Vineet - MRP Report

ACKNOWLEDGMENT
It gives me immense gratification in expressing my sincere and honest gratitude to

everyone who has helped me in completing this endeavor.
I am thankful to Prof. K.V.RAO, my faculty guide (Professor at IBS Hyderabad) for

their meticulous guidance, encouragement and honest feedback that helped us to
accomplish this assignment.
My management research project helped in learning nuances of training and development.

This project has helped me in putting theory into practice. Lastly I would also like to
thank my parents, friends and almighty who blessed throughout the journey. Any
omission in this brief acknowledgement does not mean lack of gratitude.
CONTENTS
1| Page Management Research Project

Serial No. Topic Page no.
1 Abstract 3
2 Overview Of Banking Sector 5
3 Essentials Of M&A 7
4 M&A In Banking - Present Trend 11
5 Advantages Of M&As In Banking 16
6 Factors For M&As Success 20
7 Risks Associated With Mergers 23
8 Banking Structure In India 25
9 Mergers & Acquisition In Indian Banking 28
10 Challenges For Bank Mergers In India 32
11 Pre & Post Performance Evaluation Of 33

M&As In Indian Banking Industry
12 Objective of study 34
13 Methodology Of The Study 35
14 Analysis of the study 37
15 Impact Of Mergers And Acquisition On 63

Human Resources
16 Result and Conclusion 70-74
17 Bibliography 75
ABSTRACT

Mergers and Acquisitions have become a global phenomenon in today’s free market
economies wherein companies need to constantly evolve to remain competitive. The
strategy of consolidations gained momentum in the 1980 s in the post oil-shock world
with over 55000 M&As being reported in US alone. These activities gained further
momentum in the nineties and even more so in the new millennium. This activity has
transcended geographical boundaries and made inroads in the developing world too.
Banking has become an increasingly global industry, which knows no geographic and
territorial boundaries. Banking system is deemed as the bloodline of any economy and
banks are trustees of public money. Therefore its depositors have higher stake in welfare
and growth of banks than its shareholders. The failure of a bank has more widespread
implications than a failure of a manufacturing company. Henceforth, the laws governing
regulation and supervision of banks in all countries focus on protecting the interest of
depositors. Therefore boost to bank consolidations and mergers in many countries has
come through regulatory and governmental actions in public interest.
Examples:
· United States witnessed large scale bank failures in the eighties (savings and loan
institutions) and the government came to rescue of banking system through liberal
FDIC (federal deposit Insurance Corporation) support with estimated USD 100
billion. In the process Government encouraged mergers among banks by giving
incentives to the banks taking over assets and liabilities of failed banks.
· Asian crisis of 1997 exposed the vulnerability of banking systems in the region
and forced governments to initiate several steps for strengthening them. For
instance Hong Kong allowed 100% FDI in Banking sector and this facilitated take
over of several banks by Singapore and Taiwanese Banks.
· Japan which witnessed a virtual collapse of banking system and an economic

stagnation for over 15 years, initiated its consolidation process which has resulted

in emergence of three large banks viz. Mitsubishi UFJ, Mizuho and Sumitomo
Mitusui.
While bank consolidation in many countries in Asia and Latin America were triggered by
crisis in the economy and financial sector, some of the mega mergers seen in recent years
in America and Europe are aimed at creating Banking behemoths which can take on any
competition.
Consolidation in banking industry is crucial from various aspects. The factors inducing
consolidation include technological progress, excess retention capacity, emerging
opportunities and deregulation of various functional and product restrictions. A strong
banking system is critical for sound economic growth so it is natural to improve the
comprehensiveness and quality of the banking system to bring efficiency in the
performance of the real sector.
The trend towards mergers and acquisitions in banking is also due to unprecedented
growth in competition, the continued liberalization of capital flows, the integration of
national and regional financial systems, financial innovations, etc.
In this scenario, if banks are to be made more effective, efficient and comparable with
their counterparts, they would need to be more capitalized, automated and technology
oriented, even while strengthening their internal operations and systems.
Similarly, in order to make them comparable with their competitors with regard to the size
of their capital and asset base, it would be necessary to structure the banks as early as
possible. It can be out rightly proclaimed that mergers and acquisitions are the real
strategies to achieve the requisite size and financial strength in the shortest possible time.

OVERVIEW OF BANKING SECTOR
Banking services are critical to the functioning of any economy because it offers people a
medium to exchange and provide variety of financial services which help them make
profit. A bank is traditionally defined as a financial institution that accepts deposits and
directs these funds to make loans. Traditional banking services include receiving deposits
of money, lending money and processing transactions.
Banks have a long history, and have influenced economies and politics for centuries.
Banking originated in Ancient Mesopotamia where the royal palaces and temples
provided secure places for the safekeeping of grain and other commodities. Receipts came
to be used for transfers not only to the original depositors but also to third parties.
Eventually private houses in Mesopotamia also got involved in these banking operations
and laws regulating them were included in the royal code. The earliest of the banking
services were seen in regions where trade and commerce trade and commerce thrived
including ancient China, Lydia, Phoenicia and Greece. As early as 2000 BC, Babylonian
temples provided loans from their rich treasuries.
The name bank derives from the Italian word banco, desk, used during the Renaissance by
Florentines bankers, who used to make their transactions above a desk covered by a green
tablecloth.
The first bank to provide basic banking functions emerged in Spain in 1401. It was called
the Bank Of Barcelona. Some of the other banks that served as foundations of modern
banking were:
· Bank of Venice (1587)
· Bank of Amsterdam (1609)
· Bank of Hamburg (1619)

Although the basic type of services offered by a bank depends upon the type of bank and
the country, services provided usually include:
· Taking deposits from their customers and issuing checking and saving accounts to
individuals and businesses
· Extending loans to individuals and businesses.
· Cashing cheques.
· Facilitating money transactions such as wire transfers and cashiers checks.
· Issuing credit cards, ATM cards and debit cards.
· Storing valuables, particularly in a safe deposit box.
· Cashing and distributing bank rolls
· Consumer & commercial financial advisory services.
· Pension & retirement planning.

ESSENTIALS OF M&A
Merger is a combination of two or more companies into one company. In India, mergers are
called 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 the exchange for their existing shares in
the target company. Merger may involve absorption or consolidation.
A. Merger and amalgamation: The term merger or amalgamation refers to a

combination of two or more corporate into a single entity. It may involve either;
a) Absorption one bank acquires the

other. Or
b) Consolidation two or more banks combine to form a new entity.
Other way of classifying merger is upon the basis of what type of corporate combine. It can
be of following types-
1. Horizontal merger: A horizontal merger involves a merger between two firms

operating and competing in same kind of business activity. The main purpose of
such mergers is to obtain economies of scale of production. These kind of mergers
result in decrease in the number of firms in an industry and hence such type of
mergers make it easier for the industry members to join together for monopoly
profits. The merger of Centurion bank and Bank of Punjab, Oriental bank of
Commerce and Global trust bank are horizontal mergers in banking sector.
2. Vertical merger: This is the merger of the corporate engaged in various stages of
production in an industry. They are combination of companies that usually have
buyer-seller relationships. A company involved in a vertical merger usually seeks
to expand its operations by backward or forward integration. A vertical merger
(entities with different product profiles) may help in optimal achievement of profit

efficiency. Consolidation through vertical merger would facilitate convergence of
commercial banking, insurance and investment banking.
3. Conglomerate merger: A conglomerate merger arises when two or more firms in

different markets producing unrelated goods join together to form a single firm.
The basic purpose of such combinations is utilization of financial resources. Such
type of mergers enhances the overall stability of the acquirer company and creates
balance in the company’s total portfolio of diverse products and production
processes and thereby reduces the risk of instability in the firm’s cash flows.
Conglomerate mergers can be distinguished into three types:
1) Product extension mergers: Mergers between firms in related
business activities and may also be called concentric mergers. These
mergers broaden the product lines of the firms.
2) Geographic market extension mergers: Mergers between two firms
operating in two different geographic areas.
3) Pure conglomerate mergers: Mergers between two firms with
unrelated business activities. They do not come under product extension
or market extension mergers.
An example of a conglomerate merger is that between an athlete shoe company and a

soft drink company. The firms are not competitors producing similar products (which
would make it a horizontal merger) nor do they have an input-output relation (which
would make it a vertical merger)
B. Acquisition: This may be defined as an act of acquiring effective control by one

corporate over the assets or management of the other corporate without any combination
of both of them. For example recently Oracle, a major software firm has agreed to
acquire a majority stake in Indian banking software company I-flex Solutions. It can be
characterized in terms of the following:
a) The corporate remain independent
b) They have a separate legal entity.

C.Take Over: Under the monopolies and restrictive trade practices act, take over
means acquisition of not less than 25% of voting powers in a corporate.
Difference between Acquisition and Take Over:
Although the term acquisition and take over are used interchangeably but in fact, the term
Take over generally shows a hostile act. To put in simple words, when an acquisition is
forced or unwilling act, then it is called take over.
The Merger and Acquisition process:
The acquisition process can be divided into a planning stage and an implementation stage.
The planning stage consists of the development of the business and the acquisition plans.
The implementation stage consists of the search, screening, contacting the target,
negotiations, integration and the evaluation activities. In short, the process of acquisition
can be summarized in the following steps:
i. Develop a strategic plan for the business (Business plan)

ii. Develop an acquisition plan related to the strategic plan (Acquisition Plan)
iii. Search companies for acquisitions (Search)
iv. Screen and prioritize potential companies (Screen)
v. Initiate contact with the target. ( first contact)
vi. Refine valuation, structure the deal, perform due diligence, and develop financing plan.
( Negotiation)
vii. Develop plan for integrating the acquired business. (Integration plan)
viii. Obtain all the necessary approvals, resolve post closing issues and implement closing.
(Closing)
ix. Implement post-closing integration (Integration)
x. Conduct the post-closing evaluation of acquisition. (Evaluation)
Figure: 1 Framework for Acquisition Policy

S
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10 | P a g e Management Research Project

