A Summer Research Project

On
“Merger in Banking Sector in India:
Analysis of Pre & Post Merger Performance”

Under the Guidance of

Dr. Sneha Shukla
 
Submitted By
RIMA PAREKH ( 201900620010518)

 
 FLOW OF PRESENTATION

 LITERATURE REVIEW

RESEARCH METHODOLOGY
 INDUSTRY PROFILE
• SWOT Analysis
• PESTLE Analysis
INTRODUCTION OF MERGER IN BANKING SECTOR IN
INDIA
 ANALYSIS & INTERPRETATION
 FINDINGS
 CONCLUSION
 BIBLIOGRAPHY
 
Literature review
6
 

 (Jain & Mehta, 2020)This report considers nine years from 2001 -2019 pre Contentand post-merger to
Here
get better and accurate results. A merger between the State Bank of India and State Bank of Indore
is examined to analyze their financial performance before and after the basis of specific indicators
such as management efficiency ratios, profit, and loss account ratios, investment ratios, profitability
ratios, leverage ratios, and debt coverage ratios. The study shows the positive and negative
implications of the merger post amalgamation
.
(Kumar, Tiwari, & Choudhary, 2019) This paper reflects an attempt to measure the effect of
mergers on the efficiency of banks in India for this secondary data were used. It covers the 5 major
Content
mergers from 2000 to 2005 cases in India. The study found that the efficiency gains
Here show in four 8.
merger cases except for the one merger of the Oriental Bank of Commerce with the Global Trust
Bank. The conclusion of the study shows that market-driven mergers boom and decline are shown in
the forced mergers in the efficiency of banks
Text
(Patra & Dash, 2019)The objectives of the study are the rationale behind the merger . To analyze
the post-merger performance of SBI bank merger with its 5 associates .The study is predicated on
secondary sources which include the Annual Reports of the SBI.The Period of Study Your is from 2014 to
Content
2018. The tools are used for the analysis t-test: to check the Hypothesis on Here whether there's any
significant difference within the performance of the select banks before and after the merger.

 
Objectives Of Study

To compare pre and post-merger performance of the selected bank.

To analyze the performance of the bank in terms of ratio.

To evaluate the bank's performance before and after the merger in terms of
net profitability.

To make a comparative analysis of the impact of mergers on the financial

performance of selected banks.

To find out the impact of the merger on Bank operating profit ratios.
Scope of the study

The study is based on the secondary data.

Data are collected from the relevant sources, published annual reports of the
bank which were taken from its website and www.moneycontrol.com.

The sphere of analysis is banks’ merger after 2000-2018.

The data of each bank included in sample for the entire window periods (-3,
+1) i.e. pre-merger 3year and post-merger 1 year
 
 Mergers TakenThe
For Study:
merger took in the study

HDFC BANK &

CENTURION BANK OF KOTAK MAHINDRA &
PUNJAB BANK ING VYASA

2006 2010 2018

2008 2014

IDBI BANK & UNITED ICICI BANK & BANK IDFC BANK &
WESTERN BANK OF RAJASTHAN CAPITAL FIRST
 Tools and Techniques

Tools and techniques:

 Per Share Ratio
 Key Performance Ratio
 Profitability Ratio
 Leverage Ratio

 T Test
Limitations of the study

 The present study encompasses the pre and post-merger performance of selected mergers only.
 Secondly, the study is based on secondary data.
 Thirdly, only banking sector is considered for study.
 The time period taken for mergers is from 2000-2018.
SWOT ANALYSIS

Strengths
• Source of employment & GDP growth
•Diversified services
Changing from mere savings & loan facilitator
S
T

W
R
role. E
EAKNESS
Weakness  N
•High NPA’s G
•Vulnerable to risk T
H
•Structural weakness S

Opportunities T
•Changing Socio-cultural
& demographic factors
•Expansion
O
PPORTUNITI
ES
H
R
E
A
T
Threats S
•Recession
•Competition
PESTLE

Environmental
Political Factor Social Factor
Factor

●
Great influence ●
Interrelated
●
Changing attitude
towards consumer
and power relations with each
credit and debt
●
Regulatory control other ●
Changing employment
and protection
●
The rate of inflation patterns

Technological Legal
Economic Factor
Factor Factor

●
privacy, consumer
●
Online banking  laws ●
Eco-friendly and
●
Privacy & ●
Trade structure to sustainability
Security confirm frameworks ●
E-transactions
within the industry
Introduction of Merger in Banking Sector
in India

Mergers and acquisitions activity can be defined as a type of restructuring in that they result
in some entity reorganization to provide growth or positive value. The abbreviation of the
merger is as:

M = Mixing, E = Entities, R =Resources for, G = Growth, E = Enrichment and R

=Renovation

Merger is a legal consolidation of two companies into one entity, whereas an acquisition
occurs when one company takes over another and completely establishes itself as the new
owner

A merger is a combination of two or more companies to form a single entity. A merger is

moreover similar like an acquisition or takeover but the only difference is that in merger
existing shareholders of both companies involved they retain a shared interest in the new
corporation while in acquisition one company acquire of bulk of acquired company’s stock by
willingness or unwillingness of another company.
 
