Mergers and Acquisitions of Banks in India:

The Post-Globalization Era:

Introduction: The banking Industry in India has been in the process of transformation and
consolidation since the adoption of liberalization, privatization, and globalization in 1991.
Keeping in view the technological changes and the inefficiency of banks in India, Narsimaham
Committee-II recommended mergers and acquisitions as the only viable route to strengthen
banks in the emerging scenario. Since then mergers and acquisitions have become important for
the Indian banking system and the banks are in a race to increase their sizes in order to enhance
their asset bases and profits, which also help them to match the global benchmarks. Thus, the key
motivations behind mergers and acquisitions in India are to have enhanced size to enjoy
economies of scale and scope, access to large amount of funds, wider penetration, and global
presence. One plus one makes three: this equation is the special alchemy of a merger or an
acquisition. The key principle behind buying a company is to create shareholder value over and
above that of the sum of the two companies. Two companies together are more valuable than two
separate companies - at least, that's the reasoning behind M&A. This rationale is particularly
alluring to companies when times are tough. Strong companies will act to buy other companies
to create a more competitive, cost-efficient company. The companies will come together hoping
to gain a greater market share or to achieve greater efficiency. Because of these potential
benefits, target companies will often agree to be purchased when they know they cannot survive
alone.
Objective:

1. To study the various bank mergers since 1991.

2. To study the pre-merger and post-merger performance of banks.

Literature Review:

“An Empirical Analysis of Bank Mergers in India: A Study of Market Driven versus Non-
Market Driven Mergers”, Singh Mann, Bikramjit; Kohli, Reena. Decision (0304-0941), Jan-
Jun2008, Vol. 35 Issue 1:

In this study they empirically evaluated the synergistic gains from bank mergers by dividing
them into two categories of forced mergers and market driven mergers. The empirical results
indicate that markets have reacted negatively to the announcement of forced mergers while the
reaction has been positive to that of market driven mergers. In line with the market expectation,
forced mergers have not added any value to both the balance sheet and profitability variables of
merged banks in the post merger period. Although market driven mergers have not immediately
improved the profitability of merged banks, but they have improved the balance sheet variables
of merging banks and have provided these banks an edge over the competitors in terms of
geographic dispersion, influence in new regions where the merging entity lacked presence and
extended product portfolios and thus have provided a better vehicle for growth.

“DOES BANKS' SIZE MATTER IN INDIA?”, Sanjeev, Gunjan M, Journal of Services

Research; Oct2006, Vol. 6 Issue 2:

Lately there has been a focus on consolidation of banks operating in India. It is felt that larger
banks will be able to benefit from the economies of scale and will benefit in terms of profitability
by taking on larger projects. As the size increases, efficiency becomes a matter of increasing
concern. This study has evaluated the efficiency of the public sector banks operating in India for
a period of five years (1997-2001) using the Data Envelopment Analysis (DEA). Further, it is
has investigated if there exists any relationship between the efficiency and size of the banks. The
results of the study suggest that no conclusive relationship can be established between the
efficiency and size of the banks.

“M & A in Services Sector”, E Mrudula and Krishna Kishore Puranam:

This article is a curtain raiser that discusses factors responsible for mergers and acquisitions,
competitive advantages gained by mergers and acquisitions in service sector etc. Mergers and
acquisitions have become a means of increasing shareholder value as well as the efficiency of
business operations by offering plenty of benefits and tremendous value arising out synergies
gained by merging independent business entities. Though major sectors like Banking, IT and
Airline have shown tremendous ups and downs in M&A activity, other sectors like insurance,
hospitality, education etc. have recognized that organic growth may not be enough to deliver
their growth agenda and are looking for M&A to meet their objectives. It also explains the
objectives of the business entities in service sector, which look forward to participating in M&A
activities, besides briefly touching upon recent M&A in the service sector.

“Financial Institutions Development: M&A Activity in Financial Services-2006 Review and

2007 Outlook”, Edward D Herlihy, Craig M Wasserman, Richard K Kim, Lawrence S Makow,
Jeannemarie O’ Brien, Nicholas G Demmo and Mathew M Guest:

This article looks at mergers and acquisitions activity in financial services, besides discussing
key considerations in strategic merger combinations, issues of directors, role of CEOs, etc. The
year 2006 saw a robust activity of financial institutions mergers and acquisitions across the
globe, which was expected to continue into the year 2007. The article also speaks about earning
guidance, clarity of disclosures towards which management has to be sensitive and also about
executive compensation and employee benefit aspects and private equity transactions in financial
services. Financial services sector M&A activity demonstrates that the convergence of banking,
securities, commercial finance and consumer finance industries, being an ever-evolving concept,
is a reality and that the competitive pressures remain strong.

“Retail Banking Mergers and Acquisitions: Strategic Choices”-Cap Gemini Financial Services:

This article examines strategic choices for banks going in for M&A, explains some of the pitfalls
to be avoided and highlights the paths, which they need to take, in order to achieve success in
M&A activity. The strategic choices of M&A range from changing landscape, geographic
options further divided into domestic, cross border and global to market consolidation. Reasons
for failure and diversifications are complex and can be attributed mostly to losing something
important like critical people, customers and market confidence. Uncontrolled costs, hidden
losses, unrealized benefits, avoiding decisions, cultural barriers and power struggles are other
factors that can undermine the most promising M&A activities. Despite a high failure rate,
successful M&A can pay large dividends. The most successful acquiring banks have clearly
established and understood the acquisition process to ensure good strategic decisions both before
the acquisition decision and also at the integration stage after the deal is complete.

Research Design: The research will be based on the collection of secondary information
from various sources like previously published articles, financial reports of banks, websites of
RBI, BSE, NSE etc. The report will be case study based and will like to portray the pre-merger
as well as post merger-scenario. It will also reflect the movement of the stock market in and
around the merger. The research will be carried out through:

a) Horizontal Analysis or Trend Analysis: Facilitated by showing changes between years and can
also be carried out by computing trend percentages of several years' financial data in terms of a
base year.

b) Ratio Analysis

 Profitability Ratios:
 Liquidity Ratios
 Activity Ratios
 Solvency/Leverage Ratios
c) Share Prices movements: Pre-merger as well as Post-merger.

Chapterization:

Chapter 1: Introduction, Objective, Scope, Limitation and Literature Review.

Chapter 2: The Indian Banking Scenario: Post-Globalization

Chapter 3: Mergers and Acquisitions in the Indian Banking Sector:

 a)Issues and Implications

b)Regulatory Issues in Bank Mergers in India

Chapter 4: Case Study 1

Chapter 5: Case Study 2

Chapter 6: Case Study 3

Chapter 7: Findings

Chapter 8: Conclusion and Recommendations

Chapter 9: Bibliography

References :

“Mergers and acquisitions in Services Sector” V V Ramani, E Mrudula

“Mergers, Acquisition and Corporate Restructuring” Prasad G Godbole.

“Mergers, Acquisitions and Business Valuation” Ravindhar Vadapalli.

“Creating value from Mergers and Acquisitions”, Sundarshanam.

“ICFAI READER”

“Finance India”

“www.google.com”

“www.rbi.org.in”

“www.bseinidia.com”

“www.nseindia.com”

“www.moneycontrol.com”

“www.icicidirect.com”