M&A IN BANKING - PRESENT TREND
Since more than one decade, the banking industry has been transformed throughout the
world from a highly protected and regulated industry to a competitive and deregulated
one. Especially, globalization coupled with technological development has shrunk the
boundaries by which financial services and products can be provided to the customers
residing at different parts of the world. Further, due to innovations and improvements in
service delivery channels, the trend of global banking has now been marked by twin
phenomena of consolidation and convergence.
The trend towards consolidation has been driven by the need to attain meaningful balance
sheet size and market share in the face of intensified competition, whereas the trend
towards convergence is driven across the industry to provide most of the financial services
such as banking, insurance, investment, cash management etc. to the customers under one
roof. Consolidation has become dominant feature of the banking sector in most countries.
Most large banks in the world have acquired repeatedly and integrated successfully.
· Malaysia has reduced number of banks from 55 to 10
· Taiwan aims to bring down the number of banks from 12 to 6
· Singapore government guided the system down to three players with DBS being
supported to become a regional leader.
· M&A initiatives are happening in Indonesia, South Korea and Japan.
· European Union experienced M&A activity in banking.
· US mergers count to about 100 since 2000.
Banking system is the bloodline of any economy and banks are trustees of public money.
The depositors therefore, have more stakes in the welfare of banks than the share holders.
Failure of a bank has more systemic implications than say, the failure of a manufacturing
company. Laws governing regulation and supervision of banks in all countries therefore
focus on protecting the interests of depositors. Naturally, fillip to bank consolidation in
many countries came through regulatory and governmental actions in public interest.
Large scale public funding has also taken place in a number of countries to prevent failure
of banks/banking system.
United States witnessed large scale bank failures in the eighties (saving and loan
institutions) and government came to the rescue of banking system through liberal FDIC
(federal deposit insurance corporation) support. An estimated USD 100 billion was sent
on the rescue. In the process the government encouraged mergers among banks by giving
incentives to the banks taking over assets and liabilities of failed banks. Subsequent M&A
activity in the USA in nineties and in recent years have been motivated by market forces.
Europe saw fairly hectic activity too, and would have probably seen even greater M&A
activities had not heterogeneous banking regulation held up cross border mergers. Among
recent deals are the takeover of Abbey National (UK) by Banco Santander (Spain) in
2004, Uni Credito s (Italy) acquisition of Hypo Vereins bank (Germany), ING s
acquisition of Barings, Equitable of IOWA, and earlier, the mergers between Credit
Agricole and Banque Indosuez in France, Dresdner bank with Advance Bank and
Kleinwort Benson Iberfomento of Germany, etc.
Nearer home, we have the Asian experience in bank consolidation post 1997 economic
meltdown. The crisis brought out the vulnerability of a weak banking system to economic
shocks. Here again, the governments had come up with funding support and actively
encouraged consolidation among banks. Let us look at some of the initiatives taken in this
region for strengthening the banking system.
Hong Kong allowed 100% FDI in banking sector and this facilitated take over of several
banks by Singapore and Taiwanese banks.
Indonesia witnessed large scale infusion of public funds into the banking system through
a specialized restructuring agency. Regulatory forbearance was also present in good
measure to facilitate bank recovery. As against Basel Capital adequacy norm of 8%, banks
were allowed to operate with 4% as an interim measure. Only banks which had Capital
Adequacy ratio reduced to below 25% were marked for immediate closure. Consolidation
among banks was actively encouraged and FDI was allowed up to 99%. Net result was
that the number of banks in Indonesia which stood at 239 in 1996 came down to 138 in
2003. Consolidation was most visible among private banks with the number of such banks
coming down from 164 to 76 during the period. Post restructuring, the banks are now
healthier and their branch network and coverage has increased significantly in recent
years.
In Malaysia Bank Negara, the Central Bank implemented a well crafted financial master
plan aimed at strengthening the domestic banks, create a level playing field for foreign
banks and open banking sector to global competition. The regulator used suasion to create
10 anchor banks through the consolidation of 22 banks and 39 finance companies. FDI
capped at 30% is expected to be increased in the second phase of reforms scheduled to
commence from later half of 2007.
In Singapore, there are three main banking groups and they have given boost to
consolidation process not only within the country, but also in South Korea and Malaysia.
Thailand has implemented a Financial sector master plan aimed at removing obstructions
to M&A and also allows FDI flow to strengthen the banking system.
Japan is a country which has witnessed a virtual collapse of the banking system along
with economic stagnation which lasted over 15 years. Japan had some of the leading
names in global banking arena. The economic slowdown saw the NPA levels going up
over the roofs and the banks virtually looking for government s support. Needless to say,
the low interest rate regime (near zero rates) would have eased their sufferings somewhat.
However, the banking system has recovered in recent years helped by liberal financial
assistance from the government and an environment of extremely loose monetary policy.
Consolidation process which was kicked off as restructuring strategy has resulted in
emergence of three large banks viz. Mitsubishi UFJ, Mizuho and Sumitomo Mitusui.
Today NPA levels have come down to an acceptable level of 2% from a peek level of
8.4% in the year 2002. Capital adequacy ratios have improved above the Basel benchmark
of 8%. Banks have started showing profits and there is a pick-up in their credit portfolio.
Japanese banks may still have a long way to go as their ratings continue to be low and
they are heavily dependant on interest income with heavy reliance on low margin
corporate loans.
Another interesting development taking place in Japan is the government move to

privatize the postal agency, which doubles as a financial institution that holds the world s
largest pool of household savings. The Housing loan Corporation managing the advances
of the postal agency had, at one time, nearly 50% of all mortgage loans in Japan. As part
of privatization this corporation is being wound up with the assets getting transferred to
the banking system. The privatization of the postal agency would see the emergence of a
new bank (named as Yacho Bank) which could probably be one of the largest banking
entities in the world. This process is expected to be completed by 2011.
While bank consolidations in many countries in Asia and Latin America were triggered by
crisis in the economy and financial sector, some of the mega mergers seen in recent years
in America and Europe are aimed at creating banking behemoths which can take on any
competition.
Figure: 2 Most popular M&A Market

Source: www.accenture.com
ADVANTAGES OF M&As IN BANKING
A merger involves a marriage of two or more banks. It is generally accepted that

merger promote synergies. The basic idea is that the combined entity will create more
value than the individual banks operating independently. Economist refers to the
phenomenon of the 2+2 =5 effect brought about by synergy.
Various advantages of M&As can be listed as following:
 Economies Of Scale: Economies of scale refers to the lower operating costs (per
unit) arising from spreading the fixed costs over a wider scale of production and
economies of scope refers to utilization of skill assets employed in the production
in order to produce similar products or services. The resulting combined entity
gains from operating and financial synergies. In a combined entity, the skill used
to produce separate and limited results will be used to produce results on wider
scale. Additional financial synergies refer to the effect of a merger on the
financial activities of the resulting company. The cash flows arising from the
merger are expected to present opportunities in respect of the cost of financing
and investment.
 Economies of Scope: Economies of scope exist when the average cost falls as
more products are produced jointly rather than separately. This happens when the
banks are able to lower their cost by offering several products together as
compared to offering them on an isolated basis.
 Greater Efficiency: Banks often are able to operate more effectively by

increasing their size. The costs of many functions don t double when the scale of
operation doubles. As a result, mergers are one way to keep costs and price down.
 Leveraging technology: Banks and their customers have become increasingly

accustomed to the advantages of new and expensive technologies. Many of these
technologies are too expensive unless costs can be spread over a large number of
customers. Mergers are often necessary to allow banks to introduce and maintain
the technologies customers increasingly demand.
 Managerial efficiency: This may not always be the result of bailout merger or a
hostile takeover. The value addition from the merger comes from a warranted
perception that the acquiring bank s management will be able to run the acquired
bank better even in the case of a bank that is being run well. Typically, apart from
bringing other benefits, such mergers create shareholder value.
 Changing /Liberal Laws: Many countries have witnessed change in legal

regulations for banking as governments have become more liberal towards this
aspect. In Indian context laws which had prevented many banks from operating in
more than one state recently have been removed or overridden. The advent of
interstate banking and branching means more opportunities for banks operating in
different states to merge with each other.
 Diversification: One effective method of controlling risks inherent in bank

lending is to diversify operations across different geographic regions and different
types of customers. Mergers can help diversify such risks.
 Broader arrays of products: Mergers may give banking institutions an

opportunity to offer a broader array of services. A merger of two banks with
different expertise can result in a combination more to the liking of customers
looking for one stop shopping.
 Cost reduction: Consolidation helps in scaling up operations, thereby reducing

per unit cost. Cost is also reduced through economy of scope as synergy involved
in consolidation is able to offer multiple products using the same infrastructure.
Cheaper sourcing of inputs with increasing bargaining power with vendors and
suppliers also reduces cost.
 Improved market reach and Industry visibility: Ability to enter new business
areas with reduced initial cost as compared to a new set is another benefit of
consolidation.
 Reduce Competition: Through mergers and acquisitions many big companies

combine with their immediate rivals and hence reduce competition. Also with
more and more consolidations the number of players operating in open market is
reduced and hence there is reduction in competing players.
 Increase Revenue: A bigger entity will be able to serve a large customer better.
By offering more services and taking bigger share in the business of the customer
the bank will be able to increase the revenue per customer. A larger customer
base will generate more revenue. A bigger size and share in the market will boost
the bank s ability to raise product prices without losing customers.
 Asset Building and increase size: Consolidations help in increase in Asset base
as against a new setup. Banks experience increase in number of branches,
manpower, services offered etc. when they merge with some other banks. A bank
having strong hold in particular region can increase its base by acquiring bank in
totally unexplored region.
 Risk Diversification: With increase in size the merged entity can take bigger
risks and reap its reward. Risk is diversified after merger as against experienced
by single entity.
 Financial Sustainability: After a merger, the strong cash flow generated can be
channeled towards meeting the cash requirements of some potential ventures that
companies are planning to take up. Consolidations can increase financial
sustainability to great extent.
 Tax Savings: Mergers are likely to bring in the tax cover by way of depreciation
on merging entity’s assets. If in a bailout merger, the distressed bank has
accumulated losses and unclaimed depreciation benefits on its books, it could eliminate
an acquirer’s liability on account of tax benefits that accrue to the latter.
 Stabilization of asset quality for smaller banks: Size, a large capital base, well
rated borrowers and the ability to cater to their diverse product and service needs
through a single window are the strengths that can be acquired through a merger
and the resultant increase in size, and will lead to a sharp improvement in the
asset quality of smaller banks.
 Acquiring size through the less cumbersome inorganic route to meet

competition: this decision can sometimes be impulsive, so, ideally, it needs to be
based on a concrete strategy.
 Augmentation of capital base, mainly regulatory capital: Given the stringency

of Basel II regulatory capital norm compliance, this will be a major galvanizing
factor in bank consolidation.
 Less cumbersome bank supervision: The RBI will find both offsite as well as
onsite supervision less cumbersome in a scenario of a few large banks. Guidelines
can be more effectively implemented.
FACTORS FOR M&As SUCCESS
For mergers to be successful, following issues need to be given due importance:

Recovery of Bad loans
In any banking consolidation, one of the important aspects looked after at is the amount of
bad debts or the non-performing assets that has shifted hands. This definitely has an
impact on the performance of the companies. Post merger, it is imperative that this item of
the banks is recovered as much as possible which was desired by the acquiring company
at the time of going for the merger.
IT Implication
Technology increasingly lies at the heart of a modern bank and it is a critical issue that can
make or break a merger. Therefore, it is important to carefully consider prior to the merger
whether the technology platforms are similar or at least capable of talking to each other,
what the overlapping technology costs are and what are the costs of process integration.
The biggest challenge is whether the existing infrastructure of the acquiring bank can
scale up to the degree envisaged over a span of two to three years. Recently we have seen
the merger between GTB and OBC, in that merger IT implication played an important
role, because both the banks enjoyed the same platform.
With changing times technology has become so important in a merger that banks have
proved that instead of technology being an issue in merger; it can be the causal factor in a
merger. There are cases where technology merger has lead to a complete merger. Once all
the banks have the same technology, and processes, merger is just a formality.
Human Resource Issue
All over the world it is observed that after merger, very high number of employees loses
their jobs. Same theory is applicable to the Indian Banking also. It is important to sort out
this issue before merger. Human resources are another sensitive issue on the road to
consolidation.
As per a study of the Indian banking Industry by FICCI in October 2005, 88% of public
and private sector banks considered HRD related issues as one of the biggest challenge in
the process of consolidation.
For merger to succeed banks will have to carefully forge a cultural fit among all
employees, ingeniously devise HRD policies and concentrate not only on cost reduction
but also on enhancing revenue and profitability.
Cultural Shift
Before a merger is carried out, cultural issues should be looked into. A bank based
primarily out of North India might want to acquire a bank based primarily out of South
India to increase its geographical presence, but their cultures might be very different. So,
the integration process might become difficult. Even if there are synergies in technology,
geographical presence and profile of assets, the birth of mega banks through mergers may
not be of great use unless the mindset of public sector banks changes.
A number of studies have measured the success of banking merger in terms of three
important parameters.
· Profitability
· Cost Efficiency
· Market Power
The success of a merger hinges on how well the post-merged entity positions itself to
achieve cost and profit efficiencies. It is difficult to rely on measures of economies and
diseconomies of scale in banking, whereas cost and profit efficiencies are far more reliable
and measurable indicators and create value.
Mergers elsewhere in the world have helped reduce operating expenses by 0.5 percent
(percent to total assets). That would translate into a few thousand crores of rupees for
Indian PSU banks.
One other way of measuring the success of the merger can be seen from analyzing the post
merger performance to the stated goals before the merger. This way, one can see whether
the banks were able to attain their stated objectives, which are important to realize the full
synergies of the merger.
Figure: 3 Elements critical to M&A Success
Source: www.accenture.com
According to study conducted by Accenture some of the factors critical for success of
M&A are Addressing cultural integration issues, establishing clear organizational
structure and accountabilities, having commitment and leadership from top management,
having a good communication strategy, developing a comprehensive integration master
plan and having a clear strategic rationale for making the deal.
RISKS ASSOCIATED WITH MERGERS
Risk and return always go hand in hand, this is also true for the merger in the banks.
These are the few risks associated with the merger.
· When two banks merge into one then there is an inevitable increase in the size of
the organization. Big size may not always be better. The size may get too widely
and go beyond the control of the management. The increased size may become a
liability rather than an asset.
· Consolidation does not lead to instant results and there is an incubation period
before the results arrive. Mergers and acquisitions are sometimes followed by
losses and tough intervening periods before the eventful profits pour in. Patience,
forbearance and resilience are required in ample measure to make any merger a
success story. All may not be up to plan, which explains why there are high rate of
failure in mergers.
· Consolidation mainly comes due to decision taken at the top. It is a top heavy
decision and willingness of the rank and file of the both entities may not be
forthcoming. This leads to problems of industrial relations, deprivation.
Depression and de-motivation among the employees. Such a work force can never
churn out good results. Therefore, personal management at the highest order with
humane touch alone can pave the way.
· The structure, systems and the procedures followed in two banks may be vastly
different, for example, a PSU bank or old generation bank and that of a
technologically superior foreign bank. The erstwhile structures, systems and
procedures may not be conductive in the new milieu. A through overhauling and
systems analysis to be done to assimilate both the organizations. This is a time
consuming process and requires lot of cautions approaches to reduce the frictions.
There is problem of valuations associated with all mergers. The shareholder of
existing entities has to be given for transfer and compensations is yet to emerge.
· Further, there is also problem of brand projection. This becomes more

