Kundra Correction

PROJECT REPORT ON
“Merger and Acquisitions of Indian Banking Sector”
A PROJECT REPORT SUBMITTED TO THE UNIVERSITY

OFMYSORE FOR THE PARTIAL FULFILMENT OF
MASTER OFBUSNIESS ADMINISTRATION
EXAMINATION 2023
Submitted by,
Mr. Kiran S R
4th semester M.B.A
Reg. No.P01ZZ21M0068
Under the Guidance of

Prof. S J Manjunath
M.B.A., Ph.D.
Professor, Department of Studies in
Business Administration.
B. N. BAHADUR INSTITUTE OF MANAGEMENT SCIENCES,

University of Mysore,
Manasagangotri, Mysuru-06.
Declaration
I Mr. Kiran S R do here by declare that the Project Report entitled “Merger and Acquisition
of Indian Banking Sector”. The Report Complied by me under the guidance ofProf. S J
Manjunath , Professor of B.N. Bahadur Institute of Management Studies, University of
Mysore, Manasagangotri, Mysuru.
I further declare that this Project report is original one and has not been reproduced or
submitted to this or any other University before for award ofany Degree or Diploma.
Place: Mysuru (Mr. Kiran S R)
Date: Candidate
B.N. BAHADUR INSTITUTE OF MANAGEMENT SCIENCES
University of Mysore
Manasagangotri, Mysuru-06
Phone No. 0821-2419785
Date: /08/2023
CERTIFICATE
This is to certify that the Project Report entitled “Merger and Acquisition of India Banking
Sector”. Has been prepared by Mr. Kiran S R in fulfillment of the requirement for the
award of Degree of Masters of Business Administration in B.N. Bahadur Institute of
Management Sciences, University of Mysore, Manasagangotri, Mysuruunder my guidance
and Supervision, and I am satisfied with this earnest endeavors in preparing this Project
Report.
Prof. S J Manjunath
Professor,
B.N. Bahadur Institute of Management
Sciences,University of Mysore,
B.N. BAHADUR INSTITUTE OF MANAGEMENT SCIENCES
University of Mysore
Phone No. 0821-2419785
Date: /08/2023
CERTIFICATE
This is to certify that KIRAN S R bearing Roll No. P01ZZ21M0068 has successfully
completed the Project report on “Merger and Acquisition of Ind ian Banking Sector”. Under
the guidance of Prof. S J Manjunath Professor, B.N. Bahadur Institute of Management
Sciences, University of Mysore, Manasagangotri, Mysuru.
This Project Report is submitted to the University of Mysore in partial

fulfilment ofthe requirement award of Master of Business Administration during 2022-
2023.
Prof. S J Manjunath
Chairman,
B.N. Bahadur Institute of Management
Sciences,University of Mysore,
ACKNOWLEDGEMENT
I wish to express my sincere gratitude to my guide Prof. S J Manjunath, B.N. Bahadur

Institute of Management Sciences, University of Mysore, Manasagangotri, Mysuru, Whose
experience ideas, able guidance, inspiring encouragement and valuable suggestions executions and
completion of this Project Report.
I express my heart full thanks to my family, who gave encouragement, moral supportand
financial assistance to bring out this Project Successfully.
I am thankful to Prof. S J Manjunath, Chairman, B.N. Bahadur Institute of Management

Sciences, University of Mysore, Manasagangotri, Mysuru. For giving me an opportunity
to carry out this Project Report.
Finally, I thank those well-wishes who directly and indirectly helped me in accomplishing
my study.
Kiran S R
INDEX
Chapter I: Theoretical Background 04

 Introduction & Background of the study 04
Chapter II: Design of Study 17

 Problem of the study 17
 Objective of the study 17
 Scope of the study 17
 Methodology 17
 Limitations 18
 Operational definitions 18
Chapter III: Industry profile 20
Chapter IV: Analysis and Interpretation 28

 Case 1 Oriental Bank of Commerce and United Bank 28
of India into Punjab National Bank
 Case 2 Merger of BOM and ICICI Bank 39
 Case 3 Amalgamation of GTB and OBC 55
 Case 4 Reverse merger of ICICI Bank with ICICI 63
Chapter V: Findings, Suggestions and Conclusion 72

 Summary of findings 72
 Suggestions 73
Conclusion 77
Annexure 80
Bibliography 83
LIST OF ABBREVIATIONS
ADR : American Depository Receipt
DFI : Development Financial Institutions
CRR : Cash Reserve Ratio
NCR : Narasimhan Committee Report-II
NPA : Non-performing Asset
RRB : Regional Rural Bank
SBI : State Bank of India
NBFC : Non-Banking Financial Company
PSBs : Public Sector Banks
SCB : Scheduled Commercial Bank
SEBI : Securities and Exchange Board of India
RBI : Reserve Bank of India
GTB : Global Trust Bank
OBC : Oriental Bank of Commerce
PNB : Punjab National Bank
UBI : United Bank of India
B. N. Bahadur Institute of Management Sciences Page 1

CONTENT OF GRAPHS
Table Title Page No

No
1 ICICI Pre Merger EPS 39
2 BOM Pre Merger EPS 39
3 ICICI Bank Post Merger 40
4 BOM Pre Merger PE 41
5 ICICI PE Pre Merger 41
6 ICICI PE Post Merger 42
7 Dividend per Merger ICICI 43
8 Dividend Post Merger ICICI 43
9 ICICI Bank Market Cap Pre Merger 44
10 BOM Market Cap 45
11 ICICI Post Merger Market Cap 45
12 ICICI Pre Merger Net worth 46
13 BOM Net Worth 47
14 ICICI Post Merger Net worth 47

TABLE OF CONTENTS
Table No Title Page No
1 Types of Bank 21
2 PNB pre - algamated 32
3 PNB post – algamated 33
4 Status of selected banks on pre and post- 33

merger
5 Share price of selected Banks 33
6 Advances, Gross NPA and Net NPA of 34

merging Banks
7 Banks value 34
8 Financial standings of ICICI Bank and 51

BOM
9 Crucial parameters: How they stand? 53
10 Efficiency level of the Bank 54
11 How the financial statements have 54

changed
12 Performance summary 61
13 Post-merger effects introduction to results 68

CHAPTER 1
THEORETICAL BACKGROUNDS
Introduction & Background of the Study
Mergers and acquisitions and corporate restructuring--or M&A for short--are a big part of the
corporate finance world. Every day M&A transactions bring together separate companies to make
larger ones.
The present study focuses on selected cases of M&A in Indian banking. The theoretical
introduction to the terminologies and basics of Mergers and Acquisitions is presented in this
chapter.
Defining Mergers and Acquisitions
The Main Idea
One plus one makes three: this equation is the special alchemy of a merger or acquisition. The key
principle behind buying a company is to create shareholder value over and above that of the sum
of the two companies. Two companies together are more valuable than two separate companies--
at least, that's the reasoning behind M&A.
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were synonymous, the
terms "merger" and "acquisition" mean slightly different things.
When a company takes over another one and clearly becomes the new owner, the purchase is called
an acquisition. From a legal point of view, the target company ceases to exist and the buyer
"swallows" the business, and stock of the buyer continues to be traded.

In the pure sense of the term, a merger happens when two firms, often about the same size, agree
to go forward as a new single company rather than remain separately owned and operated. This
kind of action is more precisely referred to as a "merger of equals." Both companies' stocks are
surrendered, and new company stock is issued in its place. For example, both Daimler-Benz and
Chrysler ceased to exist when the two firms merged, and a new company, DaimlerChrysler, was
created. In practice, however, actual mergers of equals don't happen very often. Often, one
company will buy another and, as part of the deal's terms, simply allow the acquired firm to
proclaim that the action is a merger of equals, even if it's technically an acquisition. Being bought
out often carries negative connotations. By using the term "merger," dealmakers and top managers
try to make the takeover more palatable.
Merger is a combination of two or more companies (in this case we refer to banks) into one
company. In India, we call mergers as amalgamations, in legal parlance. The acquiring company,
(also referred to as the amalgamated company or the merged company) acquires the assets and
liabilities of the target company (or amalgamating company). Typically, shareholders of the
amalgamating company get shares of the amalgamated company in exchange for their existing
shares in the target company. Merger may involve absorption or consolidation.
In absorption, one bank (or financial entity) acquires another bank. For example, we will look at
the merger of ICICI Bank and Bank of Madura. After merger, the target bank, Bank of Madura
ceases to exist and the acquirer continues to exist. In this case, the acquirer ICICI Bank is existing.
Synergy
Synergy is the magic force that allows for enhanced cost efficiencies of the new business. Synergy
takes the form of revenue enhancement and cost savings. By merging, the companies hope to
benefit from the following:
 Staff reductions - As every employee knows, mergers tend to mean job losses.
Consider all the money saved from reducing the number of staff members from accounting,
marketing and other departments. Job cuts will also include the former CEO, who typically leaves
with a compensation package.
 Economies of scale - Yes, size matters. Whether it's purchasing stationery or a new
corporate IT system, a bigger company placing the orders can save more on costs. Mergers also
translate into improved purchasing power to buy equipment or office supplies--when placing larger
orders, companies have a greater ability to negotiate price with their suppliers. 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 keep or develop a competitive edge.
 Improved market reach and industry visibility - Companies buy companies to reach new
markets and grow revenues and earnings. A merge may expand two companies' marketing and
distribution, giving them new sales opportunities. A merger can also improve a company's standing
in the investment community: bigger firms often have an easier time raising capital than smaller
ones.
That said, achieving synergy is easier said than done--it is not automatically realized once two
companies merge. Sure, there ought to be economies of scale when two businesses are combined,
but sometimes it works in reverse. In many cases, one and one add up to less than two.
Sadly, synergy opportunities may exist only in the minds of the corporate leaders and the
dealmakers. Where there is no value to be created, the CEO and investment bankers--who have
much to gain from a successful M&A deal--will try to build up the image of enhanced value. The
market, however, eventually sees through this and penalizes the company by assigning it a
discounted share price.
Varieties of Mergers
From the perspective of business structures, there are a whole host of different mergers. Here are
a few types, distinguished by the relationship between the two companies that are merging:
 Horizontal merger: Two companies that are in direct competition in the same
product lines and markets.
 Vertical merger: A customer and company or a supplier and company. Think of a

cone supplier to an ice cream maker.
 Market-extension merger: Two companies that sell the same products in

different markets.
 Product-extension merger: Two companies selling different but related products in
the same market.
 Conglomeration: Two companies that have no common business areas.
From the perspective of how the merge is financed, there are two types of mergers: purchase
mergers and consolidation mergers. Each has certain implications for the companies involved and
for investors:
 Purchase Mergers - As the name suggests, this kind of merger occurs when one
company purchases another one. The purchase is made by cash or through the
issue of some kind of debt instrument, and the sale is taxable.
Acquiring companies often prefer this type of merger because it can provide them
with a tax benefit. Acquired assets can be "written-up" to the actual purchase price,
and the difference between book value and purchase price of the assets can
depreciate annually, reducing taxes payable by the acquiring company (we discuss
this further in part four of this tutorial).
 Consolidation Mergers - With this merger, a brand new company is formed and
both companies are bought and combined under the new entity. The tax terms are
the same as those of a purchase merger.
Acquisitions
As you can see, an acquisition may be only slightly different from a merger. In fact, it may be
different in name only. Like mergers, acquisitions are actions through which companies seek
economies of scale, efficiencies, and enhanced market visibility. Unlike all mergers, all
acquisitions involve one firm purchasing another--there is no exchanging of stock or consolidating
as a new company. Acquisitions are often congenial, with all parties feeling satisfied with the deal.
Other times, acquisitions are more hostile.
In an acquisition, as in some of the merger deals we discuss above, a company can buy another
company with cash, with stock, or a combination of the two. Another possibility, which is common
in smaller deals, is for one company to acquire all the assets of another company. Company X

buys all of Company Y's assets for cash, which means that Company Y will have only cash (and
debt, if they had debt before). Of course, Company Y becomes merely a shell and will eventually
liquidate or enter another area of business.
Another type of acquisition is a reverse merger, a deal that enables a private company to get
publicly-listed in a relatively short time period. A reverse merger occurs when a private company
that has strong prospects and is eager to raise financing buys a publicly-listed shell company,
usually one with no business and limited assets. The private company reverse merges into the
public company, and together they become an entirely new public corporation with tradable shares.
Regardless of their category or structure, all mergers and acquisitions have one common goal: they
are all meant to create synergy that makes the value of the combined companies greater than the
sum of the two parts. The success of a merger or acquisition depends on how well this synergy is
achieved.
Valuation Matters
Investors in a company that is aiming to take over another one must determine whether the
purchase will be beneficial to them. In order to do so, they must ask themselves how much the
company being acquired is really worth.
Naturally, both sides of an M&A deal will have different ideas about the worth of a target
company: its seller will tend to value the company as high as possible, while the buyer will try to
get the lowest price possible.
There are, however, many legitimate ways to value companies. The most common method is to
look at comparable companies in an industry, but dealmakers employ a variety of other methods
and tools when assessing a target company. Here are just a few of them:
1. Comparative Ratios – The following are two examples of the many comparative metrics on
which acquirers may base their offers:

 P/E (price-to-earnings) ratio – With the use of this ratio, an acquirer makes an offer as a
multiple of the earnings the target company is producing. Looking at the P/E for all the stocks
within the same industry group will give the acquirer good guidance for what the target's P/E
multiple should be.
 EV/Sales (price-to-sales) ratio – With this ratio, the acquiring company makes an offer as a
multiple of the revenues, again, while being aware of the P/S ratio of other companies in the
industry.
2. Replacement Cost: In a few cases, acquisitions are based on the cost of replacing the target
company. For simplicity's sake, suppose the value of a company is simply the sum of all its
equipment and staffing costs. The acquiring company can literally order the target to sell at that
price, or it will create a competitor for the same cost. Naturally, it takes a long time to assemble
good management, acquire property and get the right equipment. This method of establishing a
price certainly wouldn't make much sense in a service industry where the key assets--people and
ideas--are hard to value and develop.
3. Discounted Cash Flow (DCF): A key valuation tool in M&A, discounted cash flow analysis
determines a company's current value according to its estimated future cash flows. Forecasted free
cash flows (operating profit + depreciation + amortization of goodwill – capital expenditures –
cash taxes - change in working capital) are discounted to a present value using the company's
weighted average costs of capital (WACC). Admittedly, DCF is tricky to get right, but few tools
can rival this valuation method.
Motives behind the Merger
Growth: One of the fundamental motives that entice mergers is impulsive growth. Organizations

that intend to expand need to choose between organic growth or acquisitions driven growth. Since
the former is very slow, steady and relatively consumes more time the latter is preferred by firms
which are dynamic and ready to capitalize on opportunities.
Synergy: Synergy is a phenomenon where 2 + 2 => 5; this translates into the ability of a business
combination to be more profitable than the sum of the profits of the individual firms that were
combined. It may be in the form of revenue enhancement or cost reduction.
Managerial efficiency: Some acquisitions are motivated by the belief that the acquirer’s
management can better manage the target’s resources. In such cases, the value of the target firm
will rise under the management control of the acquirer.
Strategic: The strategic reasons could differ on a case-to-case basis and a deal to the other. At
times, if the two firms have complimentary business interests, mergers may result in consolidating
their position in the market.
Market entry: Firms that are cash rich use acquisition as a strategy to enter into new market or
new territory on which they can build their platform.
Tax shields: This plays a significant role in acquisition if the distressed firm has accumulated
losses and unclaimed depreciation benefits on their books. Such acquisitions can eliminate the
acquiring firm’s liability by benefiting from a merger with these firms.
The market reaction to this merger was quite bullish. Ever since the announcement of merger broke
out, the market capitalization of both the banks have swelled by about 150 percent.
Synergy: The Premium for Potential Success
For the most part, acquirers nearly always pay a substantial premium on the stock market value of
the companies they buy. The justification for doing so nearly always boils down to the notion of
synergy: a merger benefits shareholders when a company's post-merger share price increases by
the value of potential synergy.
Let's face it; it would be highly unlikely for rational owners to sell if they would benefit more by
not selling. That means buyers will need to pay a premium if they hope to acquire the company,
regardless of what pre-merger valuation tells them. For sellers, that premium represents their

company's future prospects. For buyers, the premium represents part of the post-merger synergy
they expect can be achieved. The following equation offers a good way to think about synergy and
how to determine if a deal makes sense. The equation solves for the minimum required synergy:
In other words, the success of a merger is measured by whether the value of the buyer is enhanced
by the action. However, the practical constraints of mergers, which we discuss in part five, often
prevent the expected benefits from being fully achieved. Alas, the synergy promised by dealmakers
might just fall short.
Doing the Deal Start with an Offer
When the CEO and top managers of a company decide they want to do a merger or acquisition;
they start with a tender offer. The process typically begins with the acquiring company carefully
and discreetly buying up shares in the target company, building a position. Once the acquiring
company starts to purchase shares in the open market, it is restricted to buying 5% of the total
outstanding shares before it must file with the SEC. In the filing, the company must formally
declare how many shares it owns and whether it intends to buy the company or keep the shares
purely as an investment.
Working with financial advisors and investment bankers, the acquiring company will arrive at an
overall price that it's willing to pay for its target in cash, shares, or both. The tender offer is then
frequently advertised in the business press, stating the offer price and the deadline by which the
shareholders in the target company must accept (or reject) it.
The Target's Response
Once the tender offer has been made, the target company can do one of several things:
 Accept the terms of the offer - If the target firm's top managers and shareholders are
happy with the terms of the transaction, they will go ahead with the deal.

 Attempt to negotiate - The tender offer price may not be high enough for the target
company's shareholders to accept, or the specific terms of the deal may not be
attractive. In a merger, there may be much at stake for the management of the target--
their jobs, in particular. So, if they're not satisfied with the terms laid out in the tender
offer, the target's management may try to work out more agreeable terms that let them
keep their jobs or, perhaps even better, send them off with a nice, big compensation
package.
Not surprisingly, highly sought-after target companies that are the object of several
bidders will have greater latitude for negotiation. And managers have more negotiating
power if they can show that they are crucial to the merger's future success.
 Execute a poison pill or some other hostile takeover defense – A poison pill scheme
can be triggered by a target company when a hostile suitor acquires a predetermined
percentage of company stock. To execute its defense, the target company grants all
shareholders--except the acquirer--options to buy additional stock at a dramatic
discount. This dilutes the acquirer's share and intercepts its control of the company.
 Find a white knight - As an alternative, the target company's management may seek
out a friendlier potential acquirer, or white knight. If a white knight is found, it will
offer an equal or higher price for the shares than the hostile bidder.
Mergers and acquisitions can face scrutiny from regulatory bodies. For example, if the two biggest
companies in the country X and Y, wanted to merge, the deal would require approval from the
SEBI. No doubt, the SEBI would regard a merger of the two giants as the creation of a monopoly
or, at the very least, a threat to competition in the industry.
Closing the Deal
Finally, once the target company agrees to the tender offer and regulatory requirements are met,
the merger deal will be executed by means of some transaction. In a merger in which one company
buys another, the acquirer will pay for the target company's shares with cash, stock, or both.
A cash-for-stock transaction is fairly straightforward: target-company shareholders receive a cash

payment for each share purchased. This transaction is treated as a taxable sale of the shares of the
target company.
If the transaction is made with stock instead of cash, then it's not taxable. There is simply an
exchange of share certificates. The desire to steer clear of the taxman explains why so many M&A
deals are carried out as cash-for-stock transactions.
When a company is purchased with stock, new shares from the acquirer's stock are issued directly
to the target company's shareholders, or the new shares are sent to a broker who manages them for
target-company shareholders. Only when the shareholders of the target company sell their new
shares are they taxed.
When the deal is closed, investors usually receive a new stock in their portfolio--the acquiring
company's expanded stock. Sometimes investors will get new stock identifying a new corporate
entity that is created by the M&A deal.
Break-Ups
As mergers capture the imagination of many investors and companies, the idea of getting smaller
might seem counterintuitive. But corporate break-ups or de-mergers can be very attractive options
for companies and their shareholders.
Advantages
The rationale behind a spin-off, tracking stock, or carve-out is that "the parts are greater than the
whole." These corporate restructuring techniques, which involve the separation of a business unit
or subsidiary from the parent, can help a company raise additional equity funds. A break-up can
also boost a company's valuation by providing powerful incentives to the people who work in the
separating unit, and help management of the parent focus on core operations. Most importantly,
shareholders get better information about the business unit because it issues separate financial
statements.
This is particularly useful when a company's traditional line of business differs from the separated
business unit. With separate financial disclosure, investors are better equipped to gauge the value

of the parent corporation. The parent company might attract more investors and ultimately more
capital.
Also, separating a subsidiary from its parent can reduce internal competition for corporate funds.
For investors, that's great news: it curbs the kind of negative internal wrangling that can
compromise the unity and productivity of a company.
For employees of the new separate entity, there is a publicly traded stock to motivate and reward
them. Stock options in the parent often provide little incentive to subsidiary managers, especially
since their efforts are buried in the overall firm performance.
Disadvantages
That said, de-merged firms are likely to be substantially smaller than their parents, possibly making
it harder to tap credit markets and costlier finance that may be affordable only for larger companies.
And the smaller size of the firm may mean it has less representation on major indexes, making it
more difficult to attract interest from institutional investors.
Meanwhile, there are the extra costs that the parts of the business face if separated. When a firm
divides itself into smaller units, it may be losing the synergy that it had as a larger entity. For
instance, the division of expenses such as marketing, administration and R&D into different
business units may cause redundant costs without increasing overall revenues.
Why M&As Can Fail
It's no secret that plenty of mergers don't work. Those who advocate mergers will argue that the
merger will cut costs or boost revenues by more than enough to justify the price premium. It can
sound so simple: just combine computer systems, merge a few departments, use sheer size to force
down the price of supplies, and the merged giant should be more profitable than its parts. In theory,
1+1 = 3 sounds great, but in practice, things can go awry.
Historical trends show that roughly two thirds of big mergers will disappoint on their own terms,

which means they will lose value on the stock market. Motivations behind mergers can be flawed
and efficiencies from economies of scale may prove elusive. And the problems associated with
trying to make merged companies work are all too concrete.
Flawed Intentions
For starters, a booming stock market encourages mergers, which can spell trouble. Deals done with
highly rated stock as currency are easy and cheap, but the strategic thinking behind them may be
easy and cheap too. Also, mergers are often attempts to imitate: somebody else has done a big
merger, which prompts top executives to follow suit.
A merger may often have more to do with glory-seeking than business strategy. The executive
ego, which is boosted by buying the competition, is a major force in M&A, especially when
combined with the influences from the bankers, lawyers and other assorted advisers who can earn
big fees from clients engaged in mergers. Most CEOs get to where they are because they want to
be the biggest and the best, and many top executives get a big bonus for merger deals, no matter
what happens to the share price later.
On the other side of the coin, mergers can be driven by generalized fear. Globalization, or the
arrival of new technological developments, or a fast-changing economic landscape that makes the
outlook uncertain are all factors that can create a strong incentive for defensive mergers.
Sometimes the management team feels they have no choice and must acquire a rival before being
acquired. The idea is that only big players will survive a more competitive world.
The Obstacles of Making it Work
Coping with a merger can make top managers spread their time too thinly, neglecting their core
business, spelling doom. Too often, potential difficulties seem trivial to managers caught up in the
thrill of the big deal.
The chances for success are further hampered if the corporate cultures of the companies are very
different. When a company is acquired, the decision is typically based on product or market

synergies, but cultural differences are often ignored. It's a mistake to assume that people issues
are easily overcome. For example, employees at a target company might be accustomed to easy
access to top management, flexible work schedules or even a relaxed dress code. These aspects of
a working environment may not seem significant, but if new management removes them, the result
can be resentment and shrinking productivity.
Merging companies can focus on integration and cost-cutting so much that they neglect day-to-
day business, thereby prompting nervous customers to flee. This loss of revenue momentum is
one reason so many mergers fail to create value for shareholders.
But, not all mergers fail. Size and global reach can be advantageous, and strong managers can
often squeeze greater efficiency out of badly run rivals. The success of mergers depends on how
realistic the dealmakers are and how well they can integrate two companies together while
maintaining day-to-day operations.

CHAPTER 2
DESIGN OF THE STUDY

“A case analysis of mergers and acquisitions in Indian Banking”.
Problem of study:
The study focuses on selected cases of Mergers and Acquisitions in Indian Banking. The study
gives an insight of rational behind the bank mergers and the changes in their financial position
after the merging activity.
Objective of the study:
1) To study the motives behind the Merger and Acquisition activity.
2) To study the Value created by Merger and Acquisition to the shareholders.
3) To study the post-Merger effects on financial statements of the entity.
4) To understand the procedure of the Merger and Acquisition activity.
Scope of Study:
The study throws light on the selected cases on M&A to know whether there is a value creation
to the shareholders or not.
RESEARCH METHODOLOGY
Type of Research: Descriptive research.
Sources of Data: Data is collected through research studies, websites, journals, etc.
Plan of Analysis: After having collected the financial data related to the entities i.e., the
amalgamated and the amalgamating bank, analysis was done by calculating the various valuation
ratios and other financial calculations. This helped to find out the pre-merger and post-merger

financial position of the entities. Regression analysis was done to find what would be the future
PAT and EPS of the merged entities if they were to be not merged. To measure individual entity
performance we found out P/E Ratio, EPS and market Capitalization before merger and after
merger of banks in with the respected agreements with norm.
Limitations of Study:
 The study was confined only to the selected cases.
 Since the study was done by using the case study method and depending more on
the secondary data the findings may not be accurate.
 Unavailability of the financial data of entities.
 It is difficult to use the results to generalize to other cases.
Operational definitions of concepts:
 Book Value per Share: It is simply the net worth of the company (which is equal to
the paid up equity capital plus reserves and surplus) divided by the number of
outstanding equity shares.
 Earnings per Shares: Specific valuation per unit of investment given by, Net income
after income taxes and after dividends on preferred stock divided by total outstanding
shares of the company. The portion of a company's profit allocated to each
outstanding share of common stock. Calculated as:
Companies usually use a weighted average number of shares outstanding over the reporting term.
 Price Earnings Ratio: valuation ratio of a company's current share price compared to

its per-share earnings. Calculated as:
 Net worth: Book value of a company is common stock, surplus, reserves and retained
earnings.
 EBITDA: An indicator of a company's financial performance calculated as:
= Revenue - Expenses (excluding tax, interest, depreciation, and amortization)
EBITDA is used to analyze the profitability between companies and industries,

because it eliminates the effects of financing and accounting decisions.
 Price-to-Sales Ratio: A technique for valuing a stock relative to its own past
performance, other companies or the market itself. It is calculated by dividing a stock's
current price by its revenue per share. Also known as "PSR".
 Capital Adequacy Ratio: This indicates the risk exposure of the bank, the quality of
assets and the capacity of the bank’s capital to sustain the risk level. The sustenance
of bank is directly proportional to this ratio. However, beyond a point, the higher this
ratio would be may mean opportunities foregone.