Current Scenario
 

The banking sector is considered to be the backbone of the modern economy

.
The banking sector of India is the hope and aspiration of millions of people in the
country. But to achieve this success the banking sector had to pass many hurdles.

On 30 August 2019, Finance Minister Nirmala Sitharaman announced the

government's plan for further consolidation of public sector banks: Indian Bank is
to be merged with Allahabad Bank (anchor bank - Indian Bank); PNB, OBC and
United Bank are to be merged (anchor bank - PNB); Union Bank of India, Andhra
Bank and Corporation Bank are to be merged (anchor bank- Union Bank of India);
and Canara Bank and, Syndicate Bank are to be merged (anchor bank - Canara
Bank).

 
 IDBI BANK MERGE WITH
UNITED WESTERN BANK
PER SHARE KEY PERFORMANCE

12
8 8
4
4 0
Pre
0 Pre Post
re re re
a
sh
a
sh
a Post
sh / /
/ t g
nd ofi in
e t
d pr a
vi et er
di N .o
p
1. 2. 3

•In per share ratio dividend in almost same ,Net-profit,& Operating ratio both
slightly increases.
•In key performance ratio only Return on equity ,& Operating expenses increases
rest of ratio decreases after it merge with UNITED WESTERN BANK
 PROFIT & LOSS RATIO LEVERAGE RATIO

120
80 150
40
0 100 pre
Series 1
50 POST
Series 2

•In the profit & loss ratio both the interest expended and other income is
decreases and only operating expenses is increase
•In leverage the debt-equity ratio is increase
HDFC BANK MERGE WITH
CENTURION BANK OF PUNJAB

Per Share Ratio Key Performance Ratio

25
20
20
10
15
0
10
PRE
5 POST
PRE
0
POST

Interpretation
•After the merger all ratio of per share increases
• In key performance share only interest income , non-interest income and operating
expenses increases and net-profit , return on asset and return on equity decrease
Profit & loss Ratio Leverage
120
80
400
40 350
0 300
PRE 250
POST 200 PRE
150 POST
100
50
0
1. DEBT-EQUITY RATIO 2.DEBT RATIO

Interpretation
•In profit & loss ratio other income ratio is same before and after merger, operating
expenses decrease ,and interest expended income increse
•In leverage the debt-equity is increase almost double
 ICICI BANK MERGE WITH
BANK OF RAJASTHAN

PER SHARE KEY PERFORMANCE

25 16
12
20 8
4
15 0
10 PRE
5 POST
PRE
0 POST

Interpretation
Per share ratio are slightly increases
In key performance net-profit ratio , and interest income ratio increases
,return on asset and non-interest income doesn’t show any change
Profit & loss Ratio Leverage
120
80
400
40 350
0 300
PRE 250
POST 200 PRE
150 POST
100
50
0
1. DEBT-EQUITY RATIO 2.DEBT RATIO

Interpretation
•In profit & loss ratio other income ratio is same before and after merger, operating
expenses decrease ,and interest expended income increase
•In leverage the debt-equity is increase almost double
KOTAK MAHINDRA BANK
MERGE WITH ING VYAS

Per Share Ratio Key Performance

16 25
14 20
15
12
10
10
5
8
0
6
4 PRE
2 PRE
POST
0 POST

Interpretation
•After the merger all the per share ratio increases
•Almost all ratio of key performance show upward trend ,return on asset is not
change ,and return on equity ratio slightly decrease
Profit & loss Ratio Leverage Ratio
60 8
40 7
20 6
0 5
PRE 4 PRE
POST POST
3
2
1
0
1. DEBT-EQUITY RATIO 2.DEBT RATIO

Interpretation
•Interest expended was almost the same before and after the merge with INY
BANK remaining two ratio of profit & loss increases
•In Leverage ratio the debt-equity ratio decrease ,and debt ratio does not change
IDFC BANK MERGE WITH
CAPITAL FIRST

Per Share Ratio Key Performance Ratio

20 10
5
15 0
10 -5
-10
5 -15 PRE
pre
-20 POST
0 post -25
-5 -30
-35

Interpretation
• There are huge change in net-profit ratio before merger it was net-profit and after is
convert into a net-loss ,no dividend given to share holder,& operating ratio was increase
•Net-profit ratio , and return on asset both the ratio was decrease, return on equity
,interest and , operating increases
Profit &loss Ratio Leverage Ratio
80 9
60
8
40
20 7
0 6
PRE 5
PRE
POST 4
POST
3
2
1
0
1. DEBT-EQUITY RATIO 2.DEBT RATIO

Interpretation
•In profit & loss ratio only other income ratio decrease
•In leverage ratio both the ratio shows increases trend
Analysis based on ratios