complicated when existing brands themselves have a good appeal. Questions arise
whether the earlier brands should continue to be projected or should they by
submerged in favor of a new comprehensive identity. Goodwill is often towards a
brand and its sub merger id usually not taken kindly.
BANKING STRUCTURE IN INDIA
India has an extensive banking network, in both urban and rural areas. All large Indian
banks are nationalized, and all Indian financial institutions are in the public sector. The
Reserve Bank of India is the central banking institution. It is the sole authority for issuing
bank notes and the supervisory body for banking operations in India. It supervises and
administers exchange control and banking regulations, and administers the government s
monetary policy. It is also responsible for granting licenses for new bank branches. 36
foreign banks operate in India with full banking licenses.
Indian banking System

Indian banking system has three tiers. These are the scheduled commercial banks, the
regional rural banks which operate in rural areas not covered by the scheduled banks, and
the cooperative and special purpose rural banks.
Commercial banks are categorized as scheduled and non-scheduled banks, but for the
purpose of assessment of performance of banks, the Reserve Bank Of India categories
them as public sector banks, old private sector banks, new private sector banks and foreign
banks.
Scheduled and non Scheduled Banks

There are 93 scheduled commercial banks, Indian and foreign; 196 regional rural banks.
In cooperative sector nearly 2000 cooperative banks operate, which include non scheduled
banks. In terms of business, the public sector banks, namely the State Bank Of India and
the nationalized banks, dominate the banking sector.
Scheduled Commercial Banks (SCB s) in India are categorized in five different groups
according to their ownership and/or nature of operation. These bank groups are: (i) State
Bank Of India and its associates, (ii) Nationalized Banks, (iii) Regional Rural Banks, (iv)
Foreign banks and (v) Other Indian Scheduled Commercial Banks (in the private sector).
Regional Spread of Banking
The total number of branches of SCB s as at end-June 2004 stood at 67,097 comprising
32,207 rural branches, 15,028 semi urban branches and 19,837 urban and metropolitan
branches. In line with the regional distribution of income, the Southern region accounted
for the highest percentage of bank branches, followed by Eastern region, Northern Region,
Western Region and North-Eastern region.
The State Bank and its seven associates have about 14,000 branches; 19 nationalized
banks have 34,000 branches; the RRBs 14,700 branches; and foreign banks around 225
branches. If one includes the branch network of old and new private banks, collectively
the spread could be over 68,000 branches across the country. Besides, there are a few
thousand cooperative bank branches. On an average, one bank branch caters to 15,000
people.
th th
India is the 4 largest economy in terms of the purchasing price parity and 10 place in
terms of the GDP. Indian economy is registering consistent 7 and above percent annual
growth for last 5 years. However, only one bank-State Bank of India-is among the top 200
banks in the world.
MERGERS & ACQUISITION IN INDIAN BANKING
History
Mergers and Acquisitions are not an unknown phenomenon in Indian Banking. In fact, it
dates back in 1921, when Bank of Bengal (Bank of Calcutta) and two other banks (Bank
of Madras and Bank of Bombay) were amalgamated to form the Imperial Bank of India.
In 1955, the controlling interests of the Imperial Bank of India were acquired by the RBI,
and the State Bank of India was created by an Act of Parliament to succeed the Imperial
bank of India.
Indian Banking sector has been active in Merger & Acquisitions ever since Section 45 was
incorporated in the Banking Companies Act in 1960. This section empowered the RBI to
initiate the process of amalgamation of weak banks with strong ones at times when the net
realizable assets of a bank fell below 90 percent of its deposits, but with the approval of
the government. This was aimed at averting bank failures which were rampant in India as
they were in other countries in those days. The M&A wave in India dates back to 1961,
when as many as 30 sick banks were merged with well performing ones. As of today, 34
banks bailout mergers have taken place over the past 46 years, but take off on the new
generation mergers on the lines recommended by the Narsimham Committee has been
incredibly slow.
In recent times we have seen few M&As as voluntary efforts of banks. Merger of Times
bank with HDFC bank was the first of such consolidations after financial sector reforms
ushered in 1991. Merger of Bank of Madura with ICICI bank, reverse merger of ICICI
with ICICI bank, coming together of Centurion bank and Bank of Punjab to form
Centurion Bank of Punjab and the recent decision of Lord Krishna bank to merge with
Federal Bank are voluntary efforts by banks to consolidate and grow.
Consolidation fever has not been confined to the Scheduled Commercial Banks.
Consolidation process gained strength in other sectors as well. There were about 196
RRBs in 1989. The last year and a half saw their numbers dwindle to 103 with mergers of
RRBs sponsored by commercial banks within the same state. This move is expected to
bring most of RRBs into profit making entities capable of playing their role in the way
they were expected to do when the RRB Act was passed in 1996.
There were over 2000 Urban Co-operative Banks in the country and failure of a number of
these banks in the last few years is a matter of great concern. These banks have begun to
see the benefits of consolidation. RBI has reported receiving 17 proposals for mergers of
UCBs in past one year.
Current Scenario
Till almost the mid -1990s, M&A have not been common in most developing countries
including India. This was in part due to the fact that the State had been playing a dominant
role in these countries in promoting and developing economic activities, both as a
producer and a regulator. This indeed was the case in India right from the 1950 s to mid-
1991 when economic policy regime was shifted rather dramatically towards market
orientation and an incentive system. Liberalization of Indian economy in 1992 changed
the way of carrying out businesses in India. The shift in the case of the financial sector
regime took place in an effective sense only from 1992-1993 after the publication of the
report in 1992 on the reforms of the financial system chaired by M Narsimham. The need
for M&A as a strategic tool in the context of the Indian banking Industry was highlighted
by the Committee on the Financial System (Narasimham 1) in 1991, which recommended
a possible structure, towards which the banking system could evolve with 3 to 4 large
banks (including SBI) having an international presence and 8 to 10 national banks with a
network of branches throughout the country engaged in general or universal banking,
among others. In the series of reforms the Committee on banking sector reforms
(Narasimham II) in 1998 highlighted the importance of bank mergers. The committee
made certain recommendations regarding mergers between banks including public sector
banks, as well as mergers between banks and non banks. So bank mergers are in process
and they have to cover a long road ahead.
While India has made rapid progress in other spheres of financial sector reforms, it has
made slow progress as far as bank consolidation is concerned. In India Public sector banks
form nearly 75% of Indian banking and there has been no substantial merger in this
banking sector. Mergers among banks have not taken off on a large scale in India, inspite
of the imperatives of Basel II compliance, the imminent threat of competition from foreign
banks looming up and the successive merger waves in the global banking sector.
Basel II Norms
Right now, there is a feverish activity going on in top management levels of banks and
uppermost on every mind is as small town called Basel in Switzerland. Small it may be,
but prudential norms for regulatory capital and some other areas of banking operations set
there by the Bank for International Settlements (BIS) form the ground rules that all banks
worldwide follow. The second tranche of Basel rules, which have already become
operational in many countries, has come into force in India with affect from April 1, 2007.
This time around, the rules are going to be more fine tuned, distinguishing between
various types of corporate lending risks. To that extent, the regulatory capital that has to
be kept aside for lending will no longer be uniformly 9% as before, that is, banks will no
longer keep aside Rs.9 for every 100 of risk assets. In 1988, Basel I did not discriminate
between various risks. From 2007 onwards, banks will have to set aside capital according
to the rated risk profile of each corporate borrower. This will mean a more efficient use of
capital, on one hand, but on other hand it would demand higher capital adequacy level
from the more the more aggressive lenders. It has been estimated that banks in India might
have to hike up their regulatory capital by as much as two third to meet Basel norms.
Banks today face operational risks such as competition risk, technological risk, casualty
risk, interest rate risk, market risk etc. While the 1988 Basel I rules did not take these risks
into account, Basel II stipulates that banks set aside 15% of their net income towards
coverage for operational risks.
RBI /GOI Stand On M&A in Banking in India

In India, the mood in the Ministry of Finance and the Reserve Bank of India is by no
means relaxed as far as the issue of bank consolidations is concerned. Government of
India and more specifically Reserve bank of India, prime regulator for banks in India has
catered to need of general public as and when required. Since independence and even
before that there have been transitions in Indian banking. In first phase of transition in
Indian Banking State Bank of India was formed in July 1955 followed by the takeover of
the strongest private bank that existed then viz., the Imperial Bank of India, by the
Reserve Bank of India. In second stage of transition there was takeover of seven princely
state banks by State Bank of India in the year 1959 in order to expand its rural outreach. In
third phase Indira Gandhi government nationalized 14 major Indian Commercial Banks on
19th July, 1969. This was followed by nationalization of six more commercial banks in
1980. GOI liberal policy in 1992 bought many changes in Indian Banking. Private players
were encouraged to participate actively in this sector. Mergers were still an efficient tool
in hand of government to save depositors of weak dying banks. Narhsimham committees
of 1992 and 1998 also encouraged mergers and acquisitions in banking. Now government
is also encouraging voluntary mergers. Basel I and Basel II norms are adhered to and after
April 2009 government of India s stand for foreign banks will also be liberalized. After
2009 Indian banks will face fierce competition from foreign banks as there operations in
India will be easy as compared to present conditions.
CHALLENGES FOR BANK MERGERS IN INDIA
Bank mergers in India are not as easy as it seems on the paper. No doubt everyone knows
the criticality of the issue and urgent requirement of mergers in Indian Banking sector. But
then river also have to face various rocks, pebbles and other interruptions in its natural
flow and so does Indian Banking sector has to face various challenges for mergers in
India. Various challenges like:
· Loss of corporate focus through too much size.
· Employee downsizing
· Difficulties of HR integration
· Erosion of healthy competition through concentration of a single bank/a group of

banks.
· Challenges of technological integration.
· Culture mismatch.
· Erosion of shareholder value in the absence of proper planning.
· Scams and scandals in the absence of proper co-ordination between regulators