CHAPTER 3
INDUSTRY PROFILE
The Indian banking can be broadly categorized into nationalized (government owned), private
banks and specialized banking institutions. The Reserve Bank of India acts a centralized body
monitoring any discrepancies and shortcoming in the system. Since the nationalization of banks in
1969, the public sector banks or the nationalized banks have acquired a place of prominence and
has since then seen tremendous progress. The need to become highly customer focused has forced
the slow-moving public sector banks to adopt a fast track approach. The unleashing of products
and services through the net has galvanized players at all levels of the banking and financial
institutions market grid to look anew at their existing portfolio offering.
Conservative banking practices allowed Indian banks to be insulated partially from the Asian
currency crisis. Indian banks are now quoting al higher valuation when compared to banks in other
Asian countries (viz. Hong Kong, Singapore, Philippines etc.) that have major problems linked to
huge Non Performing Assets (NPAs) and payment defaults. Co-operative banks are nimble footed
in approach and armed with efficient branch networks focus primarily on the ‘high revenue’ niche
retail segments.
The Indian banking has finally worked up to the competitive dynamics of the ‘new’ Indian market
and is addressing the relevant issues to take on the multifarious challenges of globalization. Banks
that employ IT solutions are perceived to be ‘futuristic’ and proactive players capable of meeting
the multifarious requirements of the large customers’ base. Private Banks have been fast on the
uptake and are reorienting their strategies using the internet as a medium The Internet has emerged
as the new and challenging frontier of marketing with the conventional physical world tenets being
just as applicable like in any other marketing medium.
The Indian banking has come from a long way from being a sleepy business institution to a highly
proactive and dynamic entity. This transformation has been largely brought about by the large
dose of liberalization and economic reforms that allowed banks to explore new business
opportunities rather than generating revenues from conventional streams (i.e. borrowing and

lending). The banking in India is highly fragmented with 30 banking units contributing to almost
50% of deposits and 60% of advances.
Indian nationalized banks (banks owned by the government) continue to be the major lenders in
the economy due to their sheer size and penetrative networks which assures them high deposit
mobilization. The Indian banking can be broadly categorized into nationalized, private banks and
specialize banking institutions.
Unlike commercial banks these co-operative banks do not lend on the basis of a prime lending
rate. They also have various tax sops because of their holding pattern and lending structure and
hence have lower overheads. This enables them to give a marginally higher percentage on savings
deposits. Many of these cooperative banks diversified into specialized areas (catering to the vast
retail audience) like car finance, housing loans, truck finance etc. in order to keep pace with their
public sector and private counterparts, the co-operative banks too have invested heavily in
information technology to offer high-end computerized banking services to its clients.
TYPES OF BANKS
State Bank of India and Associates 08

Nationalized Banks 19
Domestic Private Sector Banks 25
New Domestic Private Sector Banks 09
Foreign Banks 29
Complementing the roles of the nationalized and private banks are the specialized financial
institutions or Non-Banking Financial Institutions (NBFCs). With their focused portfolio of
products and services, these Non-Banking Financial Institutions act as an important catalyst in
contributing to the overall growth of the financial services sector. NBFCs offer loans for working
capital requirements, facilitate mergers and acquisitions, IPO finance, etc. apart from financial
consultancy services.

Trends are now changing as banks (both public and private) have now started focusing on NBFC
domains like long and medium-term finance, working cap requirements, IPO financing etc. to meet
the multifarious needs of the business community.
COMMERCIAL FINANCING
The commercial financing model in Indian banking can be broadly categorized into project finance
and working capital finance. These two segments form the pivot around which banks operate.
This loan is provided through a debt-based funding agreement between a business entity and a
lender. Both banks and non-banking financial corporations (NBFCs) offer commercial loans to
companies and firms. Commercial loans are not offered to individual loan applicants for personal
reasons.
PROJECT FINANCE
Banks offer long term and short terms loans to business houses, corporations to set up their
projects. These loans are disbursed after the approval from the banks’ core credit validating
committee. In India, there are 11 national level land 46 state level financial and investment
institutions that cater to long term funding requirements of the industry. The project finance
segment is highly competitive with various players offering innovative schemes to entice
corporate.
A commercial loan or commercial financing is a funding arrangement between a business owner

and a lending institution. The money obtained from this loan product is utilized for funding capital
expenditures such as machinery purchase, new office set-up, or covering daily operational
expenses.
WORKING CAPITAL
In order to meet the diverse needs and requirements of the business community, banks offer
working capital funds to corporate. Working capital finance is specialized line of business and is
largely dominated by the commercial banks.
The Indian banking saw dramatic changes in the last decade or so ever since the advent of

liberalization and India’s integration with the world economy. These economic reforms and the
entry of private players saw nationalized banks revamp their service and product portfolio to
incorporate new, innovative customer-centric schemes. The Indian banking finally woke up to the
surging demands of the ever-discerning Indian consumer. The need to become highly customer
focused (generated by high competitive levels) forced the slow-moving public sector banks to
adopt a fast track approach.
Taking a leaf out of the private sector banks, the public sector banks too went for major image
changes (including corporate brand building exercises) and customer friendly schemes. These
customer friendly programs included revamping of the product and service portfolio by
introducing new product & service schemes (like credit cards, hassle-free housing loan schemes,
educational loans and flexi-deposit schemes) integration of the branch network by using advance
networking technology and customer personalization programs (through ATMs and anytime
banking etc.).
Many banks have started capitalizing on the recent stock market surge by adding (Initial Public
Offering) IPO financing options and schemes in their product mix. IPO finance has received a
positive response from the investors and is becoming popular amongst the business community.
The objective of all these strategies was very clear – to bridge the service & product gap that was
inherent in the banking system. To cater to the increasing customer demands and the surge in
business volumes, many public sector banks have ploughed back funds to invest heavily in
technology upgrades and systems like LANs, WANs, etc.
Marketing and brand building programs were also given a new thrust in the new liberalized
banking scenario. Promotional budgets were hiked to cater to the new and large discerning target
audience. Banks were now keen on marketing their products and service through various mediums
to reach their core customers. Direct marketing, Internet marketing, hoarding, press ads, television
sponsorships, image makeovers etc. became an integral part of a bank’s marketing mix.
To meet the personalized needs of the customer and in order to differentiate its services, banks
repositioned themselves in specialized fields, like housing loans, car finance, educational loans
etc. to optimally service the customer. Permission marketing became the new strategy that banks
began to propound i.e. feeding the customer (with his or her consent) with product and service
information and thereby enticing him towards the bank’s product – service portfolio.

NEW GENERATION BANKING
The liberalize policy of Government of India permitted entry to private sector in the banking, the
industry has witnessed the entry of nine new generation private banks. The major differentiating
parameter that distinguishes these banks from all the other banks in the Indian banking is the level
of service that is offered to the customer. Verify the focus has always been centered on the
customer – understanding his needs, preempting him and consequently delighting him with
various configurations of benefits and a wide portfolio of products and services. These banks have
generally been established by promoters of repute or by ‘high value’ domestic financial
institutions. The popularity of these banks can be gauged by the fact that in a short span of time,
these banks have gained considerable customer confidence and consequently have shown
impressive growth rates.
Today, the private banks corner almost four per cent share of the total share of deposits. Most of
the banks in this category are concentrated in the high-growth urban areas in metros (that account
for approximately 70% of the total banking business). With efficiency being the major focus,
these banks have leveraged on their strengths and competencies viz. Management, operational
efficiency and flexibility, superior product positioning and higher employee productivity skills.
The private banks with their focused business and service portfolio have a reputation of being
niche players in the industry. A strategy that has allowed these banks to concentrate on few reliable
high net worth companies and individuals rather than cater to the mass market. These well-chalked
out integrates strategy plans have allowed most of these banks to deliver superlative levels of
personalized services. With the Reserve Bank of India allowing these banks to operate 70% of
their businesses in urban areas, this statutory requirement has translated into lower deposit
mobilization costs and higher margins relative to public sector banks.
Challenge for the Indian banking sector
Indian banks have a long way to go before they reach the size of their international counterparts.
Even the biggest Indian bank, State Bank of India, is nowhere on the international scale, with

assets in the range of $50billion. Absence of significant scale benefits and higher implicit costs of
several services are perpetuating the poor ranking of Indian banks in the international league
tables.
Shareholding structure, government regulations and sheer size of the country ensure that the
existence of Indian banks is not at stake at this stage. What is at stake is the banking support that
is available for Indian economic activity, and thereby the international competitiveness of various
sectors. What is also at stake is the scope for the banking industry to earn superior returns through
differentiated wider services.
Further, it is quite conceivable that with passage of time, as government holding in banks is
progressively divested, regulatory authorities will be unable to hold back the international giants
from buying out Indian banks. Even economies with a "domestic mindset", such as France and
Germany, have been forced to bow before the international capital market forces.
It would be a shame if painstakingly built retail strength is offered on a platter to some predator.
The challenge can be met through some concerted action –
1) Government
The Government needs to do away with artificial fragmentation of the financial sector. A case in
point is the segregation of banks and financial institutions induced by policy. If this is changed,
we may well see mergers between the two sectors to create organizations of size. Why not a merger
of Industrial Development Bank of India with Bank of Baroda, or even better with State Bank of
India? This would definitely lead to a merger between ICICI and ICICI Bank and for that matter
between HDFC and HDFC Bank. The possibilities are interesting and numerous.
2) Domestic Banks
Domestic Banks - private as well as public - need to continuously explore options to acquire or
merge with other institutions to enhance their size, service or skill-set. This could also mean
looking beyond the national boundaries as truly global corporations do.
3) New Initiatives
The recent crisis in the far-East has demonstrated the need for a robust banking sector. Therefore
the whole structure of Regional Rural Banks (RRBs) and Urban Co-operative Banks (UCBs)
needs to be strengthened.
The focus that FMCG companies such as Hindustan Lever have given to the rural sector proves
that private sector interest is not limited to the cities and major towns. Technological changes
(such as wireless communication, net etc.) have drastically changed the communications scenario.
This may be the time to come out with interesting initiatives with regard to structure of RRBs and
UCBs so that private sector organizations - banks as well as non-banks
- play a greater role in meeting the needs and aspirations of hitherto neglected parts of the country.
4) Social considerations
The full benefit of mergers can only be realized if they are followed up with some hard measures
such as re-location / closure of branches, rationalization of employee strength etc. It would be a
welcome change if the management and unions collaborate in seeking appropriate social security
from the Government - financed out of the divestment of stake in these banks.
Indian banking has to operate with a global mindset even while fulfilling local banking
requirements. By joining in the effort to make this happen, we will get the banking service we
need. Else, we will deserve the banking service we get.
Larger Banks will be able to mobilize sufficient capital to back asset expansion, and fund
investment in technology. They can with sand with the increased competition while the small or
weaker banks suffer. To bail out weaker banks Government has used then, through their mergers
with stronger public banks.

CHAPTER 4
ANALYSIS AND INTRPRETATION
Case 1 - Oriental Bank of Commerce and United Bank of India into Punjab National Bank
Bank Profile of Punjab National Bank
Punjab National Bank (PNB) is the second largest stated owned corporation based in New
Delhi. The bank founded in 1894. As of 31st March 2017 the bank has over 80 million customers’
6,937 branches and 10681 ATMs across 764 cities. The history of PNB is since pre independence
it was established in modern day Lahore Pakistan in 1894.
It has coursed through several crests and troughs over its more than 120 years of existence. The
bank was founded by Leaders of Swadeshi movement Sardar Dayal Singh, Majithia, Lala
Harkrishen Lal, Lala Lal Chand and Lala Dholan Das in 1894. Lala Lajpat Rai, the great freedom
fighter of Punjab was the first open an account with the PNB in the first office in Lahore.
In 1951, the Bank took over the assets and liabilities of Bharat Bank Ltd. and became the second
largest bank in the private sector. Dalmias managed to buy the shares of the great PNB from the
markets and suddenly in 1953, the bankwas gone from Punjabis into the hands of Dalmias and
Jains. Lala Yodh Raj left and Shiriyans Prasad Jain took control of the PNB. The nationalization
of fourteen major banks by Mrs. Indira Gandhi on the midnight of 19th July 1969 changed the
way banking was done in India.
PNB has the privilege of maintaining accounts of the illustrious national leaders like Mahatma
Gandhi, Jawahar Lal Nehru, Lal Bahadur Shastri, Indira Gandhi and poignantly also the
Jallianwala Bagh Committee. PNB has a history of Amalgamation as in year 1960 PNB
amalgamated Indo-Commercial Bank Limited(established in 1933) in a rescue then in 1961 PNB
acquired Universal Bank of India after this goI nationalized PNB in 1969 then Hindustan
Commercial Bank limited and New Bank of India has also been acquired by PNB in year 1988.

