funding from outside the country for a variety of reasons, including capital
expenditures and leveraged merger and acquisition finance. For this reason, both domestic and
international banks are increasing their presence in the Indian market. To maximize profits, these
international bank branches focus on acquiring locals. This opens the door for mergers and
acquisitions, with foreign banks being able to buy out Indian banks and vice versa. To solidify its
position in a certain region, ICICI Bank, for instance, bought out a European bank in 2006.

39
 THEORIES IN MERGER AND ACQUISITION

Underlying Sources of Predicted Outcomes Related

Theories Problems Prescriptions
Anxiety theory Uncertainty and Low productivity Top-down
anticipated Self-centered communication
negative impact onbehaviors
career and job
Prolonged Mental physicaland On-going
anxiety and
illness
uncertainty communication
Lack motivation Speeding up
of transition
Social identity Sense of loss,Identity
Loss of old organizational Disengagement
theory anger, and grief efforts (grieving
Denial and refusal meetings)
of change
Interacting with Intergro Creating a new
other up bias identity Fostering
Organization ‘s & organizational cross-
members conflict arrangements
Acts activities
of and
noncom
pliance
Acculturation Contact with or Acculturative stress Fostering
theory adjustment to & resistance multiculturalism
different Interorganizational Facilitating
organizational tension and intercultural
culture Conflict learning
Role theory confli Ambiguous and Low productivity Low Two-way
ct conflicting roles job satisfaction communication
Leadership of
role clarification
Job Changes Job
in post-M&A Post-M&A job redesign
characteristics job satisfact Job-transfer
theory environments ion & training
Commitment
Absenteeism/Turnover
Organizational Perceived fair Psychological Fair and
justice theory treatment of withdrawal objective
surviving andTurnover
displaced employees human
resource
management
Equal
participation in

40
decision

41
Stages of Mergers and Acquisitions Process

Stages Descriptions

Pre-merger • Consideration of possible M&A.

stage • M&A related discussions are confined to top level.
management.
• Information leaks cause various rumors
and
speculations.
• The organizations are still relatively stable.

Initial • The merger is officially announced.

plan • Reason, vision, goal, direction of merger are clarified.
ning and • Decisions on management changes, staffing,
formal organizational structures are made.
• Old organizational entities are dissolved and new.
combination organization is legally created.
stage • Joint committees or teams are formed to
develop concrete guidelines and plans of the structural,
procedural and operational integration.

Operational • Organizations g o through actual organizational functions

combination and operations.
stage • Interactions between the two organizational members
are extended to all work units.
• Employees ‘ t a s k s , roles, bosses, and workplaces are.
reassigned.
• Employees learn new ways of doing things and new.
cultural expectations.

Stabilization • Changes and adjustments are continued but gradually

stage diminished.
• Norms and roles are stabilized, and new routines take place.
• Renewed expectation, cooperation, and
inter-unit tolerance.

42
 METHODOLOGY AND PROCEDURE OF WORK
➢ AMALGAMATION BETWEEN TWO BANKING COMPANIES

➢ MOTIVE OF MERGER AND ACQUISITION IN INDIAN BANKING

➢ MANAGED TRANSITION

➢ CURRENT INVESTMENT BANKING SCENARIO IN INDIA

➢ THE MOST FAMOUS MERGER IN INDIAN BANKING

Amalgamation between two banking companies

No banking company may merge with another banking company without first presenting a draft
merger plan to the shareholders of each company separately and getting their approval at a
shareholder meeting. This process must be carried out following Section 44A of the Banking
Regulation Act of 1949.

First, the two banks' boards of directors need to approve the proposed plan before shareholders can
vote it green. Consideration of such permission should be based on the following criteria:
How much money will be in the combined company's pockets, how much debt will be taken on, and
whether or not the planned merger would boost the value of property.
How the merging banking business plans to compensate the combined company's shareholders.
Asking if the necessary research on the merger has been conducted.
The independence of the valuers who arrived at the swap ratio and the appropriateness and fairness of
that ratio overall.
How the two banks' shareholding structures compare, and whether or not any individual,
organization, or group's possession of shares in the combined bank would run afoul of RBI
regulations as a consequence of the merger and the swap ratio.