(RBI and SEBI in India)
· Customer dissatisfaction, arising out of a change in the nature and quality of

products. This happens even if services and products are improved.
· Small borrowers and customers often get marginalized.
· Disruptions in established banking relationships, resulting in attrition of loyal

customers.
PRE AND POST PERFORMANCE EVALUATION OF M&As IN
INDIAN BANKING INDUSTRY
The banking industry is an important area in which mergers and acquisitions do make
enormous financial gains. The traditional corporate customers of a banker turn away
increasingly from traditional loan. They are in favor of alternative sources of financial
instruments like commercial papers etc., As a result of changes in the expectation of the
corporate customers, banks are now constrained to rethink their business and devise new
strategies. On the other hand, competitors both from India and abroad are encroaching
upon every area of business. Therefore, Indian bankers have to struggle to survive in a
competitive environment. In the changed environment, bankers adopt different strategies.
They have no other option except to reduce their costs (both operational costs and the cost
of credit). The only way to manage competitiveness is cost reduction through acquisition,
which enables the bankers to spread its overhead cost over a large customer base. From
the current trends, one can safely predict that consolidation will also be one of the
effective strategies widely adopted by the bankers.
It is common knowledge that dramatic events like mergers, takeovers and restructuring of
corporate sectors occupy the pages of business newspapers almost daily. Further they have
become the focus of public and corporate policy issues. This is an area of potential good
and harm in corporate strategy including banking industry.
Hence it is imperative to evaluate these mergers and acquisitions. This study attempts to
assess the successfulness of Mergers and Acquisitions strategy in Indian banking industry
post liberalization. It analyses the implications of takeovers from the financial point of
view.
OBJECTIVES OF THE STUDY

The main objective of this study is to analyze and compare the following performance of
merged banks before and after merger with special reference to financial performance.
1. Economic parameters.
2. Financial impact.
3. Cross cultural effects.
4. Operational parameters.
5. Human Resource perspective.
6. Advancement of Information Technology and its impact.
METHODOLOGY OF THE STUDY

1. Study of parameters like financial/economic aspects would be more or less
secondary data analysis. It would involve pre and post analysis of financial
parameters like CAGR etc.
2. Attempt will be made to analyze profitability, total income, efficiency of branch,

deposit mobilization efficiency, working fund, performance variables, share
holding pattern etc.
3. Analysis of Operational aspects and IT transition post merger to enable unification

of various IT platform.
4. Primary Data study of HR aspects like employee motivation and issues like unions
etc.
The study is intended to examine the performance of merged banks in terms of its growth
of total assets, profits, revenue, investment and deposits, advances, capital adequacy ratio,
number of employees, business per employee, profit per employee, no. of branches and
net non performing assets.
The performance of merged banks is compared taking four years of pre merger and four
years of post-merger as the time frame. The year of merger uniformly included in the post-
merger period of all sample banks. A random sample of twelve banking units (The list is
given in Table-V) was drawn from the list of about 25 banking units (Table-IV), which
have undergone mergers and acquisitions post liberalization. (The list of merged banks in
India is given in Table-II). A sample of about 50% of merged banks (12) from total
merged bank. (25) was drawn. While drawing the sample banks for this study the
availability of financial data such as financial statement, history of the companies etc. was
taken into account.
Data Collection of the Study
The present study mainly depends on the secondary data. The secondary data for financial
analysis were collected for four years before and four years after the merger. The required
data were obtained from the Prowess Corporate Database Software of CMIE.
Tools used for Analysis
As stated earlier, this study has analyzed the growth of total assets, profits, revenue,
investment, deposits, advances, capital adequacy ratio, number of employees, number of
branches, business per employee, profit per employee and net non performing assets at
end of year of merged banks before and after the merger. In order to evaluate the
performance, the statistical tools like mean ,standard deviation and t-test have been used.
The statistical tool used is t- test to test difference in means of small samples. The growth
rates of sample banks for all variables (mean values of variable before and after merger)
have been analyzed.
For the purpose of study null hypothesis is that there is no substantial difference in mean
value of all stated parameters before merger and after merger. And alternate hypothesis is
that there is substantial difference in mean values before merger and after merger. i.e.
mean values after merger have increased substantially from mean values before merger.
Let, Mean value before merger be X1
Mean value after merger be X2
Ho: X1 = X2 Null Hypothesis: There is no difference in mean value before and after merger.
H1: X1< X2 Alternate Hypothesis: mean value after mergers is higher than mean values before
merger
Level of significance 0.05
2 2 2
sp = ( n1- 1) s1 + (n2 -1) s2
n1 + n2 - 2
x1- x2 = sp 1/ n1+ 1/ n2
t = ( x1 - x2) - ( µ1 - µ2)
x1- x2
t actual value is compared with t theoretical value as observed from t tables. Inferences
can be made from these values about various parameters before and after merger for all
selected sample banks.
For purpose of validation, post merger values are compared with hypothetical values
supposing the case that there was no merger. Pre merger values are used to forecast future
values and these hypothetical values are formed using trend analysis forecasting model.
Graphs are plotted for each parameter and for all sample banks to validate that there is
substantial growth in post merger values because of merger and acquisition activity.
TABLE V: SAMPLE OF BANKS FOR STUDY
List of Sample Banks

S no Name of the Bank Date of Merger
1 Bank Of India 1993-1994
2 State Bank Of India 01.01.1996
3 Oriental Bank Of Commerce 08.04.1997
4 Centurion Bank 1998-1999
5 Bank Of Baroda 03.06.1999
6 Union Bank Of India 22.12.1999
7 HDFC Bank Ltd. 26.02.2000
8 ICICI Bank 10.03.2001
10 Punjab National Bank 01.02.2003
12 Oriental Bank Of Commerce 14.08.2004
TABLE VI: REASONS FOR MERGER
Reasons for Merger in case of Sample Banks

S no Name of the Bank Reasons for merger
1. RBI merged sick bank with healthy bank to protect depositor's interests
1 Bank Of India
2. A victim of 1992 Securities scam
2 State Bank Of India . 1.Private bank merged with PSU
Oriental Bank Of
3 1. OBC took over small bank to grow in size
Commerce
4 Centurion Bank 1. A non financial organization merged with a bank
5 Bank Of Baroda 1. BOB was forcefully merged with loss making Bareilly corp. bank
6 Union Bank of India 1. RBI merged sick bank with healthy bank to protect depositor's interest
7. HDFC Bank Ltd. 1. Both private banks merged
8 ICICI Bank 1. Both private banks merged

1. Both private banks merged
9 Bank Of Baroda 2. RBI merged sick bank with healthy bank to protect depositor's interests
3. Mismanagement led to insolvency of Banaras state Bnk

. 1. Old generation private bank merged with PSU
10 Punjab National Bank 2. RBI merged sick bank with healthy bank to protect depositor's interests
3. RBIs move to readout the Broker promoter Rajendra Bhatia from bank
11 Bank Of Baroda 1. Financial stability
1. private bank merged with PSU

Oriental Bank Of
12 2. GTBs involvements in speculative activities associated with Ketan

Commerce
Parekhs scam and its high exposure resulted in substantial losses.
ANALYSIS OF THE STUDY
For the purpose of this study analysis was made in terms of the following variables:
(a) Changes in Growth of Total Assets of Merged Banks,
(b) Changes in Growth of Profits of Merged Banks,
(c) Changes in Growth of Revenue of Merged Banks.
(d) Changes in Growth of Investment of Merged Banks
(e) Changes in Growth of Deposits of Merged Banks.
(f) Changes in Growth of Advances of Merged Banks.
(g) Changes in Growth of CAR of Merged Banks.
(h) Changes in Growth of Number of Employees of Merged Banks.
(i) Changes in Growth of Number of Branches of Merged Banks.
(j) Changes in Growth of Business per Employee of Merged Banks.
(k) Changes in Growth of Profit per Employee of Merged Banks.
(l) Changes in Growth of Net non performing Assets at end of year of Merged banks.
(a) Changes in Growth of Total Assets of Merged Banks