Bank Profile of Oriental Bank of Commerce:
Oriental Bank of Commerce (OBC) Oriental Bank of Commerce (OBC) is a Government of India
undertaking that was incorporated in 1943. Back then, its business activities included monetary
intermediation of commercial banks, saving banks and discount houses.
OBC also has its history of amalgamation 1997 two banks namely Punjab co-operative Bank and
Bari Doab Bank were amalgamated in OBC and Immediate next year the bank collaborated with
Citibank to launch a co–branded credit card. In 1999 it set up special branch and asset recovery
branch in Mumbai and Delhi.
In 2003, for implementing Centralized Banking Solution (CBS), OBC joined hands with Infosys
Technologies and Wipro. In 2004 Global Trust Bank was amalgamated with OBC.
Bank Profile of United Bank of India:
Another bank if mega merger is United Bank of India who was constituted under the Banking
Companies (Acquisition and transfers of Undertaking) Act 1970 on July 19, 1969. The head office
of the Bank was Kolkata. United Bank of India is one of the 14 banks which were nationalized on
July 19, 1969 PNB+OBC+UBI Oriental Bank of Commerce (OBC) and United Bank of India
(UBI) are merged with the Punjab National Bank (PNB).
So after this merger now the PNB will be the second-largest Public Sector Banks of India after
the State Bank of India in terms of the branch network. Its total branches would be 11,437 and the
total business of the PNB would be Rs 17 lac cr.

A number of studies have been there on amalgamation of banks in Indian Banking sector. Bansal
and Kakkar (2018): the study reveals that merger have positive effects on the Banks profitability.
Hang(2016) As per the study the M & A helps in increasing the production capacity and it reduce
the operational cost which helps in increasing the revenue, Chigbu(2015) the study reveal that
Merger & Acquisition procedure are very composite and long lasting as they have to go through
a lot of legal compliance and taxation procedure is also complicated. The study observed that
Merger & Acquisitions helps in reconstruct the national and global market. Arora,(2014). The
study reveals that M&A, taking place in the banking sector, are beneficial not only to banks but
also to every sector of the economy.
Khan(2011) the paper focuses on overview of banking industry of India and spotlight the changes
which occurred in banking sector after certain mergers and acquit ion as per AS-14.The
requirement of amalgamation has been examined in this study an also focus on pros of Merger &
Acquit ion. Under this paper the researcher provides insight of internal and external implications
of merger & Acquisitions. G.S (2010) in their study they focuses on the strategic and financial
commonness of amalgamated Banks, and they take relevant different variables with reference to
financial variables for assess their relatedness. In this study the researcher found that the private
sector Banks are more comfortable and welcoming in favor of merger and they take voluntary
steps for it as compared to public sector banks who seems to be grudging towards their type of
revamp.
Schiereck Dirck et al.(2009) The paper describe the relation among the bank goodwill after the
merger and Acquisitions takes palace and what type of its effects can be seen in the wealth of
shareholders. The study contemplate around 285 European merger and Acquisition transaction in
the middle of 1997 and 2002 and brings out that is we talk about average wealth then average is
not significantly affected by merger and Acquisitions.

Amalgamation of PNB +UBI+OBI in India:
The Amalgamation process provides significant benefits to the Bank and its customers besides,
providing scale and growth.
There is a long history of public sector banks with regard to their Amalgamation.
The Banks have gone through different Amalgamation in different phase here is the sequential
brief below:
Part –I: Amalgamation of Punjab National Bank & New Bank of India (1993-94)
Part-II: Two Banks namely Punjab Co-operative Bank and Bari Doab Bank were
Amalgamated in OBC (1997)
Part –III: Amalgamation of PNB, OBC and UBI (2020)
Pros of Amalgamation:
1. Improvement in Service Delivery
2. Wide array of products will be available to customer
3. Technological up gradation
4. Opportunity for bigger deals
5. Sickness Avoidance
6. Product Standard will be improved
7. Increased Market Share
8. Larger Customer Base

Objective of the Study:
1. To study about PNB+UBI + OBI Amalgamation in India
2. To analyze the performance of Post and Pre -Amalgamation of Banks
3. To highlight the impact of this mega merger.
RESEARCH METHODOLOGY
The study of this paper is descriptive. The secondary data has been used to collect information.
Number of press releases, research publications, journals and newsletters from various Internet
websites regarding to this mega merger 2020 has been used for the study. Reserve Bank of India
(RBI) official website is been used for gathering information on performance of amalgamating
Banks.
DATA ANALYSIS
Punjab National Bank (pre-amalgamated):

The post amalgamated key measure of Punjab National Bank:
Status of selected banks on pre and post-merger:
Share price of selected merger banks:
Quarterly earnings selected merged banks:

Advances, Gross NPA, and Net NPA of the merging banks:
Banks:
FACTORS OF MARGER
 Improvement in Service Delivery
 Wide array of products will be available to customer
 Technological up gradation
 Opportunity for bigger deals
 Sickness Avoidance
 Product Standard will be improved

 Increased Market Share
 Larger Customer Base
CHANGES AFTER MERGING
 A new Account number will be allotted with new customer ID to customer of Oriental
Bank of Commerce and United Bank of India. Customer has to update their information
whenever need arises. A single customer ID is given to customer who having more than
one account.
 Technological up gradation on the card.
 Shareholders of Oriental Bank of Commerce and United Bank of India will get shares of
the Punjab National Bank in a pre-decided ratio i.e., 1,150 equity shares (Face value Rs2)
of Punjab National Bank for every 1,000 equity shares ( Face value Rs10 ) of Oriental Bank
of Commerce.121 equity shares ( Face value Rs2 ) of Punjab National Bank for every 1,000
equity shares ( Face value Rs10 ) of United Bank of India.
 Customer will have to update new bank account details with others where they had earlier
given details of their accounts in the amalgamating banks. These will include the IT
department for refund of tax, Life insurance companies, mutual funds etc.
 Interest on Deposit and Interest on various types of loans to be decided by Punjab National
Bank. If there is a merger of Banks MCLR linked retail loans transferred to MCLR of the
Anchor Bank.
 The customer of amalgamated bank need to take new Credit/debit cards issued by Anchor
Bank. The Credit/debit cards issued by the merging banks may be used limited period of
time.
 The customer of Punjab National Bank, United Bank of India and Oriental Bank of
Commerce must and should upgrade their Mobile application like Online banking App, e-
Passbook etc.

 In India several banks engaged in life insurance business. Punjab National Bank, Oriental
Bank of Commerce, United Bank of India are promoters in life insurance companies.
Canara HSBC, OBC life insurance belongs to Oriental Bank of Commerce. PNB MetLife
insurance belongs to Punjab National Bank. This bank should maintain their stake below
10% as per law.
IMPACT OF MERGER ON CUSTOMER
 Considered as esteemed costumer of large bank with global network.
 Part of sound banking system.
 Getting banking services around the Globe by visiting branches, ATM network and new
technology.
 Access to new products, facility of credit and new banking services.
 Merger of closely located branches of the three banks, by sending SMS message to
customers.
 Until complete merger of the three banks, Customer will continue to be served by present
branch of respective bank. There are also cordial relations with amalgamated bank.
 The customer can use Existing ATM/VISA/ Debit card until complete merger of these
banks.
 The cheque book issued by the Oriental Bank of Commerce and United Bank of India will
be valid until further notification.
 Reward Point awarded by the merged bank to customer will be retained in the amalgamated
bank. Further information in this respect will be shared separately.
 Customer of Oriental Bank of Commerce and United Bank of India can access ATM‟s of
Punjab National Bank and vice versa without any charges as stated by RBI.
 Existing Recurring Deposit/Fixed Deposit will be charged current rate of interest until

maturity. If there is renewal of FD, it will be done by the amalgamated bank with the latest
term deposit rates.
 Interest on savings account revised time to time. All information available on the banks
website.
 The insurance product issued by Punjab National Bank, Oriental Bank of Commerce,
United Bank of India will be valid until maturity. All information intimated to customers
well in advance.
ADVANTAGES OF MERGING
 It reduces the cost of operation.
 Helps to cover large area as well as scattered population.
 Optimum utilization of Deposit and effective disbursement of funds.
 Reduction in NPA and minimizing risk in lending.
 Better management with the help of efficient officer which minimize inefficiency.
 One Rank One Pay Policy. Uniformity in service conditions all over the country.
 Service delivery can get improved.
 Recapitalization of public sector banks may come to end.
 The size of each business entity after the merger is expected to add strength to the Indian
Banking System in general and Public Sector Banks in particular.
 A great number of posts of CMD, ED, GM and Zonal Managers will be abolished, resulting
in savings of crores of Rupee.
 Fresh blood and fresh thinking will get infused in the new entity.

 Better systems also may be introduced, to make the work-life of the employees more
comfortable and enjoyable.
 After mergers, the bargaining strength of bank staff will become more and visible.
 Bank staff may look forward to better wages and service conditions in the future.
 Customers will have access to fewer banks offering them a wider range of products at a
lower cost.
DISADVANTAGES OF MERGING
 Deep impact on performance of the stronger banks.
 Temporary solution to problems like bad loans, NPA and poor management.
 Merged Bank will lose regional identity.
 Employee dissatisfaction.
 Different banks have different goals, priorities and business strategies
 The weaknesses of the small banks may get transferred to the bigger bank which would
lead to a drop in their efficiency.
 Mergers will result in a clash of different organizational cultures. Conflicts will arise in the
area of systems and processes too.
 People working in the larger bank will try to dominate the personnel working in the smaller
bank. Thus, the latter will be treated as second class citizens in the new, merged entity.
 The customers do not have any say in deciding the identity of the bank with which their
existing bank is going to be merged.
Case 2- Bank of Madura and ICICI Bank Merger

ICICI Pre Merger EPS
Graph 1
Bank of Madura EPS
Graph 2
ICICI Post Merger EPS

Graph 3
Inference
From the graphs 1, 2 and 3 we can infer that Earnings per share (annualized) of ICICI Bank and
BoM were Rs5.21 Crores and Rs 37.51 Crores respectively in 2000. The post-merger EPS of ICICI
Bank has been Rs25.43 Crores which has been increase when compared to its premerger EPS.

Bank of Madura Pre merger PE
Graph 4
ICICI PE pre-merger
Graph 5

ICICI PE Post merger
Graph 6
Inference
The graphs 4, 5 and 6 reveal the pre and post-merger PE ratio for both the entities. The pre-merger
PE of ICICI Bank and BoM in 2000 were 49.9 and 2.31 respectively. The post-merger PE of
combined entity in 2004 was 11.64.

Dividend pre-merger ICICI
Graph 7
Dividend post-merger ICICI
Graph 8

Inference
The graphs 7 and 8 reveal that the pre-merger dividend amount to the shareholders of ICICI Bank
was Rs24.75 Crores, dividend payout percentage was 15% and the dividend yield was 0.58%. The
post-merger dividend amount to the shareholders of ICICI Bank was Rs544.06 Crores, dividend
payout percentage was 75% and dividend yield was 2.53%. The post-merger dividend amount,
payout percentage and yield percentage has shown growth.
ICICI Bank Market cap Pre merger
Graph 9

Bank of Madura Market Cap
Graph 10
ICICI Post merger Market Cap
Graph 11

Inference
The above graphs 9,10 and11 shows the details regarding the market capitalization of both ICICI
Bank and BoM. The pre-merger market capitalization of ICICI Bank and BoM in 2000 was Rs
5117.32 Crores and Rs 118.82 Crores respectively, but the figures show that the post- merger
market capitalizations as on March’2004 stand at Rs18,
239.57 Crores. This shows that the merger activity boosted up the market capitalization of ICICI
Bank.
ICICI Pre merger Net worth
Graph 12