The planned modifications to the board of directors' composition and whether the resulting
membership of the board would be in compliance with the RBI Guidelines; and
The impact on the viability and the capital adequacy ratio of the amalgamating banking company.

43
 Banks ranked by Market Capitalization

Rank & Bank Name Type Market Cap (Rs Lakh Crore)

#1 HDFC Bank Private 12.76

#2 ICICI Bank Private 6.89

#3 SBI Public 5.70

#4 Kotak Mahindra Private 3.71

#5 Axis Bank Private 3.43

#6 IndusInd Bank Private 1.25

#7 Bank of Baroda Public 1.20

#8 Punjab National Bank Public 1.06

#9 Union Bank of India Public 0.92

#10 Canara Bank Public 0.83

Motive of Merger in Indian Banking Sector

A "small number of large banks" regime is gradually replacing India's "large number of small
banks," according to recent banking industry reports. Mergers and acquisitions (M&A) in India's
banking industry are the focus of this article. Therefore, in order to investigate the several causes of
a bank's merger or acquisition, the relevant literature is studied. The study examines the prominent
role of the state and the central bank in safeguarding consumer interests in relation to the
development of multinational actors, in light of the growing importance of economic power in the
turf war between states. Looking at the mergers and acquisitions in the Indian banking sector from
both a business and a policy standpoint, the paper also takes a quick look at the far-reaching effects
on the country.

44
Managed Transition

India may have to follow a managed transition model to ensure a stronger banking sector. This can be
achieved by undertaking the following route:

Encourage domestic acquisitions by strong local banks

Selectively open the banking sector to foreign competition
Increased dominance of 2-3 strong local players through acquisitions
Foreign banks begin to increase presence

To achieve it one needs to resolve 3 issues.

1. Outline the final form of the market

To do this, a micro-market, consisting of small, specialized businesses catering to a specific rural
area or group of consumers, would be necessary. These businesses may include community banks or
credit unions.

2. Establish the ultimate goal of the bank's performance

This is accomplished by making sure that capital is stable and profitable; for example, banks should
aim for an average ROA of more than 1% and ROE in the 10–15% range with a stronger focus on
profitability. Additionally, it is necessary to guarantee adequate asset quality, meaning that banks'
overall loan ratios should not exceed 1-2 percent, which is in accordance with the industrialized
world's standards.

3. Finally, specify the goal of cost control. One way to do this is by:
Efficiency: By enhancing operational effectiveness, banks should be able to bring their cost
efficiency ratio down to the 30–40% range in a few years, bringing it in line with more industrialized
nations.
Banks need to put more effort into electronic payment systems if they want to increase payment
system productivity. Make utilities that the whole sector can use to help banks. Organizational
Framework for Retail Distribution: Realign distribution and increase branch productivity.

45
 Current Investment Banking scenario in India

Now that we have seen better balance sheets and robust-looking growth, as well as a healthy
environment, we would want you to paint a picture of the whole banking industry. Public sector banks
are seeing more competition and improved valuations, which is surprising considering the private
sector's track record of success. What are your thoughts on the matter?
As far as the country's public sector banks and the financial situation as a whole are concerned, the
picture seems to be excellent, and this endeavor began a few years ago.

In order to improve their balance sheets, all of the banks made moves. We have identified non-
performing assets. Sufficiency was ensured. Additionally, the cycle has reversed, and the demand for
credit, which had been low for a few years, has recently surged. For the time being, it seems like the
financial industry is doing quite well. A larger loan book is being kept. Overall, the financials seem
good. A healthy profit margin is achieved. Please be advised that although the repricing of loans has
already taken place, the repricing of liabilities that would have an effect on you is yet to come.
Compression of the net interest margin may so occur. The majority of a bank's loan portfolio is
comprised of corporate loans, which typically range from 60% to 65% of the total. However, this
percentage may rise if the compression of the net interest margin is offset by increased company
growth and other cost efficiencies. Its direction has now changed. As a percentage of total loans, retail
loans have surpassed 60%, while corporate loans account for 40% or less at certain financial
institutions.