Assets represent economic resources that are the valuable possessions owned by a firm.
Assets are mainly used to generate earnings. The total assets refer to net fixed assets and
current assets. The growth of total assets indicates firm's ability to produce large volume of
sales and to earn larger revenue. One aim of business strategy namely, merger and
acquisition is the maximization of total assets of merged banks i.e., firms' ability to
produce large volume of sales. It is expected that the bank units after merger would
function efficiently.
Table-VII shows changes in average total assets and its variability of sample merged
banks. It is clear that all sample- merged banks (Bank of India, State Bank of India,
Oriental Bank of Commerce, Centurion Bank of India, Bank of Baroda, Union Bank of
India, HDFC Bank, ICICI bank, Punjab National Bank) have shown tremendous upward
growth in total assets after merger. The result of standard deviation clearly shows that the
variation of assets of all merged banks after merger was high than that of pre merger
period. As stated earlier, the t- test was used to test the significance of average change in
total assets of merged bank after merger. The application of t-test revealed that all
merged banks (Bank of India, State Bank of India, Oriental Bank of Commerce,
Centurion Bank of India, Bank of Baroda, Union Bank of India, HDFC Bank, ICICI
bank, Punjab National Bank) got significant 't' values in their assets growth. The analysis
of growth rate (mean value) of total assets of sample banks clearly showed that ICICI
Bank -2001 achieved high rate of growth (1387.03%), followed by Centurion Bank -
1998 (544.95%), HDFC Bank-2000 (162.30%), Oriental Bank of Commerce-1997
(136.16%), Punjab National Bank-2003 (94.25%), Oriental Bank of Commerce-2004
(93.57%), Union Bank of India-1999 (74.50%), Bank of Baroda-1999 (64.46%), State
Bank of India-1996 (63.85%), Bank of Baroda-2004 (62.03%), Bank of Baroda-2002
(48.67%), Bank of India- 1994 (41.22%).
Table: VII
Changes in Average Growth of Total Assets and its Variability in Sample Merger Banks
S. Mean T Growth
No Name of the Bank Before After value Rate
21930.03 30969.36
1 Bank Of India (1994) 2.49 41.22%
(1915.04) (5931.21)
107280.45 175781.17
2 State Bank Of India (1996) 3.76 63.85%
(11961.90) (34408.50)
7374.70 17416.48
3 Oriental Bank Of Commerce (1997) 3.27 136.16%
(2549.01) (5594.21)
611.86 3946.20
4 Centurion Bank (1998) 2.78 544.95%
(597.92) (1971.14)
37257.25 61271.76
5 Bank Of Baroda (1999) 4.76 64.46%
(6311.15) (7870.39)
21430.13 37396.41
6 Union Bank Of India (1999) 4.77 74.50%
(3632.27) (5616.75)
8223.46 21570.82
7 HDFC Bank Ltd. (2000) 3.71 162.30%
(5077.41) (5107.62)
6028.90 89651.48
8 ICICI Bank (2001) 3.50 1387.03%
(4583.72) (47548.09)
55004.71 81776.89
9 Bank Of Baroda (2002) 4.16 48.67%
(7613.80) (10391.01)
59237.86 115068.18
10 Punjab National Bank (2003) 3.92 94.25%
(11547.97) (26027.48)
67319.81 109077.91
11 Bank Of Baroda (2004) 3.12 62.03%
(7903.83) (25570.44)
29462.37 57028.92
(4404.83) (13670.12)
(b) Changes in Growth of Profits of Merged Banks
The profit is an indication of the efficiency with which the business operations are carried
out by corporate sector. The poor operational performance may result in poor sales leading
to poor profits. The merger intends to boost profits through elimination of overlapping
activities and to ensure savings through economies of scale. The amount of profit may be
increased through reduction in overheads, optimum utilization of facilities, raising funds at
lower cost and expansion of business. The merged banks are expected to grow fast in all
aspects and the expectations of stakeholders of both acquiring and merged banks could be
fulfilled. Here the profit refers to profit before tax.
Table-VIII illustrates changes in average profit and its variability in select merged banks.
According to the Table, the average profit earned by merged banks taken for this study
during post merger period was higher than the profit earned during pre merger period
except for one case that of Bank of India merger in 1994.
The standard deviation has shown that the variation in the growth of profits during post
merged period was higher than that of pre merged period in the case of Bank of India-
1994, State Bank of India-1996, Centurion Bank-1988, Union Bank of India-1999, HDFC
Bank-2000, ICICI Bank-2001, Bank of Baroda-2002, Punjab National Bank-2003, Bank
of Baroda-2004 and Oriental Bank of Commerce-2004. In the case of other two banks
(Oriental Bank of Commerce-1997 and Bank of Baroda-1999) the variation during pre
merged period was higher than that of post merged period. The 't' test clearly showed that
the State bank of India-1996, Oriental Bank of Commerce-1997, HDFC Bank-2000, ICICI
Bank-2001, Bank of Baroda-2002, Punjab National Bank-2003, Bank of Baroda- 2004 and
Oriental Bank of Commerce-2004 have significant profits earned by them. This shows that
growth of profits of all merged banks except Bank of India-1994, Union Bank of India-
1999, Centurion Bank-1998 and Bank of Baroda-1999 - is statistically significant while
the growth of profits of Bank of India-1994, Union Bank of India-1999, Centurion Bank-
1998 and Bank of Baroda-1999 are insignificant. It is understood from the growth rate
(mean value) that ICICI Bank achieved highest growth rate in respect of profits among
sample banks. The low growth rate was seen in case of Bank of India- 1994.
Table: VIII
Changes in Average Growth of PBT and its Variability in Sample Merger Banks
S. Mean t
No Name of the Bank Before After value Growth Rate
-85.00 -70.76
1 Bank Of India (1994) 0.03* -16.75%
(213.95) (700.77)
344.41 1962.51
(250.81) (960.74)
82.24 264.36
(70.82) (65.83)
11.79 27.76
4 Centurion Bank (1998) 1.95* 135.52%
(11.33) (11.88)
346.58 623.79
5 Bank Of Baroda (1999) 1.81* 79.99%
(252.35) (174.51)
209.43 243.59
6 Union Bank Of India (1999) 0.34* 16.31%
(134.31) (148.93)
257.22 641.48
7 HDFC Bank Ltd. (2000) 3.26 149.39%
(162.89) (170.34)
87.45 984.68
8 ICICI Bank (2001) 2.20 1026.06%
(34.08) (813.83)
602.73 1092.44
9 Bank Of Baroda (2002) 2.67 81.25%
(148.83) (334.84)
589.33 1758.51
(120.03) (404.04)
794.10 1296.96
11 Bank Of Baroda (2004) 2.13 62.82%
(292.20) (366.18)
481.28 1054.44
(210.27) (414.82)
(c) Changes in Growth of Revenue of Merged Banks.

The revenue is earned from the main line of business. Generally, it excludes like income -
non-recurring income and extraordinary income. The economic activity of a company is
considered to classify the income. In the case of financial institutions including banking
units, interest income is treated as main income. For the purpose of this study, revenue
income refers to interest received, dividend earned, security transactions, leasing and hire
services, exchange transactions, commission and brokerage and others.
Table-IX presents change in average growth of revenue income and its variability of
sample merged banks. It is clear that the all sample merged banks have shown a
tremendous growth in revenue income after merger rather than the revenue income of
merged banks before merger. The result of standard deviation indicated that there is more
variation in the growth of revenue of merged banks during post merged period than that
of pre merged period except in case of HDFC merger in 2000 and Bank of Baroda-2002.
The t-test brought out the fact that all merged banks have achieved significant growth of
revenue except Bank of India-1994.
The mean growth rate regarding revenue income clearly indicates the fact that the ICICI
Bank achieved high growth rate following by Centurion Bank-1998 (735.63%), Oriental
Bank of Commerce-1997 (143.15%), HDFC Bank-2000 (117.60%), Union Bank of
India-1999 (68.53%), State Bank of India-1996 (63.67%) and Bank of Baroda-1999
(50.90%), Oriental Bank of Commerce-2004 (42.89%), Bank of Baroda-2002 (34.18%),
Bank of India-1994 (33.22%), Bank of Baroda-2002 (29.85%) and Punjab National
Bank-2003 (0.03%).
Table: IX
Changes in Average Growth of Total Income and its Variability in Sample Merger Banks
S. Mean t Growth
2247.49 2994.14
1 Bank Of India (1994) 1.62* 33.22%
(246.06) (750.22)
10955.45 17931.18
(837.68) (2944.91)
775.96 1886.74
(254.46) (580.24)
53.76 449.26
4 Centurion Bank (1998) 4.17 735.63%
(56.16) (181.24)
3993.96 6026.90
5 Bank Of Baroda (1999) 4.70 50.90%
(519.79) (692.31)
2216.33 3735.28
(424.30) (575.15)
1117.57 2431.85
7 HDFC Bank Ltd. (2000) 3.37 117.60%
(688.47) (365.38)
544.09 6813.71
8 ICICI Bank (2001) 2.27 1152.32%
(359.83) (5523.86)
5464.31 7332.35
9 Bank Of Baroda (2002) 4.49 34.18%
(735.07) (391.36)
6234.37 9955.14
(1125.83) (979.66)
6516.90 8462.44
11 Bank Of Baroda (2004) 2.65 29.85%
(662.45) (1308.74)
3247.63 4640.58
(527.62) (937.02)
(d) Changes in Growth of Investment of Merged Banks
Investment refers to the investment of funds in the securities of another company/ bank.
They are long-term assets invested outside the business of firm. The main purpose of such
investments is either to earn a return or/ and to control another company. It is usual that
investments are shown in the assets side of balance sheet of banks. Further they are shown
at market value. The investments are made in government securities, approved securities,
assisted companies, subsidiaries/associates, mutual funds and others.
Table-X portrays changes in average growth of investments and its variability of sample
merged banks. It is significant to note that all the merged banks (Bank of India-1994, State
Bank of India-1996, Oriental Bank of Commerce-1997, Centurion Bank-1988, Bank of
Baroda-1999, Union Bank of India-1999, HDFC Bank-2000, ICICI Bank-2001, Bank of
Baroda-2002, Punjab National Bank-2003, Bank of Baroda-2004 and Oriental Bank of
Commerce-2004) taken for this study have shown a positive growth in investments during
post-merger period compared to the investments made during pre merger period.
The standard deviation brings out the fact that there is a higher variation in the growth of
investment of all merged banks except HDFC Bank-2000 and Bank of Baroda-2004 during
post merged than pre merged period. In the case of HDFC Bank-2000 and Bank of Baroda-
2004, the variation in the growth of investment is higher during pre-merged period.
The analysis of t test showed that out of twelve merged banks taken for this study, all banks
(Bank of India-1994, State Bank of India-1996, Oriental Bank of Commerce-1997,
Centurion Bank-1998, Bank of Baroda-1999, Union Bank of India-1999, HDFC Bank-
2000, ICICI Bank-2001, Bank of Baroda-2002, Punjab National Bank-2003, Bank of
Baroda-2004 and Oriental Bank of Commerce-2004) have significant 't' values. It is clearly
understood from the mean growth rate of investment that ICICI Bank-2001 got high rate
(1307.58%) among sample banks. The low growth rate was achieved by Punjab national
Bank-2003 (0.01%).
Table: X
Changes in Average Growth of Total Investments and its Variability in Sample Merger
Banks
S. Mean t Growth
Name of the Bank
No Before After value Rate
5144.82 9136.42
1 Bank Of India (1994) 4.60 77.58%
(493.66) (1410.03)
32720.34 54228.83
(8312.32) (12310.92)
2645.74 7436.05
(845.87) (3089.88)
129.43 1422.37
4 Centurion Bank (1998) 2.82 998.97%
(162.79) (902.96)
10604.83 19538.03
5 Bank Of Baroda (1999) 4.58 84.24%
(2084.64) (3302.00)
7383.53 13175.17
(1411.48) (1749.96)
1469.27 3085.17
7 HDFC Bank Ltd. (2000) 3.49 109.97%
(910.01) (175.99)
2184.16 30743.94
8 ICICI Bank (2001) 3.67 1307.58%
(1811.84) (15477.45)
16919.48 32276.44
9 Bank Of Baroda (2002) 4.25 90.76%
(2887.65) (6625.26)
23501.96 41970.92
(4124.95) (6822.59)
23106.54 36735.82
11 Bank Of Baroda (2004) 5.02 58.98%
(5222.22) (1481.60)
13084.24 17940.56
(1437.20) (1440.54)
(e) Changes in Growth of Deposits of Merged Banks

The important element of conventional banking business is to accept deposits from the
customers. Now-a days manufacturing companies also started accepting deposits for
short period from their members, directors and the general public. This mode of raising
funds is popular on account of the fact that the bank credit becomes quite costlier. For the
purpose of study Total deposits refers to bank balance in deposits a/c, bank balance in
deposit a/c (abroad), deposits with government.

