A

Summer Project Report

On

“A STUDY ON FINANCIAL ANALYSIS AND

PERFORMANCE OF PRE AND POST- MERGER OF KOTAK
MAHINDRA BANK & ING VYSYA BANK”

Master of Management Studies (Finance)

under the University of Mumbai

By

Mayuri Bhogle

Class: MMS & Roll No: 12

Specialization: Finance
Batch: 2020-22
Under the Guidance of

PROFESSOR. BINCY BABY

ATHARVA INSTITUTE OF MANAGEMENT STUDIES

Malad-Marve Road, Charkop Naka,

Malad (West), Mumbai 400 095.

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 DECLARATION

I hereby declare that the project entitled “A Study on Financial Analysis and Performance
of Pre and Post- Merger of Kotak Mahindra Bank & ING Vysya Bank” submitted as a part
of the study of MMS Degree is my original work and the Project has not formed the basis
for the award of any other degree, associateship, fellowship or any other similar titles.

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 ACKNOWLEDGEMENT

I would like to express my deep sense of gratitude to all those who have directly or
indirectly contributed towards the successful completion of this project with utmost
accuracy and validity.
I would like to thank my mentor Prof. BINCY BABY for her help and direction.

Place :
Date :
Signature of the Student

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 CERTIFICATE

This is to certify that the project entitled “ A Study on Financial Analysis and Performance
of Pre and Post- Merger of Kotak Mahindra Bank & ING Vysya Bank”is the bonafied
work carried out by MAYURI BHOGLE student of MMS, Atharva Institute of
Management Studies, during the year 2020-2022 in the partial fulfilment of the
requirements for the Degree of Master of Management Studies and that the project has not
formed the basis for the award of any other degree, associateship, fellowship or any other
similar titles.

Place:

Date: - Signature of the Guide Signature of

Director

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 A STUDY ON FINANCIAL ANALYSIS AND
PERFORMANCE OF PRE AND POST- MERGER OF KOTAK
MAHINDRA BANK & ING VYSYA BANK

Table of Contents

CHAPTER 1- INTRODUCTION: ......................................................................................... 6

CHAPTER 2- REVIEW OF LITERATURE: .....................................................................17

CHAPTER 3- RESEARCH METHODOLOGY ................................................................ 22

CHAPTER 4- DATA ANALYSIS AND INTERPRETATION .........................................26

CHAPTER 5- FINDINGS AND RECOMMENDATIONS ............................................... 36

CHAPTER 6- CONCLUSION: ............................................................................................39

CHAPTER 7- REFERENCES: ............................................................................................ 41

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CHAPTER 1- INTRODUCTION:

Financial performance is a subjective measure of how effectively a company can use its
assets to produce money from its principal mode of operation. It allows a corporation to
compare itself to itself or to its competitors over time within its industry. These financial
performance measurements are not restricted to certain industries or sectors, and may thus
be used to evaluate a company's success across the globe. This method is useful because
quantitative relationships are used to diagnose the strengths and weaknesses of a company's
performance. For the company's long-term success, financial performance must take into
account strategic and economic development. These indicators provide actionable input
that helps to enhance the company's operations.
Management’s interest in the financial performance of the company has drastically
increased as more annual and long-term compensation is entangled to attain the accepted
level of performance. The key financial ratios can be used to analyse financial performance
over time. The ratios are calculated year after year to assess the company's progress and
performance. These ratios are expressed as percentages or as ratios.
Merger refers to a combination of two or more corporate entities into a single company,
where one is the survivor and the other ceases to exist. Mergers are defined as the merger
of two or more corporate companies into a single entity, with one surviving and the other
ceasing to exist. The target company's assets and liabilities are acquired by the surviving
company. The buyer is usually the remaining company, which keeps its corporate identity.
Mergers occur for a variety of reasons, including corporate consolidation, expansion,
producing synergies, expanding the existing product range, and so on. Synergy refers to the
idea that the combined worth and performance of the companies would be far greater than
the sum of their individual parts. A synergy merge occurs when two companies join forces
to achieve greater efficiency and economies of scale. Increased revenues, integrated staff
talent and technology, and cost reductions are all aspects that contributed to the synergy.
Mergers are of 5 types - Where the merger takes place between two non-competing
corporates and where one company’s product or component is necessary for the other, this
is known as a Vertical merger. It usually takes place between companies that do not have a
similar line of business. In a merger where two firms who have similar line of business and
are competing with each other are merged, such merger is known as the Horizontal merger.
The third type of merger known as the accretive merger occurs where a company with a
high price to earnings ratio acquires a company with a relatively low price to earnings
ratio. The fourth type of merger refers to when there is absolutely no economic integration
or relationship between the acquiring company and the target company, such merger is
known as a Conglomerate. And the fifth type of merger known as the Dilutive merger
occurs when the earnings per share of the acquiring company falls lower after acquiring the
target company, due to its poor performance.
The annual performance of the company is studied using the technique of financial analysis
which provides with the relevant information to the decision makers. It is always advised