Bank of Madura Net worth
Graph 13
ICICI Post merger Net worth
Graph 14

Inference
The graphs 12, 13 and 14 reveal the pre-merger net worth of both the entities. Net worth of ICICI
bank and BoM were at Rs1149.51 Crores and Rs215.71 Crores respectively as on March’2000.
The post-merger net worth of ICICI bank was Rs8010.56 Crores as on March’2004. The growth
in the net worth of the Bank after merger has been increased by nearly 8 folds.
Merger of Bank of Madura (BOM) and ICICI Bank
The ICICI, one of largest financial institutions in India had an asset base of Rs.582 bn in 2000. It
is an integrated wide spectrum of financial activities, with its presence in almost all the areas of
financial services, right from lending, investment and commercial banking, venture capital
financing, consultancy and advisory services to on-line stock broking, mutual funds and custodial
services. In July 1998, to synergize its group operations, restructuring was designed, and as a result
ICICI Bank has emerged.
On April 1, 1999, in order to provide a sharp focus, ICICI Bank restructured its business into three
SBUs namely, corporate banking, retail banking and treasury. This restructured model enabled
the bank to provide cross-selling opportunities through ICICI’s strong relationships with 1000
corporate entities in India.
The bank pioneered in taking initiatives and providing one stop financial solutions to customers
with speed and quality. In a way to reach customers, it has used multiple delivery channels
including conventional branch outlets, ATMs, telephone call-centers and also through Internet.
The bank also ventured into a number of B2B and B2C initiatives in the last year to maintain its
leadership in India.
The B2B solution provided by the bank is aimed at facilitating on-line supply chain management
for its corporate clients by linking them with their suppliers and dealers in a closed business loop.
The bank is always ahead in advanced IT, and used as a competitive tool to lure new customers.
In February 2000, ICICI Bank was one of the first few Indian banks to raise its capital through
American Depository Shares (ADS) in the international market, which has received an

overwhelming response for its issue of $175 mn, with a total order book of USD 2.2 bn. At the
time of filling the prospectus, with the US Securities and Exchange Commission, the Bank had
mentioned that the proceeds of the issue will be used to acquire a bank.
As on March 31, 2000, bank had a network of 81 branches, 16 extension counters and 175 ATMs.
The capital adequacy ratio was at 19.64 percent of risk-weighted assets, a significant excess of 9
percent over RBI’s benchmark.
ICICI Bank has been scouting for a private banker for merger, with a view to expand its asset and
client base and geographical coverage. It eyed for a merger proposal with BOM which had
an attractive business per employee figure of Rs.202 lakh, a better technological edge and had
a vast base in southern India when compared to other banks. ICICI Bank announced a merger with
57-year-old Bank of Madura, with 263 branches, out of which 82 of them are in rural areas, with
most of them in southern India.
As on the day of announcement of merger (09-12-00), Kotak Mahindra group was holding
about 12 percent stake in BOM, the Chairman BOM, Mr. K.M. Thaiagarajan, along with his
associates was holding about 26 percent stake, Spic group has about 4.7 percent, while LIC
and UTI were having marginal holdings. The merger will give ICICI Bank a hold on South Indian
market, which has high rate of economic development.
Business combinations, which may take the form of mergers, amalgamation and takeovers, are
important features of corporate restructuring and governance and have played an important role in
the growth of a number of leading companies the world over. Subsequent to the structural
adjustment programs in the Indian economy such restructuring has taken place in most of the
industries including banking, IT, FMCG and pharmaceuticals.
Justin Paul analyses the synergies of the merger of Bank of Madura with ICICI Bank in the Indian
banking industry and the strategic factors to be considered while taking merger or acquisition
decisions.
The swap ratio finally derived was 1:2 in favor of Bank of Madura but if the valuation had been
done on the basis of the market price of the shares, the balance sheets and the NPAs of both the
banks, the swap ratio could have been derived in favor of ICICI Bank. But strategic considerations
such as ICICI’s desire to acquire a good bank from South India, where they did not have a strong
presence and geographical advantage, swung the merger decision.
The paper looks at the valuation of the swap ratio, the announcement of the swap ratio, share price
fluctuations of the banks before the merger decision announcement and the impact of the merger
decision on the share prices. An attempt has also been made to assess the suitability of the merger
between the 57 year old Bank of Madura with its traditional focus on mass banking strategies based
on social objectives, and ICICI Bank, a six year old ‘new age’ organization, which has been
emphasizing parameters like profitability in the interests of shareholders.
The synergies generated by the merger would include increased financial capability, branch
network, customer base, rural reach and better technology. However, managing human resources
and rural branches may be a challenge given the differing work cultures in the two organizations.
The following synergies emerging from the merger:
Financial Capability: The amalgamation enables them to have a stronger financial and
operational structure, which is supposed to be capable of greater resource/deposit mobilization.
And ICICI will emerge as one of the largest private sector banks in the country.
Branch network: The ICICI’s branch network would not only increase by 264, but also increases
geographic coverage as well as convenience to its customers.
Customer base: The emerged largest customer base will enable the ICICI bank to offer banking
and financial services and products and also facilitate cross-selling of products and services of the
ICICI group.
Tech edge: The merger enable ICICI to provide ATMs, Phone and the Internet banking and
financial services and products to a large customer base, with expected savings in costs and
operating expenses.
Focus on Priority Sector: The enhanced branch network will enable the Bank to focus on micro-
finance activities through self-help groups, in its priority sector initiatives through its acquired 87
rural and 88 semi-urban branches.
The swap ratio has been approved in the ratio of 1:2 – two shares of ICICI Bank for every one
share of BOM. And the merger is expected to bring 20 percent gains in EPS of ICICI Bank. And
also the bank’s comfortable Capital Adequacy Ratio (CAR) of

19.64 percent has declined to 17.6 percent.
Financial Standings of ICICI Bank and Bank of Madura (Rs. in crore)
Parameters ICICI Bank Bank of Madura

1999-2000 1998-99 1999-2000 1998-99
Net worth 1129.90 308.33 247.83 211.32
Total Deposits 9866.02 6072.94 3631.00 3013.00
Advances 5030.96 3377.60 1665.42 1393.92
Net profit 105.43 63.75 45.58 30.13
Share capital 196.81 165.07 11.08 11.08
Capital Adequacy Ratio 19.64% 11.06% 14.25% 15.83%
Gross NPAs/ Gross Advances 2.54% 4.72% 11.09% 8.13%
Net NPAs /Net Advances 1.53% 2.88% 6.23% 4.66%
The stock merger is likely to bring cheer to shareholders and bank employees of BOM, and some
amount of discomfort and anxiety to those of ICICI Bank.
The scheme of amalgamation had increased the equity base of ICICI Bank to Rs. 220.36 cr. ICICI
Bank have issued 235.4 lakh shares of Rs.10 each to the shareholders of BOM. The merged entity
has an increase of asset base over Rs.160 bn and a deposit base of Rs.131 bn. The merged entity
now have 360 branches and a similar number of ATMs across the country and also enable the
ICICI to serve a large customer base of 1.2 million customers of BOM through a wider network,
adding to the customer base to 2.7 million.
Managing rural branches
ICICI’s major branches are in major metros and cities, whereas BOM spread its wings mostly in
semi urban and city segments of south India. There is a task ahead lying for the merged entity to
increase dramatically the business mix of rural branches of BOM. On the other hand, due to
geographic location of its branches and level of competition, ICICI Bank will have a tough time
to cope with.
Managing Software:
Another task, which stands on the way is technology. While ICICI Bank, which is a fully

automated entity is using the package, Banks 2000, BOM has computerized 90 percent of its
businesses and was conversant with ISBS software. The BOM branches are supposed to switch
over to Banks 2000. Though it is not a difficult task, with 80 percent computer literate staff would
need effective retraining which involves a cost. The ICICI Bank needs to invest Rs.50 crore, for
upgrading BOM’s 263 branches.
Managing Human resources:
One of the greatest challenges before ICICI Bank is managing human resources. When the head
count of ICICI Bank is taken, it is less than 1500 employees; on the other hand, BOM has over
2500. The merged entity has about 4000 employees which will make it one of the largest banks
among the new generation private sector banks. The staff of ICICI Bank are drawn from 75 various
banks, mostly young qualified professionals with computer background and prefer to work in
metros or big cities with good remuneration packages. While under the influence of trade unions
most of the BOM employees have low career aspirations. The announcement that there would be
no VRS or retrenchment created a new hope amongst the BOM employees & their pay would be
revised upwards.
Managing Client base:
The client base of ICICI Bank, after merger, will be as big as 2.7 million from its past million, an
accumulation of 2.2 million from BOM. The nature and quality of clients is not of uniform quality.
The BOM has built up its client base for a long time, in a hard way, on the basis of personalized
services. In order to deal with the BOM’s clientele, the ICICI Bank needs to redefine its strategies
to suit to the new clientele. The sentiments or a relationship of small and medium borrowers is
hurt; it may be difficult for them to reestablish the relationship, which could also hamper the image
of the bank.
Crucial Parameters: How they stand

Book value of Market price Profit per
Name of the Bank on the on the day of Earnings Dividend employee
P/E ratio (in lakh)
Bank day of merger announcement per share paid
announcement of merger (in %) 1999-2000
Bank of 183.0 131.60 38.7 55% 3% 1.73

Madura
ICICI Bank 58.0 169.90 5.4 15% - 7.83
When we look at the key parameters such as net worth, total deposits, advances and NPAs (given
in the table) the ICICI Bank is in a much better position. The net worth of the former is four folds
higher than the latter. And in terms of total deposits and advances the former is three fold higher
than the latter. When we look at the NPA ratios, the gross NPAs to gross advances and net NPAs
to net advances and the non-performing
Assets are four fold higher in latter case, than that of the former. The ICICI Bank which was
looking for a strategic alliance after it received its proceeds from ADS issue had a tie up with
BOM only to expand its customer base and branch network.
Rationale behind the merger
To expand its business operations, it had to acquire a bank, which would have given it a stronger
retail presence and higher profits. With the acquisition of BoM, ICICI is richer by almost 260
branches, 2500 personnel and deposit base of around Rs37bn. Since in most of the southern states,
ICICI has a low presence, it would be able to use its technology in the existing network of BoM.
Efficiency levels of the banks

(As on 31-03-2000) ICICI BoM
PAT (Rs mn) 1052 455
NPAs (%) 1.53 4.7
CAR (%) 19.6 15.8
ROANW (%) 30.1 19.8
RoA (%) 0.87 1.12
Business per employee(Rs lac) 595 202
Profits per employee(Rs lac) 7.8 1.7
Book Value 58.4 211.7
Adjusted Book Value(for NPAs) 55.6 132.5
EPS 5.35 38.89
As ICICI has been riding on its tech initiatives and growing at a much higher rate, the efficiency
ratios of BoM is also better as compared to the other older banks. The only concern for the bank
stems from its high level of NPAs, which the merged entity would be burdened with. Also since,
most of the workforce of BoM is computer literate; ICICI would not have much difficulty in
getting them used to its working environment.
How the financial statements have changed:
ICICI ICICI
(Rs mn) pre-merger post-merger
Deposits 98660 134970
Advances 36573 53227
Investments 44166 61294
Share Capital 1968 2202
Net Worth 11494 14088
Net Interest Income 1859 2901
Other Income 1940 2927
Employee Costs 363 990
PAT 1052 1507
NPAs (Rs mn) 559 1486
NPAs (%) 1.53 2.8%
No of employees 1344 3967
All figures are as on 31st March’ 2000
Moving towards the older private sector banks, ICICI needed to pick someone who had a good
retail penetration, higher productivity ratios and could change faster to the tech banking of ICICI.

Since BoM was able to satisfy most of the parameters, the merger made sense, as it would give
ICICI a two-year growth at one shot.
Case 3 – Global Trust Bank and Oriental Bank of Commerce Amalgamation
One event the whole banking fraternity and the common man fears the most is the failure of a
bank. The moratorium on Global Trust Bank's activities is one such incident that has shaken up
the banking sector, and with it, the confidence of a large number of investors and depositors.
The failure of any bank is a very serious issue and can have a profound impact on the financial
sector and its incumbents as a whole.
The RBI placed a moratorium on the operations of the bank on 24th July 2004 and depositors are
now only allowed to withdraw a maximum of Rs 10,000 from the bank at any given point of time.
The crisis in GTB is not sudden and the bank had been under RBI scrutiny for some time now.
Problems of the bank stem mainly from its very large quantum of NPAs accumulated over a period
of time. Consequently, higher provisioning for the same took a toll on its net worth, thus adversely
impacting the capital adequacy of the bank. The bank had a large Rs 2.7 bn net loss in FY03 mainly
due to large provisioning for its NPAs.
The shareholders of GTB will be the ultimate losers, as they are not likely to get any shares in
exchange of the takeover by OBC (a case similar to the PNB and Nedungadi Bank merger). This
event again highlights the vulnerability of any organization to poor management.
Oriental Bank of Commerce was chosen over other suitors for Global Trust Bank because they
shared the same technology platform. If two banks with two different technology platforms plan a
merger, hundreds of crores of rupees will go down the drain.
The trust in the banking system may be back as the eight lakh odd depositors of Global Trust Bank
(GTB) heave a sigh of relief. The OBC is one of the best in the business with a large capital base
and zero NPAs - something that not many Indian banks, public or private can boast of. Plus, it is
largely a north-based bank while GTB is mainly in the south and west. So, the marriage appears
to be a good fit for both the banks.