In retail, this is known as RAM, retail, agriculture, and MSME when we do the analysis. While public
sector banks have had increased delinquencies in the agricultural and micro, small, and medium
enterprise sectors in the past, this shouldn't be a reason for concern moving forward. This leads us to
believe that unsecured personal loans pose the concerns that individuals are bringing to light. Pricing is
reasonable and covers the additional risks, in my opinion. The banks paid a severe price in previous
years when project financing was done without proper risk pricing, leading to a larger proportion of
corporate and project loans becoming non-performing. Accordingly, I do not presently subscribe to the
view that banks are failing to appropriately price the risk, the majority of which is present in unsecured
personal loans.

46
Several private banks have publicly stated their belief that there is mispricing in business loans, and
there have been concerns voiced about unsecured lending generally. Would you say that we are at the
beginning of a new cycle, with the first quarter being the most profitable?
Margin pressure is already there I said that it looks to be somewhat unavoidable due to the repricing of
liabilities, and its effects would be seen in the next quarters.

However, in regards to the mispricing of loans, the majority of banks base their risk pricing on both the
external and internal ratings of a loan on the corporate book. This creates a highly competitive market,
as the operational cost of corporate loans is relatively low due to big ticket sizes. From a retail
perspective, banks that have implemented data analytics-based underwriting are less likely to take
unnecessary risks. This is due to the abundance of current data and the growing capacity of financial
institutions to analysis it. Underwriting models have also improved, and I've noticed that for a few of
these banks, unsecured credit is doing well and nonperforming loans are not at an all-time high.
However, things change when something occurs on a larger scale, such as when the economy has a
significant downturn and job losses occur. On the other hand, underwriting criteria have been raised.

47
 MOST FAMOUS MERGERS IN INDIAN BANKING

A merger of the United Bank of India (UBI) with the Oriental Bank of Commerce (OBC) formed the
Punjab National Bank (PNB).
After the merger, the PNB will have more branches than any other public sector bank in India,
second only to the State Bank of India. With a total revenue of Rs. 17.95 lakh crore, the PNB would
have 11,437 outlets.
This is a merger between Canara Bank and Syndicate Bank. The merger would make Canara Bank
the fourth biggest public sector bank in India. Canara would have a total market value of 15.20 lac
crore with 10,342 branches.

Operating expenses would be reduced as a result of this merger because of network overlap. The two
banks should be able to integrate smoothly as their work cultures are similar.
Andhra Bank and Corporation Bank are merged into Union Bank of India. With the merger of Union
Bank of India, India's fifth-largest public sector bank would be formed. The combined bank's revenue
may increase by a factor of two to four or five as a result of this transaction.
Following the merger, Union Bank of India would have 9,609 branches and a gross business of Rs.
14,59 lac crores.
As part of the fourth merger, Allahabad Bank will be merged with the Indian bank. Following the
merger, Allahabad Bank would rise to the position of seventh-largest public sector bank in India.
With 6,104 branches, Allahabad Bank's total assets would reach Rs. 8.08 lac crore after the merger.
Merging the two banks will increase their size by 100% and make them more competitive on a
worldwide scale.
The merger between Bank of Baroda and Vijaya Bank and Dena Bank took effect on April 1, 2019.
Now, Bob's clients in India may take use of 8,248 domestic branches and around 10,318 ATMs.
In 2017, SBI, Bhartiya Mahila Bank, and its affiliates became one entity. The combined number of
its domestic branches has surpassed 24,000.
On April 4, 2022, the news broke that HDFC and HDFC Bank will be merging. It will become the
third-largest corporation in India in terms of market value after this merger.

48
 MERGER BETWEEN PUNJAB NATIONAL BANK WITH ORIENTAL
BANK OF COMMERCE AND UNITED BANK OF INDIA

INTRODUCTION

When the macroeconomic climate is stable, the banking sector in India can carry out its tasks with
relative ease, setting it apart from other Asian nations' systems. This is due to the country's distinct
geographic, social, and economic qualities. There have been tremendous shifts in the banking sector's
size, structure, and activity as a result of recent policy and regulatory shifts, the introduction of new
technology to compete on a global scale, and mergers and acquisitions. There are two main categories
of banks in India's banking system: scheduled and non-scheduled. Financial institutions that fall within
the purview of the Reserve Bank of India Act, 1934's second schedule are known as Scheduled Banks.
Another way to classify the Scheduled Banks is as nationalized banks. The banking industry in India
had become a powerful instrument in the 1960s to facilitate the country's economic growth.