Table- XI exhibits changes in average growth of deposits and its variability of sample
merged banks. It is clear that all merged banks have shown a significant growth of
deposits during post-merger period than the average deposits received during pre-merger
period except Bank of Baroda-2002 which has shown decline in growth of average
deposits after merger. The application of standard deviation proves that the variations in
the growth of deposits of all banks during post merged period is higher than that of pre
merged period except in case of Oriental Bank of Commerce-1997, Bank of Baroda-1999
and HDFC Bank-2000 . The application of t test showed that from the list of twelve
merged banks six have shown significant change in the average deposits after merger.
The mean growth rate of deposits clearly shows the fact that ICICI Bank -2001 achieved
highest (836.90%) followed by State Bank of India-1996 (694.91%), Centurion Bank-
1994 (686.27%), Oriental Bank of Commerce-1997 (496.09%), Union Bank of India
(286.22%), Bank of Baroda (155.71%), Oriental Bank of Commerce-2002 (139.30%),
Bank of India-1994 (77.33%), HDFC Bank-2000 (41.34%).
Table: XI
Changes in Average Growth of Total Deposits and its Variability in Sample Merger Banks
S. Mean t Growth
1031.1 1828.42
1 Bank Of India (1994) 1.56 77.33%
(590.36) (716.10)
244.29 1941.91
(97.50) (643.28)
39.16 233.43
(57.64) (21.72)
18.89 148.53
4 Centurion Bank (1998) 1.28 686.27%
(21.11) (201.53)
1060.31 2711.35
5 Bank Of Baroda (1999) 6.10 155.71%
(464.33) (278.80)
570.43 2203.08
(524.14) (193.35)
7 HDFC Bank Ltd. (2000) 330.61 467.28 0.89 41.34%
(262.18) (157.34)
184.27 1726.46
8 ICICI Bank (2001) 2.33 836.90%
(177.17) (1312.61)
2500.67 1631.99
9 Bank Of Baroda (2002) -1.79 -34.73%
(600.77) (760.84)
685.88 808.90
(262.90) (406.92)
2287.35 2729.70
11 Bank Of Baroda (2004) 0.40 19.34%
(1027.23) (1970.26)
412.67 987.51
(189.24) (250.74)
(f) Changes in Growth of Advances of Merged Banks.
Advances form another important aspect of conventional banking operations. For the
purpose of study Total Advances include Term Advances, short term advances, advances
to assisted companies, advances to bank and institutions, advances in foreign currency,
other advances, advances in priority sector, advances in public sector.
Table-XII shows changes in average growth of total advances and its variability in sample
merged banks. It is clear that all sample- merged banks (Bank of India-1994, State Bank
of India-1996, Oriental Bank of Commerce-1997, Centurion Bank-1988, Bank of Baroda-
1999, Union Bank of India-1999, HDFC Bank-2000, ICICI Bank-2001, Bank of Baroda-
2002, Punjab National Bank-2003, Bank of Baroda-2004 and Oriental Bank of
Commerce-2004) have shown upward growth in total advances after merger. The result of
standard deviation clearly shows that the variation of advances of all merged banks after
merger was high than that of pre merger period.
As stated earlier, the t- test was used to test the significance of average change in total
advances of merged bank after merger. The application of t-test revealed that all merged
banks ( State Bank of India, Oriental Bank of Commerce, Centurion Bank of India, Bank
of Baroda, Union Bank of India, HDFC Bank, ICICI bank, Punjab National Bank) got
significant 't' values in their advances growth except Bank of India-1994.
The analysis of growth rate (mean value) of total advances of sample banks
clearly showed that ICICI Bank -2001 achieved high rate of growth
(2263.28%), followed by HDFC Bank-2000 (920.88%), Centurion Bank - 1998
(490.19%), Oriental Bank of Commerce-2004 (147.03%), Oriental Bank of
Commerce-1997 (107.67%), Union Bank of India-1999 (96.59%), Bank of
Baroda-1999 (63.54%), Bank of Baroda-2002 (56.84%), State Bank of India-
1996 (55.15%), Bank of Baroda-2004 (47.28%), Bank of India- 1994 (34.13%)
and Punjab National Bank-2003 (0.003%) .
Table: XII
Changes in Average Growth of Total Advances and its Variability in Sample Merger Banks
S. Mean t Growth
24123.72 32358.28
1 Bank Of India (1994) 1.45 34.13%
(1428.62) (9551.22)
103709.34 160908.73
(5932.17) (27978.69)
7534.95 15648.42
(2410.03) (4789.27)
451.58 2665.18
4 Centurion Bank (1998) 2.60 490.19%
(521.55) (1620.48)
37307.51 61011.37
5 Bank Of Baroda (1999) 3.57 63.54%
(5256.06) (12193.75)
20012.51 39343.45
(3598.70) (10645.73)
1356.63 13849.55
7 HDFC Bank Ltd. (2000) 3.33 920.88%
(620.09) (7472.07)
3791.72 89609.11
8 ICICI Bank (2001) 3.26 2263.28%
(2388.61) (52596.34)
52922.91 83005.39
9 Bank Of Baroda (2002) 4.88 56.84%
(8053.50) (9335.09)
64351.33 134938.24
(17922.45) (34037.46)
69172.65 101881.56
11 Bank Of Baroda (2004) 2.22 47.28%
(11418.62) (27168.36)
29849.83 73738.66
(6583.11) (25219.26)
(g) Changes in Growth of CAR of Merged Banks.

Capital adequacy reflects the overall financial condition of the banks and also the ability
of the management to meet the need for additional capital. As per Basel I and RBI norms
prevalent before april 2007, banks in India were required to have a CAR of 9%. It was
arrived at by dividing the Tier I and Tier II capital by risk weighted assets. Tier I capital
includes equity capital and free reserves. Tier II capital comprises subordinated debt of
5-7 years tenure.
Table-XIII illustrates changes in average growth of CAR and its variability in select
merged banks. According to the Table, the average CAR of merged banks taken for this
study during post merger period was comparable to CAR during pre merger period. This
is mainly because an optimum value of CAR(i.e.<9%) is mandatory requirement as
prescribed by Central Bank, Reserve Bank of India. So either in case of post merger or in
case of pre merger this component varied non significantly. As it is an important
parameter for banks so this component was analyzed for all twelve sample banks in pre
merger and post merger scenario.
The standard deviation has shown that the variation in the CAR during post merged
period was higher than that of pre merged period in the case of Bank of India-1994, Bank
of Baroda-2002, Punjab National Bank-2003, Bank of Baroda-2004 and Oriental Bank of
Commerce-2004. In the case of other banks i.e. State Bank of India-1996, Oriental Bank
of Commerce-1997, Centurion Bank-1998, Bank of Baroda-1999, Union Bank of India-
1999, HDFC Bank-2000 and ICICI Bank-2001, the variation during pre merged period
was higher than that of post merged period. The 't' test clearly showed that State bank of
India-1996, Oriental Bank of Commerce-1997 and Punjab National Bank-2003 have
significant values for CAR. This shows that CAR of all merged banks except State bank
of India-1996, Oriental Bank of Commerce-1997 and Punjab National Bank-2003 are
insignificant. It is understood from the growth rate (mean value) that State Bank of India-
1996 achieved highest growth rate in respect of CAR among sample banks. The low
growth rate was seen in case of Bank of Baroda-2002.
Table: XIII
Changes in Average Growth of CAR and its Variability in Sample Merger Banks
S. Mean t
Name of the Bank Growth Rate
No Before After value

0.00 4.67
1 Bank Of India (1994) 1.45 ND
0.00 5.45
5.23 12.72
(6.36) (1.30)
4.25 14.90
(8.50) (2.02)
29.00 15.14
4 Centurion Bank (1998) -0.91 -47.79%
(30.05) (4.85)
8.76 12.38
5 Bank Of Baroda (1999) 1.22 41.28%
(5.85) (0.86)
7.72 10.86
(5.18) (0.56)
9.70 12.08
7 HDFC Bank Ltd. (2000) 0.72 24.56%
(6.52) (1.33)
14.31 11.12
8 ICICI Bank (2001) -1.70 -22.30%
(3.71) (0.54)
12.56 12.62
9 Bank Of Baroda (2002) 0.10 0.48%
(0.60) (1.06)
10 Punjab National Bank (2003) 10.51 12.96 3.63 11.74%
(0.28) (1.32)
12.22 12.99
11 Bank Of Baroda (2004) 1.31 6.34%
(0.67) (0.97)
12.39 12.16
12 Oriental Bank Of Commerce (2004) -0.18 -1.86%
(1.31) (2.18)
(h) Changes in Growth of Number of Employees of Merged Banks.

Table-XIV presents change in average growth of Number of employees and its variability
of sample merged banks. It is clear that the merged banks like Bank of India-1994, State
Bank of India-1996, Oriental Bank of Commerce-1997, Centurion Bank-1998, HDFC
Bank-2000, ICICI Bank-2001, Punjab National Bank-2003 and Oriental Bank of
Commerce-2004 have shown a growth in Number of Employees after merger rather than
the number of employees before merger. The result of standard deviation indicated that
there is more variation in the growth of no. of employees of merged banks during post
merged period than that of pre merged period in all sample banks except in case of
Oriental bank of Commerce-1997, Punjab National Bank-2003 and Bank of Baroda-
2004. The t-test brought out the fact that out of twelve sample banks five have achieved
significant growth of number of employees.

The mean growth rate regarding number of employees clearly indicates the fact that the
Centurion Bank-1998 achieved high growth rate followed by ICICI Bank-2001
(1008.74%), HDFC Bank-2000 (448.59%), Oriental Bank of Commerce-1997 (16.23%),

Oriental Bank of Commerce-2004 (4.39%), State bank of India-1996 (4.22%), Bank of
India-1994 (0.82%), Punjab National Bank-2003 (0.03%). Other banks showed decline in
number of employees like Bank of Baroda-1999, Union Bank of India-1999, Bank of
Baroda-2002 and again Bank of Baroda-2004.
Table: XIV
Changes in Average Growth of No. of Employee and its Variability in Sample Merger
Banks
S. Mean T Growth
53535.33 53842.50
1 Bank Of India (1994) 0.57 0.82%
(286.10) (496.58)
237485.2
227861.25
2 State Bank Of India (1996) 5 3.79 4.22%
(3441.45) (3741.93)
12187.25 14165.75
(749.09) (400.57)
33.33 383.25
4 Centurion Bank (1998) 1.56 1049.75%
(57.74) (444.77)
45716.75 44625.00
5 Bank Of Baroda (1999) -0.57 -2.39%
(296.62) (3835.67)
32335.25 28769.00
6 Union Bank Of India (1999) -2.85 -11.03%
(961.48) (2313.52)
605.00 3319.00
7 HDFC Bank Ltd. (2000) 4.34 448.59%
(301.44) (1215.08)
820.75 9100.00
8 ICICI Bank (2001) 4.22 1008.74%
(394.69) (3906.57)
46384.00 39636.00 -
9 Bank Of Baroda (2002) -14.54%
(479.54) (589.02) 17.77
45225.25 58549.00
10 Punjab National Bank (2003) (30313.21 0.88 0.03%
) (436.32)
43156.50 39368.67
11 Bank Of Baroda (2004) -1.81 -8.77%
(4149.89) (532.91)
13770.50 14375.67
(420.09) (699.09)
(i) Changes in Growth of Number of Branches of Merged Banks.