Considering that it was the PSU bank that evinced interest in GTB rather than the RBI thrusting
the decision on it, OBC has derived maximum benefit. The initial reaction of the stock market to
the proposed merger was negative with OBC stock falling as much as 5%. But the news that there
would be no share swap calmed the rattled OBC investors, and the stock recovered.
The GTB depositors are happy, so are the investors in OBC, but one set of people who would not
be amused are the GTB shareholders, who seems to have got the wrong end of the stick.
The transferee bank, OBC, shall call upon every person who was, as on the prescribed date,
registered as the holder of an ordinary share of the transferor bank GTB, or would have been
entitled to be so registered, to pay within three months from such date or dates as may be specified,
the uncalled amount remaining unpaid by him in respect of such share or shares and the calls in
arrears, if any.
This could mean that the shareholders might have to pay up the unsubscribed portion on their
authorized capital.
GTB's authorized capital stands at Rs 350 crore (Rs 3.50 billion) which was raised to the current
level from Rs 200 crore (Rs 2 billion) in 2002-03. The subscribed capital, however, stands at Rs
121.3 crore (Rs 1.213 billion) which remained the same for the last couple of years. The
unsubscribed amount in the bank thus stands at Rs 230 crore (Rs 2.30 billion).
RBI has also mentioned that OBC shall take all available steps in regard to the circumstances of
each case to demand and enforce the payment of the amounts due under together with interest at
six per cent per annum for the period of the default.
The existing paid-up capital and reserves of the bank will be treated as provision for bad and
doubtful debts and depreciation in other assets of the transferor bank which would help OBC to
write off GTB’s bad debts.
Further, every share in GTB, the amount, which was treated as paid-up towards share capital by
or on behalf of each shareholder immediately before the prescribed date and the amount paid on
account of the calls made by OBC shall be treated as a 'collection account' and shall be entered as

such in the books of the transferee bank.
OBC gain Rs950cr from Global Trust Bank merger
Oriental Bank of Commerce stands to gain about Rs 950 crore including Rs 300 crore in tax
benefit, from the merger of troubled Global Trust Bank.
The Delhi-based bank is expecting higher profit and 30 per cent growth in business at Rs 80,000
crore following the merger.
The bank also hopes to recover about 30 per cent of GTB's bad assets amounting to Rs 300 crore
in the next two years.
GTB has adequate provisioning for majority of its NPAs before the merger, the remaining Rs 300-
400 crore of net NPAs would be absorbed in OBC's books in the next 2-3 years.
OBC also incorporated about Rs 150 crore in operating profit posted by GTB in last fiscal and
hopes higher profits from the ailing bank.
In addition, OBC stands to gain from 100 branches and 275 ATMs of GTB, which are now
functioning as OBC outlets.
OBC estimates that it would cost the bank Rs 200 crore if it has to open 100 odd branches and
275 ATMs.
Moreover, OBC has added one million depositors of GTB mainly belonging to high-income
group, under its fold.
The Delhi-based bank's branch network increased to 1,350 branches and about 400 ATMs after
the merger with GTB, while the balance sheet size (deposits and loan advances) had increased by
18 per cent to Rs 65,000 crore.
OBC does not expect any cash outgo on account of manpower rationalization, as it has ruled out
a Voluntary Retirement Scheme for GTB officials.
Normally, banks have to incur huge expenditure on the VRS head and stagger the spending for
five years so that it does not affect the profits in any particular year.
OBC has agreed on a 3-years job protection for 1,300 odd GTB staff at the existing pay package.
With the amalgamation, the new entity’s balance sheet would touch Rs 66,000 crore as a result of
addition of Rs 10,000 crore of GTB assets.
To sum up, the merger brought the OBC the retail client base of GTB (1m customers), 103
branches (mostly in the South), a balance sheet of Rs 66,000 crore, 1,300 employees and tax relief.
With the acquisition of the bank, OBC has saved Rs 10 crore, the cost of acquiring 1m customers.
The 1,300 GTB employees would meet OBC’s manpower requirement in the days to come.
On the synergy with the bank, both banks run on ‘Finacle’ the software from Infosys. Further, this
would save the bank from its tax liabilities.
OBC have been the highest taxpayer. The accumulated loses that we inherit will make us escape
the tax net.
Global Trust Bank merger: Gain to Oriental Bank
The merger of GTB and OBC without a swap ratio for shares implies that current GTB
shareholders will be left with zero value for their investments.
The deal brings significant advantages to Oriental Bank of Commerce. OBC, along with Allahabad
Bank and J&K Bank, have been looking to strengthen their presence in the South. GTB has a very
good market presence in the region and this would help OBC quickly expand in the region.
Computerization and a wide network of automatic teller machines were other areas that OBC was
lagging behind in. GTB's latest computer systems and wide coverage of ATMs would help OBC
jumpstart its own efforts to introduce cutting edge banking technology and solutions.
This is a big value addition to the bank. The banking sector today is divided into haves and have-
nots based on the technology they use and the level of computerization that is achieved for their
processes. OBC may not have been able to do it well, had they done it alone. While the merger
brings with it some problems of integration, overall OBC can use this as a step-up to the `haves'.
OBC will get all the physical assets of GTB and its fairly large deposit base. GTB also maintains

SLR and CRR with RBI. Though OBC had acquired the liabilities along with these assets, there is
no major hit on the balance sheet of OBC.
The Oriental Bank of Commerce (OBC) and Global Trust Bank (GTB) merger was primarily to
protect GTB depositors but GTB depositors are now realizing that not all their rights have been
protected and GTB depositors have been forced to accept lower rates by OBC.
Managing Human Resources
The Global Trust Bank deal is seen to be a perfect fit for Oriental Bank of Commerce. While
sewing up the legal, financial and operational elements of the merger, OBC also give priority to
something mostly ignored during mergers and acquisitions -- human resources.
OBC is, of course, not new to mergers. Nationalized in 1980, the bank grew in size after Punjab
Cooperative Bank and Bari Doab Bank were merged into it in 1996. But these mergers are small
change compared to the GTB deal.
In case of Punjab Cooperative, OBC took care of the salary fitment problem by asking all officers
-- from juniors to the level of assistant general managers -- to join OBC in Scale I, which is the
bottom end of the officers' salary levels.
The resentment among Punjab Cooperative officers could be easily contained as most of them
were only too relieved to have been absorbed in a better public sector bank, which had an excellent
balance sheet and the lowest cost-to-assets ratio.
GTB is vastly different. Despite its troubles, a significant percentage of the 1,200 GTB employees
enjoy much better salaries and privileges than what a public sector bank like OBC is constrained
to pay its own employees.
The scheme of amalgamation drafted by the Reserve Bank of India has clearly said that all GTB
employees will continue to retain their jobs and get the same salary package and work on the same
terms and conditions as applicable prior.

But "salary fitment problems" could only be a part of the "people problems" to be faced by OBC.
For OBC, the biggest challenge would be how to treat the brighter of the GTB employees, who
would be the most vulnerable at this point.
As per The McKinsey Quarterly, the takeover approach usually proceeds on the assumption that
the acquirer's management will remain, but exceptions must be made when the acquired company's
employees -- some of them, at least -- are clearly superior. This means OBC should identify GTB's
key people, tell them that they are well regarded, and offer incentives sufficiently generous to keep
them.
Oriental bank of Commerce: Performance summary
Oriental Bank of Commerce (OBC), posted its 3QFY05 results, showing a clear impact of
accommodating the erstwhile GTB’s poor asset legacy in its books. Despite a topline growth to
the tune of 9% YoY, a relatively higher growth in interest expenses and operating expenses has
had an overbearing impact on the operating profits (dipped by 35%) of the bank. The tax relief,
which the bank has received for carrying GTB’s assets in its books, has failed to negate the impact
of a sudden jump in provisioning (121% YoY) on the bank’s 3QFY05 bottom line (dipped by 16%
YoY).

Performance summary:
Rs (m) 3QFY04 3QFY05 Change 9mFY04 9mFY05 Change

Income from operations 8,327 9,102 9.3% 24,473 26,280 7.4%
Other Income 1,557 1,525 -2.1% 5,568 3,184 -42.8%
Interest Expense 4,529 5,356 18.3% 13,863 14,901 7.5%
Net Interest Income 3,798 3,746 -1.4% 10,610 11,379 7.2%
Other Expense 1,664 2,370 42.4% 4,709 5,658 20.2%
Operating profit / (loss) 2,134 1,376 -35.5% 5,901 5,721 -3.1%
Operating profit margin
(%) 25.6% 15.1% 24.1% 21.8%
Provisions and 938 2,071 120.8% 3,965 2,520 -36.4%

Profit before tax 2,753 830 -69.9% 7,504 6,385 -14.9%
Tax 1,230 (452) -136.7% 2,931 1,150 -60.8%
Profit after tax/ (loss) 1,523 1,282 -15.8% 4,573 5,235 14.5%
Net profit margin (%) 18.3% 14.1% 18.7% 19.9%
No. of shares (m) 192.6 192.6 192.6 192.6
Diluted earnings per share 31.6 26.6 31.7 36.2

(Rs)*
P/E (x) 8.9
* annualized
No longer a zero NPA bank
Nationalized in 1980, OBC is one of the most efficient public sector banks in the country. The
bank has close to 1,000 branches that are mainly concentrated in northern India. OBC saw windfall
gains in its portfolio of G-Secs and this helped the bank post strong growth in its bottom line in
the last 3 years. Witnessing a slowdown in the wholesale (including corporate) lending market,
OBC, like most other public sector banks, has chosen to concentrate on the fast growing retail
market, where it has met a reasonable amount of success.

The bank, which was also the first public sector bank to have zero net NPAs, no longer has the
“zero NPA” tag to its credit. This is because, post the liquidation of the erstwhile Global Trust
Bank (GTB), OBC has merged the operations of GTB with itself and is carrying GTB’s poor asset
legacy in its books.
Factors that driven performance in 3QFY05:
Feeling the margin pressure: After exhibiting consistency in its operational performance over
past few quarters, OBC has witnessed a sudden negative surprise in the same. With a decent 28%
growth in advances and 29% growth in deposits, OBC’s 3QFY05 topline has amplified by 9%
YoY. However, the interest expenses have multiplied by a relatively larger quantum (18% YoY)
thereby shrinking the net interest income (NII). Inability to contain the operating expenses (up by
42% YoY) has also pruned the operating margins.

Provisions take toll on profits: The bank has however maintained its conservative approach
when it comes to provisioning and has not abstained from taking a hit on its bottom line to make
adequate provisions for treasury as well as GTB’s losses. The bank has made provisions to the
tune of Rs 3 bn for treasury losses, Rs 1 bn for depreciation in securities, Rs 0.5 bn for future GTB
claims and Rs 0.6 bn for writing off GTB’s losses. Although the bank is now having net NPAs to
advances ratio of 1.5%, given its history of sustaining a clean asset book and prudent approach,
we do not see the assets slipping any further.
GTB synergies shaping up: While OBC (prior to merger with GTB) had a regional concentration in the
north; GTB’s branches are now expected to lend the bank the desired access to the prosperous south and
western markets, therein giving the bank a pan-India presence. GTB’s technical expertise and portfolio of
over 1 m retail customers is also expected to bring synergies in the coming quarters.
Case 4- ICICI-ICICI Bank Reverse merger:
Size, range and low-cost resources have been recurring themes in ICICI's strategy over the last
few years. Ever since Development Financial Institutions (DFIs) were cut off from concessional
funding in the early 1990s and asked to face heightened competition, ICICI has relentlessly
pursued its goal of becoming a universal bank to survive the changed environment.
Following significant proportion of loans made in the early and mid-1990s turning bad, a drive to
increase its size and range of activity, and thereby cushion the impact of loans turning bad, have
been the defining features of ICICI's strategy. The move to embark on a reverse merger with its
offspring, ICICI Bank, seems to be the watershed in its dream of becoming a universal bank.
Simply put, a universal bank means nothing more than carrying out all aspects of financial
intermediation under one roof. For instance, commercial banking, wholesale lending, retail lending
and insurance were traditionally carried out by unrelated entities. In a new environment where all
traditional barriers have vanished, a universal bank to carry out all kinds of intermediation under
one roof has been viewed as a route to make the best of new opportunities as well as face up to
new competition.
Institutions and banks looking at mergers both within and across different types of financial

intermediaries view size as a strategy to thrive in a more competitive environment.
The biggest hurdle that the merger is likely to face are smoothening the difference in regulatory
requirements between commercial banks and convincing shareholders.
One area where the merger impact could be telling is retail consumer financing business such as
commercial vehicle finance, an area dominated by finance companies. ICICI, recently, entered
commercial vehicle financing and the impact on pricing structure was immediate.
The merger makes other finance companies find it almost impossible to compete with ICICI.
The attempt at reverse merger between ICICI and ICICI Bank will be the first of its kind in India.
However, there have been other path-breaking moves to capitalize on new opportunities. The most
significant being the strategic alliance between LIC and Corporation Bank after LIC took a 26.8
per cent equity stake in Corporation Bank.
The reverse merger is a test case in the financial sector. As this has went through smoothly, there
may be other such in the making. For example, IDBI and UTI are two large institutions grappling
with critical problems and IDBI in particular needs to access lower cost funds to stay competitive.
ICICI Bank has so far enjoyed the synergistic benefits of operating as part of the ICICI group,
without tainting its loan book. The general impression in the stock market is that the beneficiary
of the ICICI-ICICI Bank is the former. The goal of the ICICI group is to go in for universal
banking. However, the swap ratio for the merger indicates that the ICICI shareholders have also
had to bear considerable losses.
Consider, the book value per share of ICICI and ICICI Bank at end-September 2001 is Rs.111.81
and Rs.65.53 respectively. However, ICICI's shareholders will get only one share of ICICI Bank
for every two shares held in ICICI. In other words, for surrendering a book value of Rs 223.62, a
shareholder in ICICI will get Rs 65.53. This works out to a discount of nearly 71 per cent to the
book value of ICICI.
According to the management of both companies, relative market prices, discounted cash flows,
the book value of the net assets of ICICI is worth Rs 8,777 crore at end-September 2001. The