IDBI HDFC ICICI KOTAK IDFC

MAHINDRA
1.Dividend/share Increase Increase Increase Increase Decrease

2.Netprofit/shar Increase Increase Increase Increase Decrease

e
3.operating/sha Increase Increase Increase Increase Increase
re
4.net-profit Decrease Decrease Increase Increase Decrease
margin
5.ROA Decrease Decrease Increase Increase Increase

6.ROE Increase Same Decrease Decrease Decrease

7.Interest Decrease Increase Increase Increase Increase

income
 IDBI HDFC ICICI KOTAK IDFC
MAHINDRA
8.non- Decrease Increase Decrease Increase Increase
interest

9.Operating Increase Increase Decrease Increase Increase

expenses

10.Interest decrease Increase Decrease Same Increase

expended

11.other Decrease Decrease Decrease Increase Increase

income
12.Operating Increase Decrease Increase Increase Increase
exp
/total
income

13 Debt- Increase Increase Decrease Decrease Increase

 Hypothesis Testing

H0 (Null Hypothesis) = There is no significant difference between Pre and Post merger financial
performance of Banks.
H1 (Alternative Hypothesis) = There is a significant difference between Pre and Post merger
financial performance of Banks.
 A confidence interval of 95% has been set for difference in means.

If p.value is > 0.05 = Accept H0 result = There is no significant difference between Pre
and Post merger financial performance of Banks.
If p.value is < 0.05 = Reject H0 result = There is a significant difference between Pre and
Post merger financial performance of Banks
Significance / IDBI HDFC ICICI KOTAK IDFC
non MAHINDRA
significance

1.Dividend/share Non- Non- Non- Non-Significance Non-Significance

Significance Significance Significance

2.Netprofit/ Non- Non- Non- Non-Significance Non-Significance

Significance Significance Significance
Share

3.operating/ Non- Non- Non- Non-Significance Non-Significance

Significance Significance Significance
Share

4.net-profit Non- Non- Non- Non-Significance Non-Significance

Significance Significance Significance
margin

5.ROA Non- Non- Non- Significance Non-Significance

Significance Significance Significance

6.ROE Non- Non- Non- Non-Significance Non-Significance

Significance Significance Significance

7.Interest Non- Non- Non- Non-Significance Non-Significance

Significance Significance Significance
Income

8.non- Non- Non- Non- Significance Non-Significance

Significance Significance Significance
Interest
 IDBI HDFC ICICI KOTAK IDFC
MAHINDRA
9.Operating Non- Non- Non- Non-Significance Non-
expenses Significance Significance Significance Significance

10.Interest Non- Non- Non-Significance Significance

expended Significance Significance Significance

11.other Non- Non- Non- Non-Significance Non-

Significance Significance Significance Significance
income
12.Operating Non- Non- Non- Non-Significance Non-
Significance Significance Significance Significance
exp/total
income

13 Debt- Non- Non- Non- Non-Significance Non-

Significance Significance Significance Significance
Equity
14.Debt ratio Non- Non- Non- Non-Significance Non-
Significance Significance Significance Significance
Overall Findings

• Merger of Kotak Mahindra bank with Ing-Vysya - Highly successful

• Merger of IDFC bank with Capital First – Not fruitful.

 Conclusion

Conclusion
Mergers and acquisitions lead to financial gain and an increase in the price
of target banks. The Primary purpose of mergers is to reduce competition and protect
 
existing markets in the economy.
Mergers and acquisitions lead to financial gain and an increase in the price of target banks. The
Primary purpose of mergers is to reduce competition and protect existing markets in the economy.
Overall mergers
Overall mergersand
and acquisitions have
acquisitions have their
their pros
pros andand cons.
cons. But mergers are good for the growth
and development of the country only when it does not give rise to competition issues. Mergers
improve the competitive edge of the industry to compete in the global market but mergers shrink the
But mergers
industry are the
because good for the
number of growth and development
firms reduces. of the
Overall mergers are country
useful foronly
the when
growthitand
does
not expansion
give rise of
toany
competition
industry. issues.
In the banking industry it helps weaker banks to strengthen their position by merging with bigger
and stronger banks.
In the banking industry it helps weaker banks to strengthen their position by merging
with bigger and stronger
The above banks.
study shows the impact of merger and acquisition on different Indian banks after
analyzing fives cases.
The above study shows the impact of merger and acquisition on different Indian banks
The merger of IDBI Bank with United Western bank ,HDFC Bank with Centurion Bank ,ICICI Bank
afterwith
analyzing
Bank of fives cases.
Rajasthan , Kotak Mahindra Bank with Ing- Vysya ,and IDFC BANK and CAPITAL
FIRST The show the pre and post merger performance of bank.
From the above five merger the most successful merger by considering the pre and post-
From the above five merger the most successful merger by considering the pre and post- analysis is
analysis is thebetween
the merger mergerKotak
between Kotak
Mahindra BankMahindra Bankbank
with Ing- Vysya withand
Ing-
the Vysya bankmerger
not fruitful and the
is thenot
fruitful merger
merger is the
between IDFCmerger between
BANK and IDFC
CAPITAL BANK and CAPITAL FIRST
FIRST
   
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THANK YOU