Table-XV portrays changes in average growth of number of branches and its variability
of sample merged banks. It is significant to note that all the merged banks taken for this
study have shown a positive growth in number of branches during post-merger period
compared to the number of branches during pre merger period. The standard deviation
brings out the fact that there is a higher variation in the growth of number of branches
during post merger period than pre merger period in all merged banks except State Bank
of India-1996, Union Bank of India-1999, Bank of Baroda-2002, Bank of Baroda-2004.
In the case of State Bank of India-1996, Union Bank of India-1999, Bank of Baroda
2002, Bank of Baroda-2004, the variation in the growth of number of branches is higher
during pre-merged period. The analysis of t test showed that out of twelve merged banks
taken for this study, nine banks (Bank of India-1994, State Bank of India-1996, Oriental
Bank of Commerce-1997, Bank of Baroda-1999, HDFC Bank-2000, Bank of Baroda-
2002, Punjab National Bank-2003, Bank of Baroda-2004 and Oriental Bank of
Commerce-2004) have significant 't' values. It is clearly understood from the mean
growth rate of investment that Centurion Bank-1998 got high rate (552.50%) among
sample banks. The low growth rate was achieved by Punjab national Bank-2003 (0.03%).
Table: XV
Changes in Average Growth of No. of Branches and its Variability in Sample Merger
Banks
S. Mean t
Name of the Bank Growth Rate
No Before After value
2339.00 2429.50
1 Bank Of India (1994) 2.74 3.87%
(36.72) (47.02)
8753.25 8907.00
(95.38) (61.84)
613.75 852.50
(63.94) (72.36)
3.33 21.75
4 Centurion Bank (1998) 1.38* 552.50%
(5.77) (26.06)
2487.00 2640.25
5 Bank Of Baroda (1999) 5.06 6.16%
(27.58) (54.00)
2007.50 2082.75
6 Union Bank Of India (1999) 1.64* 3.75%
(74.25) (53.56)
31.25 161.00
7 HDFC Bank Ltd. (2000) 4.49 415.20%
(23.33) (52.92)
34.00 192.00
8 ICICI Bank (2001) 1.39* 464.70%
(40.67) (222.96)
2601.00 2725.00
9 Bank Of Baroda (2002) 3.19 4.76%
(70.87) (32.11)
3844.00 4041.75
(15.19) (17.84)
2688.25 2737.00
11 Bank Of Baroda (2004) 2.16 1.81%
(44.58) (6.56)
950.75 1097.00
(33.45) (73.30)
(j) Changes in Growth of Business per Employee of Merged Banks.
Business per employee is arrived at by dividing total business by total number of
employees. Business includes the sum of total advances and deposits in a particular year.
Table- XVI exhibits changes in average growth of business per employee and its
variability of sample merged banks. It is clear that all merged banks have shown a
significant growth of business per employee during post-merger period than the average
business per employee during pre-merger period especially after year 2000. The
application of standard deviation proves that the variations in the growth of business per
employee of all banks during post merged period is higher than that of pre merged period.
The application of t test showed that from the list of twelve merged banks eight have
shown significant change in the average business per employee after merger. The mean
growth rate of deposits clearly shows the fact that ICICI Bank -2001 achieved highest
(313.37%) followed by Punjab National Bank-2003 (238.53%), Bank of Baroda-2002
(233.33%), Oriental Bank of Commerce-2004 (74.90%), Bank of Baroda-2004 (67.09%).
Table: XVI
Changes in Average Growth of Buisness per Employee and its Variability in Sample Merger Banks
Mean
S. No Name of the Bank t value Growth Rate
Before After
0.00 0.00
1 Bank Of India (1994) ND ND
0.00 0.00
0.00 0.24
2 State Bank Of India (1996) 1.00 ND
0.00 (0.47)
0.00 0.55
3 Oriental Bank Of Commerce (1997) 1.00 ND
0.00 (1.09)
0.00 3.31
4 Centurion Bank (1998) 1.73 ND
0.00 (3.83)
0.00 1.33
5 Bank Of Baroda (1999) 2.81 ND
0.00 (0.95)
0.00 1.33
6 Union Bank Of India (1999) 2.81 ND
0.00 (0.95)
0.00 8.02
7 HDFC Bank Ltd. (2000) 13.21 ND
0.00 (1.21)
2.08 8.58
8 ICICI Bank (2001) 2.60 313.37%
(4.15) (2.78)
9 Bank Of Baroda (2002) 0.77 2.58 3.66 233.33%
(0.90) (0.41)
10 1.04 2.58
Punjab National Bank (2003) 3.26 238.53%
(0.74) (0.59)
11 1.93 3.22
Bank Of Baroda (2004) 3.05 67.09%
(0.45) (0.72)
12 2.86 4.99
Oriental Bank Of Commerce (2004) 4.46 74.90%
(0.56) (0.78)
(k) Changes in Growth of Profit per Employee of Merged Banks.

Profit per employee is arrived at by dividing the PAT earned by the bank by total number
of employees. Higher the ratio, higher the efficiency of management.
Table-XVII shows changes in average growth of profit per employee and its variability of
sample merged banks. It is clear that all sample- merged banks (Bank of India, State
Bank of India, Oriental Bank of Commerce, Centurion Bank of India, Bank of Baroda,
Union Bank of India, HDFC Bank, ICICI bank, Punjab National Bank) have shown
tremendous upward growth in profit per employees after merger. The result of standard
deviation clearly shows that the variation of profit per employee of all merged banks after
merger was high than that of pre merger period. As stated earlier, the t- test was used to
test the significance of average change in profit per employee of merged bank after
merger. The application of t-test revealed that seven out of twelve sample banks (Bank of
Baroda-1999, HDFC Bank-2000, ICICI bank-2001, Bank of Baroda-2002, Punjab
National Bank-2003, Bank of Baroda-2004 and Oriental Bank of Commerce-2004) got
significant 't' values in their profit per employee growth. The analysis of growth rate
0.00 0.00 ND ND
2 State Bank Of India (1996)
0.00 0.00
0.00 0.01
0.00 (0.01)
0.00 0.04
0.00 (0.05)
0.00 0.01
0.00 (0.01)
0.00 0.01
0.00 (0.01)
0.00 0.10
0.00 (0.01)
0.03 0.10
8 ICICI Bank (2001) 2.14 245.45%
(0.06) (0.03)
0.01 0.02
9 Bank Of Baroda (2002) 3.27 250.00%
(0.01) 0.00
0.01 0.02
(0.01) 0.00
0.01 0.02
11 Bank Of Baroda (2004) 3.00 60.00%
(0.01) 0.00
0.02 0.06
(0.01) (0.01)
(l) Changes in Growth of Net non performing Assets at end of year of Merged
banks.
Net non performing assets are Gross NPAs net of provisions on NPAs and interest in
suspense account. For the purpose of study value chosen is NNPas at end of the year.
Table-XVIII portrays changes in average growth of Net Non performing Assets and its
variability of sample merged banks. It is significant to note that from the sample of
twelve merged banks Oriental bank of Commerce-2004 has shown negative growth of
NNPAs at end of year. (-50.04%). The standard deviation brings out the fact that there is
a higher variation in the growth of NNPAs of all merged banks during post merged than
pre merged period. The analysis of t test showed that out of twelve merged banks taken
for this study, three banks (Union Bank of India-1999, HDFC Bank-2000, Bank of
Baroda-2004) have significant 't' values.
Table: XVIII
Changes in Average Growth of NNPAs at end of year and its Variability in Sample Merger
Banks
Mean T
S. No Name of the Bank Growth Rate
Before After value
0.00 0.00
1 Bank Of India (1994) ND ND
0.00 0.00
0.00 0.00
2 State Bank Of India (1996) ND ND
0.00 0.00
0.00 84.11
0.00 (168.21)
0.00 35.65
0.00 41.16
0.00 0.00
5 Bank Of Baroda (1999) ND ND
0.00 0.00
0.00 925.97
0.00 621.84
0.00 33.74
0.00 (9.40)
0.00 0.00
8 ICICI Bank (2001) ND ND
0.00 0.00
0.00 154.91
0.00 (309.82)
1399.52 576.37
10 Punjab National Bank (2003) -1.45 0.03%
(934.04) (648.75)
0.00 409.84
0.00 (278.16)
353.15 176.45
12 Oriental Bank Of Commerce (2004) (97.80) (136.09) -2.11 -50.04%
IMPACT OF MERGERS AND ACQUISITION ON HUMAN RESOURCES
During the process of M & A, it is essential that organization manage its people resources
effectively. The impact of unmanaged change reaches from the financial cost to the human
cost, for instance a survey of 650 organizations undergoing organizational change such as
a merger showed that 63% did not achieve labour productivity improvements and 83% did
not improve internal communications. A further survey of 1,000 organizations following
restructuring revealed that only 46% met their expense reduction goals, less than one-third
met their profitability goals and restructuring failed to produce the expected benefits 64%
of the time.
The reality is that although the majority of organizations recognize staffing issues as
critical components on which to focus during change, less than 10% give these
components top priority.
Many of the direct financial costs that organizations experience during mergers remain
unidentified and overlooked for some time. Some of these costs include:
• Increased turnover
• Employee replacement costs
• Outsourced work
• Productivity loss
• Impact on company resources
• Lost credibility of management
In addition to the financial impact of change, many organizations fail to identify the
impact that such change can have on their people. Â If a merger is to succeed, some of
the most important issues that need to be addressed include:
Organization and staffing:
How will the selected organizational changes affect staffing requirements?
What should be the timing of the organization and staffing changes? Who should be
responsible for them?
What functions are duplicated and might be areas for replacement/ reassignment of talent?
What areas of corporate knowledge/expertise need to be protected?
Management style/processes:
Cultural and human issues are cited as vital to integration during a merger, however, most
activities are focused on financials, plants and equipment while the organizational culture
and dynamics of change receive the lowest level of attention. Failure to recognize these
issues and deal with the differences will be a major barrier to successful integration.
How significant is the overall culture change predicted to be?
What are the management philosophies of the two companies?
Are there differences in the values held by each management team?
What are to be the values of the new organization?
Communication:
Change creates uncertainty for employees, customers, and suppliers. A well-conceived,

clear communications program beginning in the early phases of any change event, merger
or acquisition is one of the most successful ways to raise morale, and to help retain
customers and key employees.
If employees believe they will be treated fairly and have confidence the new organization
will succeed, then they will be willing to co-operate on developing a shared vision and put
forth effort to make the vision a reality.
Communicating information is critical in engendering trust. People must be made

knowledgeable about all aspects of planned change if trust is to be rebuilt. In the midst of
the chaos that typically occurs with a merger, direction and structure are essential.
This also involves communication, as efforts to communicate by management need to be

doubled during a merger.
Managers´ needs must also be met. Managers have to manage their transition and make
their adjustment before they can effectively lead and manage their staff.
The manager´s message needs to focus on growth potential and inform employees of the
importance of their role in the new organization. Employees must know what the change
means to them, both professionally and personally. Managers must generate employee
participation and be responsible for driving the change. This will help to build trust.
Managers need to know the skills and goals of each employee and how to gain buy-in to
the change.
Managers must evaluate where their employees are in the change process (their emotional
health) and facilitate them through each stage. This is essential to reach the critical mass
needed for successful transition.
Employee Support:
It must be recognized that some employees will not make the transition to the new
organization. Â For the employees who face losing their position, providing support
through Outplacement is essential. Â Some of the benefits to the company and the
individual that Outplacement can provide include:
For the organization:
• Stress and trauma for management is reduced
• Termination conducted correctly will avoid costly litigation
• Maintain external and internal image of the organization
• Improving survivor morale increases productivity
For the individual:
• Opportunity to reassess personal needs
• Helps the individual to look to the future rather than the past
• Reduces the length of time it takes to make the transition to a new career
Human Resources:
One of the hottest issues in the corporate community, retention of key managers and staff
is particularly important during mergers. A study by the American Management
Association found that ¼ of top performers leave within 90 days of a major change event
being announced. Why? Because they can! Top performers may leave because they are
getting out of an uncomfortable set of circumstances.
In order to survive corporate mergers as an HR professional and achieve the desired

results for the people side of the organization, extensive planning and management is
required. If this does not occur, it will directly impact the bottom line profitability and
success of the new organization. Employees also need to be clear about their new roles,
focus and scope of their responsibilities. Some employees will need to learn new skills in
order to meet the needs of the ´new´ organization. Finally, employees will need
management support so they can access help when they need it. Because of this, managers
´ needs must also be met. They will need to have the skills to manage the
transition/change. The ultimate goal is to align the individual and organization´s vision to
meet strategic business goals.
Effect of Mergers on Human Resource of Merging Entities can be further