market value of the shares to be issued by ICICI Bank for taking over these assets is only around
Rs 4,050 crore. It is also significant that the book value does not take into account the fair value
of the investments by ICICI in profit-making companies such as ICICI Bank, ICICI Infotech,
ICICI Venture, ICICI Home Finance and ICICI Investment Management Company. ICICI's
holdings in ICICI Bank alone are worth Rs.1, 040crores at market.
ICICI, Bank merger swap at 2:1
The swap ratio was a share swap of one equity share of ICICI Bank for two equity shares of ICICI
Ltd for the proposed reverse merger of the two entities.
Under the scheme of amalgamation okayed by both boards, American depository share (ADS)
holders of ICICI will get five ADS of ICICI Bank in exchange for four ADS of ICICI.
The merged entity has become the second largest bank in India with total assets of about Rs 95,000
crore. It would have a network of 396 branches of ICICI Bank and 140 retail centers of ICICI.
ICICI had 46 per cent of the paid-up equity capital of ICICI Bank before merger. This holding had
not been liquidated under the scheme of amalgamation. It is held in a trust for the benefit of the
merged entity and divested through appropriate placement in fiscal 2003.
The merger has bought benefit to the shareholders of both entities. Value for shareholders of ICICI
is enhanced through the merged entity's access to low-cost deposits and greater opportunities for
earning fee-based income.
For shareholders of ICICI Bank, the value comes from the large capital base and scale of
operations, access to ICICI's strong corporate relationships built over five decades, entry into new
business segments, higher market share in various business segments and access to ICICI and its
subsidiaries.
The merged entity has to provide CRR on around Rs 18,000 crore of liabilities. As far as priority
sector lending was concerned, the bank hoped to start with a 20 per cent norm as against 40 per

cent applicable for banks.
At the time of the merger, ICICI Bank aligned to the Indian GAAP accounting policies of ICICI
to those of ICICI Bank, including a higher general provision against standard assets. Further, in
accordance with international practices in accounting, ICICI Bank
Decided to adopt the `purchase method'' of accounting, which is mandatory under US GAAP, to
account for the merger under Indian GAAP as well.
ICICI's assets and liabilities were therefore fair valued for the purpose of incorporation in the
accounts of ICICI Bank on the appointed date.
ICICI's key is integration
Among the universal bank aspirants, ICICI has been, arguably, the most keen on an integrated unit
offering different kinds of financial intermediation. Other dominant financial services groups,
HDFC, for example, feel that it may be better to operate with different companies catering to
different markets because of the presence of multiple regulators in financial services.
Different strategies on universal banking exist because insurance, commercial banking, stock
broking and housing finance are areas with their own regulators and capital requirements. In this
backdrop, HDFC appears to be inclined to bring about synergy in the group's operations but
continue as different companies. All the entities in the group extract the most out of the goodwill
associated with the brand, HDFC, but pursue business as independent entities.
Meanwhile, the other potential universal banks such as HDFC and IDBI groups have decided to
operate as independent entities, though less than one umbrella. Well, at least for the moment.
MERGER GAINS FOR ICICI BANK

 Forward leap in the hierarchy of Indian banks.
 Achieve size and scale of operations by leveraging ICICI’s capital and client base for higher
fee income and higher profitability by leveraging on technology and low cost structure and
access to its talent pool.
 Offer a complete product suite with immense cross-selling opportunities through ICICI’s
presence in retail finance, insurance, investment banking and venture capital.
MERGER GAINS FOR ICICI
 Improved ability to further diversify asset portfolio and business revenues.
 Lower funding costs through ability to accept / offer checking accounts, availability of float
money through active participation in payment system and diversified funds rising thru access
to retail funds.
 Increased fee income opportunities facilitated by the ability to offer all banking products.
 Competitive advantages of the merged bank with an asset base of nearly Rs. 1 lakh crores and
being the 2nd largest bank next only to SBI will be –
1. Vast talent pool.
2. Technology enabled distribution architecture.
3. Low operating costs.
4. Extensive customer relationships and strong brand franchise.
5. Complete product suite.
6. Large capital base.
7. ICICI’s retail operations (ICICI PFS and ICICI Capital Services) will be merged with ICICI
Bank.

To summarize, the merger has created a strong entity that will redefine banking in the highly
competitive era of globalization and liberalization.
Post-merger
Effects Introduction to results

(Rs m) 2QFY04 2QFY05 Change 1HFY04 1HFY05 Change
Income from operations 22,107 22,305 0.9% 45,054 44,263 -1.8%
Other income 8,622 8,354 -3.1% 15,060 14,931 -0.9%
Interest expenses 17,383 15,453 -11.1% 35,785 31,105 -13.1%
Net interest income 4,724 6,852 45.1% 9,269 13,158 42.0%
Other expenses 6,414 7,688 19.9% 12,353 15,013 21.5%
Operating profit (1,690) (836) (3,084) (1,855)
Operating profit margin (%) -7.6% -3.7% -6.8% -4.2%
Provisions and 2,404 1,947 -19.0% 3,641 2,405 -33.9%
contingencies
Profit before tax 4,528 5,571 23.0% 8,335 10,671 28.0%
Tax 514 1,150 123.8% 919 1,943 111.3%
Profit after tax/(loss) 4,014 4,421 10.1% 7,416 8,728 17.7%
Net profit margin (%) 18.2% 19.8% 16.5% 19.7%
No. of shares (m) 613.4 734.5 613.4 734.5
Diluted earnings per share 26.2 24.1 24.2 23.8
P/E ratio 12.2
*(annualized)
India's second largest bank
ICICI Bank post-merger with its parent ICICI has emerged as the second largest bank in the
country after SBI in terms of asset size. The bank provides a range of corporate and retail banking
services. ICICI Bank also prides itself as the first universal bank in the country due to the fact that
it provides a wide variety of services.
It is also the first Indian bank to offer Internet banking and also the first Indian bank to list on
NYSE. At the end of FY04 the bank had an ATM network of over 1,790 ATMs and 470 branches
spread across the country.
Strong growth in core interest income
Sales: ICICI Bank continues to register spectacular growth (57% YoY) in its retail advances,
while its non-retail advances have reported a marginal fall in the September quarter. Retail
advances now account for nearly 58% of advances compared to 52% a year ago.
Despite the strong growth in advances (25%, YoY) in the period ending September 2004), the
bank has not been able to grow its top line. This is primarily on account of the fact that while
interest incomes from advances have grown; there has been a decline in interest income from
investments. Lower incremental yields are taking a toll on the bank's interest income.
NIMs, improving still: The bank has managed to bring down its interest expenses and this has
helped it to improve its net interest income and consequently, its net interest margins (NIM). Costs
of deposits have reduced to 4.4% in the September quarter from 5.8% last year. In a bid to reduce
its interest expenses, the bank is steadily pruning its borrowings in order to leverage more on low
cost savings and current deposits.
While the bank has not disclosed its net interest margins it is believed that there has been an
improvement in the same. We expect a continuous improvement in this going forward due to
further replacement of erstwhile ICICI's term loans with low cost deposits. All this is likely to
lead to a robust growth in net interest income going forward. Operating expenses continue to rise
led by the bank's infrastructure expansion initiatives to capture the credit growth potential in the
country.

Performance Review - Year ended March 31, 2005: 22% year-on-year growth in profit after tax
Highlights:
 Profit after tax for FY2005 increased 22% to Rs. 2,005 crore (US$ 460 million) from
Rs. 1,637 crore (US$ 375 million) for the financial year ended March 31, 2004
(FY2004).
 Profit after tax for the quarter ended March 31, 2005 (Q4-2005) increased 35% to Rs.
615 crore (US$ 141 million) from Rs. 455 crore (US$ 104 million) for the quarter
ended March 31, 2004 (Q4-2004).
 Net interest income increased 43% to Rs. 2,839 crore (US$ 651 million) for FY2005
from Rs. 1,987 crore (US$ 456 million) for FY2004.
 Fee income increased 79% to Rs. 2,098 crore (US$ 481 million) for FY2005 from Rs.
1,175 crore (US$ 269 million) for FY2004.
 Retail assets increased 68% to Rs. 56,133 crore (US$ 12.87 billion) at March 31, 2005
from Rs. 33,424 crore (US$ 7.66 billion) at March 31, 2004. The Bank now has the
largest retail portfolio in India.

 Deposits increased 47% to Rs. 99,819 crore (US$ 22.88 billion) at March 31, 2005
from Rs. 68,109 crore (US$ 15.61 billion) at March 31, 2004.
At March 31, 2005, the Bank's net non-performing assets constituted 2.0% of customer assets.

CHAPTER 5
FINDINGS
Findings of the study have been summarized as follows:
 The reasons behind the M&A activity in the cases studied above were to expand its asset
and client base and geographical coverage, acquire a poor performing bank and with the
goal to head towards universal banking and to achieve size and scale of operations.
 In some cases, the acquired firms’ shareholders sometimes enjoyed abnormal returns on
their equity investment after the announcement of the merger/acquisition, the shareholders
of the acquiring firms rarely gained significantly.
 The returns on assets and equity of the merged bank were significantly higher than the
combined returns of the acquiring and the acquired banks prior to merger.
 Largely in the context of mergers among banks belonging to the same holding companies
i.e., reverse merger there was a significant improvement in cost efficiency of the banks
subsequent to merger.
 The acquiring banks were, in general, more efficient and profitable than the acquired banks.

SUGGESTIONS
A decade into financial sector liberalization1, there has been little concerted effort at restructuring the
Indian public sector banks3 (PSBs). Though there has been significant progress in banking regulatory
reform in the decade, the lack of restructuring has slowed down the assimilation of the incentive
structures inherent in the new regulations.
As a consequence, profitability and viability of the PSBs are still below global standards and even the
median values within the Indian banking industry. Many small banks in India cannot meet the
international banking standards and also Basil Norms.
A time has also come for the Government/RBI to consider whether the financial system is
‘optimal’ in terms of the number of banks, or whether there is a case for rationalization of branch
network (along with mergers of few banks). The existence of a large number of banks in public
sector is widely viewed as a matter of historical accident and a more rational view on economic
considerations would need to be taken.
The PSBs vary greatly in size, branch network, and deposit base and asset quality. If these banks
are to improve their standards of service and compete more effectively with their new private and
foreign counterparts, they would need to be more capitalized, automated and technology-oriented,
even while strengthening their internal operations and systems.
Sound Banking: A sound banking system by definition presupposes that all the banks, or at least
a majority of them within the system are strong and good as viable concerns. However, every
system has its own instances of weak links and the banking system is no exception. It is, therefore,
desirable to discuss the options available to the weak banks for ensuring resilience of the system.
While the root cause of a bank becoming weak can be traced to managerial inadequacies, existence
of high NPAs is one of the prominent manifestations. Poor quality of assets confronted with
stringent IRAC norms can and sometimes does result in wiping out the entire (or a substantial)
portion of the net worth of a bank.

Universal Banking: Worldwide experience suggests a move towards universal banking on the part
of financial sector participants in terms of a greater integration of operation of banks and non-bank
financial institutions in India. Commercial banks have entered the domain of term-financing and
have started providing investment banking services, besides making their presence in diverse areas
like mutual funds, securities trading and factoring services. With DFIs, in turn, making inroads into
traditional banking activities of short-term/working capital financing, the operational divide
between banks and DFIs has become increasingly blurred.
Risk Management: Given the growing internationalization of banking operations, there remains
the possibility of a serious mismatch between assets and liabilities with damaging implications for
interest rate risk, liquidity risk, foreign exchange risk etc. Proactive handling of these risks therefore
assumes prime significance. The Banking system should be able to address this issue and brought
into focus the dangers to liquidity and solvency due to mismatches between assets and liabilities.
When an economy is liberalizing, the banking system faces a ’double-whammy’. On one hand, the
banks have to handle changes within the banking system, whereas on the other hand, they have to
confront changes in the client network, which involves an entirely new set of risks.
These risks are such that the client system does not have much maneuverability to hedge against
them. Since the banks in India had, in the regulated era, assumed that these risks would be borne
entirely by the clients, they were not factored them into account while determining the risk-reward
structure or pricing strategy.
Another source of risk is that of technology risk. With a significant workforce, the PSBs have not
been able to harness the beneficial effects of computerization. Information technology is
viewed more as reconciliation equipment for the back office and a ledger mechanism for the front
office. This, in effect, constrains PSBs from providing a single window service to their customers
in a world where banking is increasingly becoming a consumer-centric service provider.
This lack of leveraging of their investment in effect has inhibited their decision-support system,
which is a growing threat they encounter from their private sector and foreign counterparts.
PSBs have remained a dominant segment of the financial marketplace in India, with a

considerable amount of social and economic investment into them. It is important for them to wake
up to the realities of the changing scenario and pro-actively handle these risks.
Issues relating to Cooperative Banking: Urban cooperative banks (UCBs) have come to
constitute an important segment of the financial system. Over the period from 1992-93 to 1999-
00, the number of reporting banks have increased from 1,399 to 2,050 with their owned funds
increasing more than threefold from Rs.22 billion to over Rs.80 billion over this period.
Even their profitability has improved significantly over the period, with net profits increasing from
Rs. 0.86 billion in 1997-98 (0.46 per cent of total assets) to Rs. 2.55 billion (0.86 per cent of total
assets) in 1999-00. Despite the healthy growth of UCBs, there are several issues that remain to be
resolved. First, in the new liberalized regime, licensing policy for new UCBs is expected to be not
only transparent, but also objective, based on established standards and procedures.
One of the major problem areas in the supervision of UCBs is the duality in control by the State
Government and the Reserve Bank. Since UCBs are primarily credit institutions meant to be run
on commercial lines, the responsibility for their supervision devolves on the Reserve Bank, as they
constitute a part of the payment system.
Therefore, while the banking operations pertaining to branch licensing, expansion of areas of
operations, interest fixation on deposits and advances, audit and investments are under the
jurisdiction of RBI, the managerial aspects of these banks relating to registration, constitution of
management, administration and recruitment, are controlled by the State Governments under the
provisions of the respective State Cooperative Societies Act.
This duality of control should be done away with and the responsibility of regulation of UCBs be
placed on the Board for Financial Supervision.
UCBs and RRBs lack in proficiency. Government should rethink on merging of RRBs with
adjacent district banks or with the banks which are controlling them. This issue should be given a

rethink.
Basel norms are very strong that our weak banks especially old generation banks are in capable to
meet those norms and also some international banking norms. Government should also give a
thought of merging these old generation banks with the new generation banks.