49
Presenting a presentation titled "Stray Thoughts of Bank Nationalization" at the All India Congress
Meeting annual conference, the Prime Minister of India thereafter stated the intention. The 14 biggest
commercial banks in India were nationalized at midnight on July 19, 1969, after the Indian
government passed the Banking Companies (Acquisition & Transfer of Undertakings) Ordinance,
1969. The majority of the country's bank deposits—85%—were held by these institutions. The
president gave his assent on August 9, 1969. In 1980, six more commercial banks were nationalized
in a second wave. Following the second wave of nationalizations, the Indian government had
authority over about 91% of the country's banking sector. The amalgamation of three public sector
banks in India is the subject of this article. Punjab National Bank is one of the biggest international
banks in India and a supplier of banking and financial services.

Bank Profile of Punjab National Bank

The second-largest stated-owned enterprise in New Delhi is Punjab National Bank (PNB). In 1894,
the bank came into being. Across 764 locations, the bank's 6,937 branches and 10681 ATMs serve
approximately 80 million clients as of March 31, 2017. Public National Bank (PNB) has been around
since 1894, when it was founded in what is now Lahore, Pakistan, just before independence. Has
been there for nearly 120 years, and over that time it has seen its fair share of ups and downs. It was
in 1894 that the bank was established by Swadeshi movement leaders Sardar Dayal Singh, Majithia,
Lala Harkrishan Lal, Lala Lal Chand, and Lala Dolan Das. An account was opened by the legendary
Punjabi independence warrior Lala Lajpat Rai at the first PNB branch in Lahore. The Bank surpassed
Bharat Bank Ltd. in size in 1951 after acquiring its assets and liabilities, making it the second biggest
private sector bank. After buying up shares in the huge Punjab National Bank (PNB) on the market,
the Dalmia family and the Jain community took control of the bank in 1953, displacing the Punjabis.
Shriyans Prasad Jain succeeded Lala Yodh Raj as PNB chairman when he departed. When Mrs.
Indira Gandhi nationalized fourteen large banks at midnight on July 19, 1969, it revolutionized
banking in India. PNB has the honour of holding the accounts of esteemed national figures such as
Indira Gandhi, Mahatma Gandhi, Jawahar Lal Nehru, Lal Bahadur Shastri, and Indo-Commercial
Bank Limited, which was founded in 1933. Significantly, the Jallianwala Bagh Committee also has a
history of amalgamation, having acquired Universal Bank of India in 1961, Hindustan Commercial
Bank Limited in 1988, and New Bank of India in 1993. Following this, PNB was nationalized in
1969.

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Bank Profile of Oriental Bank of Commerce

The Oriental Bank of Commerce (OBC) Incorporated in 1943, the Oriental Bank of Commerce (OBC)
is a project of the Government of India. Its primary function in the past was to facilitate the transfer of
funds between commercial banks, savings banks, and discount houses. OBC has also been through
several mergers. In 1997, OBC merged two banks, Punjab Co-operative Bank and Bari Doab Bank, and
the following year, the merged institution teamed up with Citibank to provide a co-branded credit card.
A special branch and an asset recovery branch were established in Mumbai and Delhi, respectively, in
1999. In 2003, OBC partnered with Infosys Technologies and Wipro to create CBS or Centralized
Banking Solution. The merger of Global Trust Bank and OBC took place in 2004.

Bank Profile of United Bank of India

One other bank that might undergo a major merger is the United Bank of India. It was established on
July 19, 1969, under the Banking Companies (Acquisition and Transfers of Undertakings) Act 1970.
The bank's main office was located.
The Indian city of Kolkata. On July 19, 1969, the government of India nationalized fourteen banks,
including the United Bank of India.

PNB +UBI+OBI IN INDIA

UBI, PNB, and OBC The Punjab National Bank (PNB) have amalgamated with the Oriental Bank of
Commerce (OBC) and the United Bank of India (UBI). With this merger complete, the PNB will have
more branches than any other public sector bank in India, second only to the State Bank of India. The
PNB's overall business would amount to Rs.17.95 lac crore, and it would have 11,437 branches.
Scalability and expansion aren't the only advantages this method offers the Bank and its clients. The
amalgamation of public sector banks is an old tale. Here is a chronological summary of the many
mergers that the banks have undergone: First Section: The 1993–1994 Merger of the Punjab National
Bank with the New Bank of India Part II: OBC was formed via the merger of two banks, the Punjab Co-
operative Bank and the Bari Doab Bank (1997). Third Section: PNB, OBC, and UBI Merger (2020).