exemplified by following.
IMPACT OF MERGER OF SBI AND SBS ON THEIR HUMAN RESOURCE
The merger of State Bank of Saurashtra with State Bank of India has been on the cards for
quite some time. Yet even after the government finally gave the go ahead, a formal merger
seems some distance away. The managements at Bhavnagar for SBS and in Mumbai for
SBI seem to be groping in the dark about the procedures to follow.
Meanwhile, sections of bank employees have struck work for two days recently protesting
the merger. Despite claims to the contrary, the takeover by the country’s largest bank of
one of its associates is being dictated by the government, which hopes that a successful
merger will be a trend setter not only for the SBI group but for other public sector banks
as well. The other six associates of SBI — State Bank of Mysore, State Bank of Patiala,
State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Indore and
State Bank of Travancore — can then be amalgamated with SBI.
SBI’s guarded moves
It will be naive for the government or anyone else to think that consolidation within the
SBI group is easy. Despite a common brand, common directors (the SBI chairman is the
ex-officio head of all associates) and close integration of banking procedures, there are
significant differences within the group. Many of these are rooted in history. These banks
from the former princely states have retained their unique identities. For a long time, SBI
allowed them to flourish in their respective regions and did not have its own branches
even in the bigger cities there. Besides, there are significant differences in staffing
patterns. Integrating the human resources structure is a thankless task post-merger. Not to
be forgotten is the fact that while SBI holds all the capital of SBS some other associates
are listed. Where outside shareholders are present, naturally, the merger process becomes
more complicated.
Ultimate goal
Even assuming that SBI manages to merge all its associates with itself, there will still be a
number of government-owned banks functioning separately. The ultimate objective is to
bring about a massive consolidation in the public sector dominated banking industry by
persuading the government-owned banks (even those outside the SBI fold) to merge with
one another. The expectation is that after the consolidation, four or five large banks will
remain on the scene, ready to take on international competition. That in any case was what
the Narasimham II Committee on financial sector recommended way back in 1997.
However, despite the government’s enthusiasm, very few mergers have taken place either
within or outside the government’s fold. All the 27 government-owned banks continue to
retain their individual identities and remain a heterogeneous bunch. Even the smallest
among them has not thought it fit to merge with a bigger bank. Inorganic growth is simply
not possible for public sector banks even with active prodding by their biggest
shareholder, the government. Leaving out some well publicised initiatives in the private
sector — the merger of Centurion Bank of Punjab with HDFC Bank being the latest —
most mergers have taken place at the instance of the government. Earlier, the government-
owned Oriental Bank of Commerce was asked to take over the failed Global Trust Bank
and Punjab National Bank, the Nedungadi Bank. The government was trying to avert a
possible loss of confidence in the financial system caused by such failures.
Flawed assumptions
Trade union opposition to mergers among PSBs is valid even if it has been on predictable
lines: that a closure of redundant bank branches may lead to fewer jobs in the long run.
Also, despite the government’s assurance of job security immediately after the merger, a
combined entity will still find it difficult to utilize the enhanced manpower.
Second, though size is important, even a merger of two or three large and medium sized
banks cannot create an entity big enough to face the global giants. More recent
developments in the U.S and other developed countries prove the point that large size of a
financial institution does not automatically vouch for sound management. The world’s
biggest banks are reeling under the impact of the serious crisis in the financial sector,
largely their own creation.
Large networks, no help
Two other points are relevant to a debate on mergers leading to consolidation in the sector.
One, in the reform era, a large network of branches need not necessarily be considered a
strength. Other delivery channels such as internet/phone banking are becoming important.
In technology related areas, a merger by itself will not contribute much. Bringing together
PSBs is bound to lead to redundancy of bank offices, especially in the metros. Second, the
official fascination with mergers is based on the belief that the future of banking lies in
universal banking. The assumption is that many more financial services besides the basic
ones can be undertaken by a larger entity after merger. The fallacy in this argument is this.
While some three years ago banks in India were fascinated with the universal banking
model and wanted to offer several non-traditional products as well, today there is much
less enthusiasm. Some of the risks involved in the ‘newer products’ such as credit cards
are becoming all too apparent for the PSBs. Stock market operations are another
vulnerable area.
Expertise in such areas is hard to come by. In any case, having a common brand serves the
same purpose. The SBI logo is adopted by all its associates. A formal merger does not
confer any special strength.
RESULTS
Consolidated result of study
The’t’ value of different variables of all sample banks is given in Table-XIX. It is clearly
understood that there have been significant increase in assets, investments, income and
advances for all the sample banks. Profit before tax, Business per employee and number of
branches have increased for majority of the sample banks. Total deposits, profit per
employee and number of employees have shown significance increase and decrease in six
banks each. Capital adequacy ratio and net non performing assets have been most
insignificant factors. This may be due to fact that whether there is merger or not,
according to RBIs directives every bank had to maintain <9% Capital adequacy ratio.
This is seen in our sample banks that this value has been maintained and not varied much
in all the sample banks. All t-values for testing the equality of mean values with respect
to total assets, revenue, investment, deposits, advances, capital adequacy, no. of
employees, business per employee, profit per employee, no. of branches and net
nonperforming assets are significant at 5% level.
Conclusion of study
The present study analyzed the growth of sample merged banks like Bank of India-
1994,State Bank of India-1996, Oriental Bank of Commerce-1997, Centurion Bank-
1988,Bank of Baroda-1999, Union Bank of India-1999, HDFC Bank-2000, ICICI Bank-
2001,Bank of Baroda-2002, Punjab National Bank-2003, Bank of Baroda-2004 and
Oriental Bank of Commerce-2004 during pre merger and post merger periods. The above
analysis clearly showed that the performance of merged banks in respect of growth of
stated parameters was not different from the expectations. As M&A activity in Indian
Banking circuit is inevitable it is hoped by the corporate sectors that improved
performance would follows M & A activities. If the banks want to proceed with M & A
activities, they have to proceed more carefully so that they can avoid the common
mistakes associated with M& A activities. Further the banks may develop appropriate
measures to gauge the success of the acquisition activities and adopt suitable measures to
improve their post merger performance in future also. Many better success stories are
hoped to be seen on cards in course of time as India gears up for more and more mergers
and acquisitions in this sector. After telecom, insurance, aviation and information
technology, banking is a prime sector in India awaiting change in its structure with
changing times.
CONCLUSION
Mergers and acquisitions have become the most acceptable route to quick growth in the
banking sector. As economic boundaries between countries disappear with the forces of
globalization we are beginning to see a common financial market in the world. In a free
market, competition is the key word and survival of the fittest is the rule. We cannot
therefore, ignore the global trends and we need to brace ourselves to face consolidation in
the banking industry. Consolidation via mergers & acquisitions is almost an accepted fact
of life today in India.
A large number of vulnerable old private sector banks whose financial health is causing a
lot of concern, are gobbled up by the more able ones and there are more such mergers on
cards. The financial sector would be open to international competition once the tone for
the rules of the game is set under the WTO. Banks will have to gear up to meet stringent
prudential capital adequacy norms under Basel II as they compete with banks with greater
financial strength. So consolidation in the banking sector in India is inevitable. Mergers of
smaller, newer banks would be much easier than the PSU banks, due to legal and social
constraints. The future is likely to see larger banking institutions, in tune with the demands
and expectations of the resurgent Indian economy, which is preparing to take on global
competition. We are moving towards a future of a small number of large banks from a
past dominated by a large number of small banks. In this process of merger and
acquisitions in banking, merging banks should keep in mind various crucial factors
besides considering inherent strengths and weaknesses of a taken over bank. Fundamental
features like portfolio, NPA levels, capital adequacy, technology levels, and staff issues
should be closely considered when planning for a merger. There has been enough bail out
mergers initiated by government to safeguard pubic deposits. The need of the hour is for
voluntary mergers between private-private, public-private and public-public banks as a
strategy for economic improvement and development through economies of scale and
synergy. Everyone is geared up the government, international players, Indian economy
and banks; only thing required is willingness and initiative on part of globally emerging
Indian banks to get counted on international circuit.
BIBLIOGRAPHY
Research papers
• M&A in Indian banking Industry- An Executive Handbook �Bank net India
• Is Event Study Methodology Useful For Merger Analysis? A comparison Of
Stock Market and Accounting data by Tomaso Duso, K. Gugler and Yurtoglu.
• Consolidation in Indian banking by K. Unnikrishna, Senior VP,IBA
• Returns to shareholders from Mergers: The case of RIL and RPL merger � IIMB
Management Review, Sep 2005
• The Value Effects of Bank Mergers � by Steven J. Pilloff, M. Santomero
• Mergers and Acquisitions and Bank performance In Europe - The role of Strategic
Similarities by Yener Altunbas and David Marqués Ibáñez
• Event study methodology: A new and stochastically flexible approach by Patrick
L. BROCKETT , Hwei-Mei CHEN James R. GARVEN
• Report on Trend and Progress of Banking in India, 2004-05
• Hidden cost reductions in bank mergers: Accounting for more productive banks
By Simon h. Kwan -Federal Reserve Bank of San Francisco
• Mergers and Acquisitions in the Banking Industry: the ACCC Perspective
• Bank mergers and acquisitions - Prof. Otto sobek
• The Management Accountant ,official organ of cost works accountants of India
• Mckinsey on Finance
• Asia �Pacific M&A Bulletin � Price water house Cooper
• The merger of union bank of Switzerland and Swiss bank corporation (c): post
merger experience � Darden publishing house � University of Virginia
Websites
• www.wikipedia.com
• www.Mckinsey.com
• www.rbi.org.in
• www.google.com
• www.banknetindia.com
• www.ebsco.com
• www.hindu.com
• www.economictimes.com
• www.thehindubusinessline.com
• www.iloveindia.com
• www.greaterbank.com
• www.123eng.com
• www.domain-b.com
• www.ilo.org
• www.rieti.go.jp
• www.accenture.com
• www.indiadaily.com
• www.advisoryfirms.com
• www.business-standard.com
• www.sullcrom.com
• www.mckinseyquaterly.com
• www.questia.com
• www.rediff.com
• www.investopedia.com
• www.blonnet.com
• www.economist.com
• www.businessworld.com
Books and Journals

• Bank Mergers: The Indian Scenario �Jayshree Bose
• Merger and Acquisition -ICMR
• Statistics for Management � R. Levin and D. Rubin
• ICFAI Journals
• The Economist
• Business World
• The Economic Times
• The Hindu

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ACKNOWLEDGMENT

It gives me immense gratification in expressing my sincere and honest gratitude to

I am thankful to Prof. K.V.RAO, my faculty guide (Professor at IBS Hyderabad) for

My management research project helped in learning nuances of training and development.

1| Page Management Research Project

2 Overview Of Banking Sector 5

4 M&A In Banking - Present Trend 11

5 Advantages Of M&As In Banking 16

6 Factors For M&As Success 20

7 Risks Associated With Mergers 23

8 Banking Structure In India 25

9 Mergers & Acquisition In Indian Banking 28

10 Challenges For Bank Mergers In India 32

11 Pre & Post Performance Evaluation Of 33

13 Methodology Of The Study 35

14 Analysis of the study 37

15 Impact Of Mergers And Acquisition On 63

2| Page Management Research Project

· Japan which witnessed a virtual collapse of banking system and an economic

3| Page Management Research Project

4| Page Management Research Project

· Bank of Venice (1587)

· Bank of Amsterdam (1609)

· Bank of Hamburg (1619)

5| Page Management Research Project

· Extending loans to individuals and businesses.

· Facilitating money transactions such as wire transfers and cashiers checks.

· Issuing credit cards, ATM cards and debit cards.

· Storing valuables, particularly in a safe deposit box.

· Cashing and distributing bank rolls

· Consumer & commercial financial advisory services.

· Pension & retirement planning.

6| Page Management Research Project

A. Merger and amalgamation: The term merger or amalgamation refers to a

a) Absorption one bank acquires the

1. Horizontal merger: A horizontal merger involves a merger between two firms

7| Page Management Research Project

3. Conglomerate merger: A conglomerate merger arises when two or more firms in

An example of a conglomerate merger is that between an athlete shoe company and a

B. Acquisition: This may be defined as an act of acquiring effective control by one

8| Page Management Research Project

Difference between Acquisition and Take Over:

The Merger and Acquisition process:

i. Develop a strategic plan for the business (Business plan)

Figure: 1 Framework for Acquisition Policy

9| Page Management Research Project

10 | P a g e Management Research Project

· Malaysia has reduced number of banks from 55 to 10

· Taiwan aims to bring down the number of banks from 12 to 6

· M&A initiatives are happening in Indonesia, South Korea and Japan.

· European Union experienced M&A activity in banking.

· US mergers count to about 100 since 2000.

Another interesting development taking place in Japan is the government move to

Figure: 2 Most popular M&A Market

A merger involves a marriage of two or more banks. It is generally accepted that

Various advantages of M&As can be listed as following:

 Greater Efficiency: Banks often are able to operate more effectively by