CONCLUSION
One size doesn’t fit all. Many companies find that the best route forward is expanding ownership
boundaries through mergers and acquisitions. For others, separating the public ownership of a
subsidiary or business segment offers more advantages. At least in theory, mergers create synergies
and economies of scale, expanding operations and cutting costs. Investors can take comfort in the
idea that a merger will deliver enhanced market power.
M&A comes in all shapes and sizes, and investors need to consider the complex issues involved
in M&A. The most beneficial form of equity structure involves a complete analysis of the costs
and benefits associated with the deals.
Will the stable conditions continue for the banks?
The big question we have to ponder is whether these stable conditions marked by all round
improvement in banks’ performance can continue into 2005 onward in the light of potentially
dramatic changes that include, among others, a sliding dollar, rising interest rates, introduction of
Basel II accord and international accounting standards, and the possible flattening of consumer
lending boom. Hopefully, the banking industry in tandem with the regulatory authorities will rise
to the occasion, and collectively face the challenges and opportunities that lie ahead.
India should set for itself in the new millennium to transform our banking system from being a
largely domestic one to a truly international one. It is striking that while we have made tremendous
strides in extending the reach of our banking system domestically, internationally the Indian
banking system is conspicuous by its absence.
We have very few branches in other parts of the world and even these are mainly confined to India
related business. We cannot claim to have any significant presence in international financial
markets and international banking.
Banking is a service-oriented business requiring high levels of professional and personal skills and
national boundaries are no longer very relevant in mobilization and allocation of capital. Under
the new circumstances, there is no reason why India should not emerge as a major international

banking center, just as it has emerged as an important location in the field of information
technology and software.
This objective is not something that can be achieved in a short period of time. It can take 10 or
even 15 years. But the time to begin and plan is now. Commercial banks in India are required to
maintain disclosure standards on par with those of international banks. This has been achieved by
mandating disclosure of some of the essential strength indicators and performance related
parameters as part of commercial banks’ balance sheets.
The most critical condition for bringing about an improvement in the profitability of banks is a
reduction in the level of NPAs. In fact, it is a precondition for the stability of the financial system.
Although the level of NPAs has declined significantly in recent years, it is still considered
relatively high by international standards. There are, of course, varying country practices for
provisioning and therefore, of carrying NPAs on balance sheets of banks. Due to time lags in
recovery, banks in India continue to hold NPAs on their books even after making provisions.
Moreover, in India, provisioning is relatively more stringent; for instance, provisions are required
to be made even on the secured portion of advances. In other countries, identified losses are written
off at an early stage and banks carry very little NPAs on their books. Even so, the provision
adjusted level of NPAs at 8.1 per cent of net advances for public sector banks (PSBs) in India is
high. The distribution of NPAs across the public sector banks shows that there is some rigidity to
move down in the category of banks with net NPAs between 10 and 20 per cent of net advances
as also in the category of banks with net NPAs of up to 10 per cent of net advances.
The long-term vision for India’s banking system to transform itself from being a domestic one to
the global level may sound far-fetched at present. However, it is not beyond our capacity provided
we have the will and the determination. Taking the banking industry to the heights of international
excellence will require a combination of new technologies, better processes of credit and risk
appraisal, treasury management, product diversification, internal control and external regulations
and not the least, human resources.
Fortunately, we have a comparative advantage in almost all these areas. Our professionals are at

the forefront of technological change and financial developments all over the world. It is time to
harness these resources for development of Indian banking in the new century.
Banking consolidation must be synergy-driven
Consolidation emerged as a defining characteristic of the modern banking world, primarily to

leverage the benefits of large size, expanding and diversifying bank loan portfolios to lessen the
likelihood of failure and harnessing core competencies.
But consolidation is no panacea for all the ills of banking and size has to be seen as a facilitator
rather than an all-inclusive means to efficiency. Given such apprehensions, mergers may be a
mixed blessing unless they are market-led and synergy-driven.
Futuristic outlook
After viewing the merger syndrome, there could be a possibility that the following permutations
and combinations of mergers in banking industry may take place in near future. When size only
matters, the PSBs which will shortly be losing their public sector nature by their increased capital
(as the government is planning to reduce its stake from 100 percent to 33 percent) are strong
contenders to take over old generation private sector banks.
Foreign Banks will not stay behind in overall one point financial services concept in the takeover
bids. Now the bank mergers will not be a new phenomenon since synergies are derived from the
alliances in the recent mergers.

ANNEXURE
Merger Procedure
I. Accounting
When mergers and acquisitions take place, the combined entity's financial statements have to
reflect the effect of combination. According to the Accounting Standard 14 (AS 14) issued by the
Institute of Chartered Accountants of India, an amalgamation can be in the nature of pooling of
interests, referred to as "amalgamation in the nature of merger', or acquisition. The conditions to
be fulfilled for an amalgamation to be treated as an "amalgamation in the merger” are as follows:
All assets and liabilities of the "Transferor Company" before amalgamation should become assets
and liabilities of the "Transferee Company".
Shareholders holding not less than 90% of shares (in value terms) of the "Transferor Company"
should become the shareholders of the "Transferee Company".
The consideration payable to the shareholders of the "Transferor Company" should be in the form
of shares of the "Transferee Company" only; cash can however, be paid in respect of fractional
shares.
Business of the "Transferor Company" is intended to be carried on by the "Transferee Company."
The "Transferee Company" incorporates, in its balance sheet, the book values of assets and
liabilities of the "Transferor Company" without any adjustment except to the extent needed to
ensure uniformity of accounting policies. An amalgamation which does not satisfy all the
conditions stated above will be regarded as an "Acquisition".
The accounting treatment of an amalgamation in the books of the "Transferee Company" is

dependent on the nature of amalgamation. For a merger, the 'pooling of interest' method is to be
used and for an Acquisition the 'purchase' method is to be used. Under

'The pooling of interest' method, the balance sheet of the combined entity is arrived at by a line by
line addition of the corresponding items in the balance sheets of the combining entities. Hence,
there is no asset write-up or write-down or even goodwill.
Under the 'purchase' method, however, the "acquiring company" treats the "acquired company"
as an acquisition investment and, hence, reports its tangible assets at fair market value. So, there
is often an asset write-up.
Further, if the consideration exceeds the fair market value of tangible assets, the difference is
reflected as goodwill, which has to be amortized over a period of five years. Since there is often
an asset write-up as well as some goodwill, the reported profit under the purchase method is lower
because of higher depreciation as well as amortization of goodwill.
II. Legal/ Statutory approvals
The process of mergers or amalgamations is governed by sections 391 to 394 of the Companies
Act, 1956 and requires the following approvals:
Shareholder approval
The shareholders of the amalgamating and the amalgamated companies are directed to hold
meetings by the respective High Courts to consider the scheme of amalgamation. The scheme is
required to be approved by 75% of the shareholders, present and voting, and in terms of the voting
power of the shares held (in value terms).
Further, Section 395 of the Companies act stipulates that the shareholding of dissenting
shareholders can be purchased, provided 90% of the shareholders, in value terms, agree to the
scheme of amalgamation. In terms of section 81(IA) of the Companies Act, the shareholders of
the "amalgamated company" also are required to pass a special resolution for issue of shares to
the shareholders of the "amalgamating company".

Creditors/Financial Institutions/Banks approval
Approvals from these are required for the scheme of amalgamation in terms of the agreement
signed with them.
High Court approvals
Approvals of the High courts of the States in which registered offices of the amalgamating and
the amalgamated companies are situated are required.
Reserve Bank of India approval
In terms of section 19 of FERA, 1973 Reserve Bank of India permission is required when the
amalgamated company issues shares to the nonresident shareholders of the amalgamating
company or any cash option is exercised.
SEBI's Takeover Code for substantial acquisitions of shares in listed companies
In India take-overs are controlled. On 4th November 1994, SEBI announced a take-over code for
the regulation of substantial acquisition of shares, aimed at ensuring better transparency and
minimizing the occurrence of clandestine deals. In accordance with the regulations prescribed in
the code, on any acquisition in a company which makes acquirer’s aggregate shareholding exceed
15%, the acquirer is required to make a public offer. The take-over code covers three types of
takeovers-negotiated takeovers, open market takeovers and bail-out takeovers.
III. Valuation
There are several approaches to valuation. The important ones are the discounted cash flow
approach, the comparable company approach, and the adjusted book value approach.
Traditionally, the comparable company approach and the adjusted book value approach were used
more commonly. In the last few years, however, the discounted cash flow approach has received
greater attention, emphasis, and acceptance. This is mainly because of its conceptual superiority

and its strong endorsement by leading consultancy organizations.
The discounted cash flow approach to corporate valuation involves four broad steps:
1. Forecast the free cash flow
2. Compute the cost of the capital
3. Estimate the continuing value
4. Calculate and interpret results

BIBLIOGRAPHY
Web portals:
www.moneychip.com
www.moneycontrol.com
www.icicibank.com
www.thehindubusinessline.com
www.equitymaster.com
www.rediff.com/money
www.mayin.org/ajayshah/MEDIA/ 2000/icicibank-bankofmadura.html
www.myiris.com/shares/company/reportShow www.banknetindia.com/banking/
www.businesswireindia.com
www.icfai.org
www.investopedia.com
www.yahoofinance.com
www.nseindia.com
www.sebi.gov.in

Books
Merger etal ---Ramanujam
Mergers and Acquisitions -- ICFAI press
Indian Banking: vision 2010 -- Katuri Nageswara Rao
Mergers and Acquisitions in Banking and Finance: What Works, What Fails, and Why?
-- Ingo Walter
M&A Success in Banking - Enhancing Value with Brand Due Diligence -- David Haigh and Unni
Krishnan
Journals
ICFAI journals

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PROJECT REPORT ON

“Merger and Acquisitions of Indian Banking Sector”

A PROJECT REPORT SUBMITTED TO THE UNIVERSITY

Under the Guidance of

B. N. BAHADUR INSTITUTE OF MANAGEMENT SCIENCES,

Place: Mysuru (Mr. Kiran S R)

This Project Report is submitted to the University of Mysore in partial

I wish to express my sincere gratitude to my guide Prof. S J Manjunath, B.N. Bahadur

I am thankful to Prof. S J Manjunath, Chairman, B.N. Bahadur Institute of Management

Chapter I: Theoretical Background 04

Chapter II: Design of Study 17

Chapter III: Industry profile 20

Chapter IV: Analysis and Interpretation 28

Chapter V: Findings, Suggestions and Conclusion 72

ADR : American Depository Receipt

DFI : Development Financial Institutions

CRR : Cash Reserve Ratio

NCR : Narasimhan Committee Report-II

NPA : Non-performing Asset

RRB : Regional Rural Bank

SBI : State Bank of India

NBFC : Non-Banking Financial Company

PSBs : Public Sector Banks

SCB : Scheduled Commercial Bank

SEBI : Securities and Exchange Board of India

RBI : Reserve Bank of India

GTB : Global Trust Bank

OBC : Oriental Bank of Commerce

PNB : Punjab National Bank

UBI : United Bank of India

B. N. Bahadur Institute of Management Sciences Page 1

Table Title Page No

2 BOM Pre Merger EPS 39

3 ICICI Bank Post Merger 40

4 BOM Pre Merger PE 41

5 ICICI PE Pre Merger 41

6 ICICI PE Post Merger 42

7 Dividend per Merger ICICI 43

8 Dividend Post Merger ICICI 43

9 ICICI Bank Market Cap Pre Merger 44

10 BOM Market Cap 45

11 ICICI Post Merger Market Cap 45

12 ICICI Pre Merger Net worth 46

13 BOM Net Worth 47

14 ICICI Post Merger Net worth 47

B. N. Bahadur Institute of Management Sciences Page 2

Table No Title Page No

2 PNB pre - algamated 32

3 PNB post – algamated 33

4 Status of selected banks on pre and post- 33

6 Advances, Gross NPA and Net NPA of 34

8 Financial standings of ICICI Bank and 51

10 Efficiency level of the Bank 54

11 How the financial statements have 54

13 Post-merger effects introduction to results 68

B. N. Bahadur Institute of Management Sciences Page 3

Introduction & Background of the Study

Defining Mergers and Acquisitions

The Main Idea

Distinction between Mergers and Acquisitions

B. N. Bahadur Institute of Management Sciences Page 4

 Vertical merger: A customer and company or a supplier and company. Think of a

 Market-extension merger: Two companies that sell the same products in

 Conglomeration: Two companies that have no common business areas.