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OBJECTIVE OF THE STUDY

1. To learn more about the PNB+UBI+OBI merger in India in general.

One positive development in India's banking sector is the merger of three major banks: United Bank
of India (UBI), Oriental Bank of Commerce (OBC), and Punjab National Bank (PNB). The
government may implement new recruiting policies, technology, etc., via bank mergers, which allow
them to infuse fresh capital. The capital structure and asset quality are both enhanced when banks
merge. There is hope for problems like capital deficits and non-performing assets (NPAs). Creating a
worldwide financial institution. Establishing a Global Village Bank for the Future by Making Credit
Policies More Forgiving and Reducing Risk. The government's goal is to provide sound leadership in
addition to financial backing. Authorizing the bank to make a decision on any banking matter. Keep
an eye on big loans to prevent fraud. To prevent a repeat of the Vijay Malya crisis, it is necessary to
establish separate bodies to oversee the approval and monitoring of loans with amounts over 250
million rupees. In order to reach its goal of a $5 trillion economy, the government is implementing
measures to establish a clear trajectory.

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2. Consider the results both before and after the merger of financial institutions.

Business Size and Market Share of Amalgamated Banks

Sl. No Name of the bank Business (Rs. in Lakh Market share (%)
Cr.)
01 Punjab National Bank + 17.94 7.7
Oriental Bank of
Commerce + United
Bank of India

Punjab National Bank (Pre-Amalgamated)

Particulars Business (In rupees)

Total Business (in lakhs Cr) 11,82224
Gross Advances (in lakhs Cr) 5,06,194
Total Deposits (in lakhs crores) 6,76,030
CASA Ratio % 42.16%
Domestic Branches 6,992
PCR Ratio 61.72%
CET Ratio 6.21%
CRAR Ratio 9.73%
Net NPA Ratio 6.55%
Employees 65,116

(Post-Amalgamated) key measure of Punjab National Bank

Indicators Punjab National Oriental Bank of United Bank Amalgamated

Bank Commerce Banks
Total Business 11,82,224 4,04,194 2,08,106 17,94,526
(Rs.Cr.)
Gross advances (Rs. 5,06,194 1,71,549 73,123 7,50,867
Cr.)
Deposits (Rs. Cr.) 6,76,030 2,32,645 1,34,983 10,43,659
Employees 65,116 21,729 13,804 1,00,649
Domestic Branches 6,992 2,390 2,055 11,437
CASA (%) 42.16% 29.40% 51.45% 40.52%
Net NPA (%) 6.55% 5.93% 8.67% 6.61%
PCR 61.72% 56.53% 51.17% 59.59%
CET-I Ratio % 6.21% 9.86% 10.14% 7.46%
CRAR ratio (%) 9.73% 12.73% 13.00% 10.77%

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Merger Summary

According to India's Ministry of Finance, combining these ten PSBs would lead to a $5 trillion
economy. The merger took place as part of the Union Government's goal to consolidate banks. Take
a look at the reason the government is combining these banks. Improved ability to expand credit.
Financial institutions that are well-established both domestically and abroad. We can lower the cost
of loans. Innovative financial technology for the future. A better capacity to generate funds from the
market.
Starting in April 2020, ten banks that were known as Public Sector Undertakings (PSUs) merged into
four new banks. In August 2019, the government announced the consolidation of 10 public sector
banks into four larger and more robust institutions. Many were under the impression that the
administration would put off the consolidation until after the Novel coronavirus outbreak had passed.
This research endeavours to examine the public sector banks of the future, the banks that will
combine with Anchor banks, the effects of these mergers, and the injection of capital into these
institutions.

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LEARNING OUTCOMES

Banking industry mergers and acquisitions allow banks to broaden their client base, diversify their
revenue streams, and take advantage of new possibilities in the financial markets. The most critical
benefit of these partnerships is the expansion and globalizations opportunities they provide to the
banks. Companies may get economies of scale via mergers and acquisitions, which is a key reason
why they are necessary in today's economy. When two or more businesses combine forces, they may
achieve synergies and savings that neither could achieve on its own. The goals of mergers and
acquisitions might include influencing supply chains, boosting growth, acquiring a competitive edge,
expanding market share, or merging or acquiring assets.

Enhancing risk management is one of its benefits. Banks in densely populated areas might increase
their service area via mergers. The economy benefits from the higher efficiency ratio it gives in
business and financial activities. Points following are included in what you will learn from this
exercise.

• With the acquisition of United Bank of India (UBI) and Oriental Bank of Commerce (OBC) on April
1, 2020, Punjab National Bank (PNB) will surpass State Bank of India (SBI) as the country's second-
largest lender in terms of business and branch network.
Two anchor banks for the merger, PNB and Union Bank, would get the largest portions of the
recapitalization, each receiving Rs 16,000 crore and Rs 11,700 crore, respectively.
• The bank said in a press statement that all clients, including depositors, would be considered as PNB
customers, and that the synergy following the merger will establish a globally competitive next-
generation bank, PNB 2.0.
PNB 2.0 will provide some interoperable services across all of its branches and platforms, including
online and mobile banking, the company said.
With approximately 13,000 automated teller machines (ATMs), 11,000 branches, 100,000 staff, and a
revenue mix of more than Rs 18,000,000,000,000,000, the combined bank will be able to serve a larger
geographic area.
The larger reach would allow us to better serve our clients, according to SS Mallikarjuna Rao, MD and
CEO of Punjab National Bank.

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• The lender has announced the appointment of 'Bank Sathi' at all of its branches, zones, and
headquarters to manage customer complaints and provide guidance in selecting appropriate goods and
services.
• It also said that it would facilitate the customer's transfer. In order to ensure the safety of their
customers' banking experiences and reduce the likelihood of adverse events, PNB has implemented a
strong risk governance framework.
In the wake of its merger with United Bank of India and Oriental Bank of Commerce, public sector
lender PNB has introduced a new logo that incorporates the distinctive signage of all three banks.

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 CONCLUSION

• Large-scale mergers and acquisitions have been happening in the banking industry recently, leading
to the emergence of a plethora of new global competitors.
• During the research period, the profitability ratio of a small number of banks in India showed no
significant changes, both before and after the merger or acquisition. However, there are realistic
expectations for future profitability. As a consequence, it is clear that the merging banks were able to
achieve more cost savings as a part of the deal.
The combination of two or more financial institutions often results in a rise in the market value of the
purchasing bank. Increases in the acquirer's share and profit are conditional and situational.

Mergers and acquisitions help preserve established markets by reducing competition.

• Mergers may contribute to national development and progress as long as they do not pose problems
with competition.
The effect on shareholder value of a merger or acquisition. A variety of structural elements,
including the number of bids, the method of financing the merger or acquisition, and the relative
sizes of the merging partners, might affect the likelihood that a merger or acquisition would be
successful.
When deciding how to finance a merger or acquisition, it is crucial to analyses the size of the target.
Disaggregated structural elements can affect shareholder value.
Banks and other organizations planning mergers and acquisitions should have their administrative
teams look at these structural variables and try to predict how they will affect the integration.
• Mergers have given the business a leg up in the worldwide market, but they have also reduced the
number of enterprises in the industry, which limits their overall size.
By joining forces, financial institutions may fortify their capital reserves, get favorable tax treatment,
and gain immediate access to excess funds.
• When smaller, less powerful banks merge with larger, more powerful ones, it benefits the situation
overall. Syndicate Bank merged with Canara Bank, Andhra Bank and Corporation Bank merged with
Union Bank of India, Allahabad Bank merged with Indian Bank, and Vijaya Bank, Dena Bank, Bank
of Baroda, Oriental Bank of Commerce, and United Bank of India came together to form Punjab
National Bank, according to the aforementioned

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 REFERENCES

• https://www.pnbindia.com/

• https://unacademy.com/

• https://groww.in/

• https://economictimes.indiatimes.com/

• https://www.jetir.org/

• https://vnsgu.ac.in/

• https://www.mondaq.com/

• https://www.ahlawatassociates.com/

• https://www.paisabazaar.com/

• https://www.thehindubusinessline.com/

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