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and required to study and check the performance of the target company by the acquiring
company since all the stakeholder’s interest is affected by such a merger.it is essential for
the acquiring company to evaluate the performance of the target company before actually
taking forward the merger deal.
The banking system of India has tremendously changed overtime and it is expected to
outgrow further with the increase in expenditures on various sectors such as infrastructure,
continuous reforms in the country and the speedy implementation of projects. All these
factors directly indicate the robust growth in the banking sector and thus increase in the
business opportunities simultaneously. Mergers in the banking industry have been of great
familiarity in all the majority of countries in the World. Numerous international as well as
domestic banks are being engaged in the merger activities, due the major objective of
reaping the utmost economies of scale.

Banking sector
Banks are financial entities or corporations that have been granted permission by the
government to conduct operations such as deposit acceptance, loan lending, and investing
in various securities. Banks are responsible for the primary role of economic growth and
expansion, as well as providing capital to invest in various projects. The banking system in
India began in 1770 with the establishment of the Indian Bank, also known as the Bank of
Hindustan. India's banking system is classified into two periods: pre-liberalization and
post-liberalization. Prior to deregulation, the Indian government nationalised 14 banks in
1969 and another six commercial banks in 1980. In the post-liberalization era, the
government implemented a liberalisation strategy and provided licences to private banks,
resulting in the expansion of the Indian banking sector.
Dobson said that India's financial system was far more developed than China's (2007). The
key reason was the 1992 reforms and the installation of the Reserve Bank of India's severe
banking practises, which were repeatedly adopted. To compensate for the banks' weak
profitability, the banking reforms focused on lowering the cash reserve ratio (CRR) and the
statutory liquidity ratio (SLR).
Banks play a critical role in propelling any nation's economy, and they must be reorganised
to work efficiently through reform processes aimed at preventing bank distress. The
banking sector or industry reform process in India is part of the government's strategic plan
focused at repositioning and integrating the Indian banking sector into the global economy.
In order to create a sound banking sector, the world has seen significant changes in terms
of the number of institutions, ownership structure, as well as the depth and breadth of
activities over the years. In recent years, the banking industry has seen a lot of changes in
terms of laws and globalization's effects. These changes have had a structural and strategic
impact on this industry. With the changing climate, this industry has developed a variety of
methods in order to remain efficient and competitive in the global arena. The practise of
bank consolidation is one such profitable method.

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 The sluggish liberalisation measures in India have resulted in a general enhancement in the
operational efficiency of financial intermediaries. The introduction of international banks
into India, on the other hand, clearly unleashed the floodgates of competition. After the
global financial crisis of 2008-09, the Indian banking system began to show signs of
improvement in terms of performance and efficiency. Many changes have occurred in this
business recently as a result of globalisation and policy regulation, both of which have a
substantial impact on the banking system. In order to function efficiently and advance in
the global arena, the sector employed a variety of tactics.
One of the crucial instruments in the national development is the banking sector that
occupies a distinctive place in the country’s economy. The deregulation of financial
market, economic reforms and policies, liberalization of the market have witnessed
astonishing changes in the banking sector, thereby leading in incredible competition and
technical sophistication thus beginning a new era of the banking industry. Since then, every
bank is persistent in their endeavour to become financially stronger and operationally
efficient and effective. Indian banks are the dominant financial intermediaries in India and
have made commendable progress during the worldwide financial crisis; it's evident from
its annual credit growth, profitability and trends in NPAs. Companies’ growth is feasible in
two ways, organic or inorganic. Organic growth is additionally referred to as internal
growth, it occurs when the corporate grows from its own commercial activity using funds
from one year to expand the corporate in the subsequent year. Such growth may be a
gradual process which covers a couple of years but firms want to grow faster. Inorganic
growth is referred to as external growth and is thought of as a faster way to grow which is
generally most preferred. Inorganic growth occurs when the corporate expands by merger
or acquisition of another business. The crucial motive behind the Merger is to make
synergy, that's one plus one is greater than two and this rationale beguile the businesses for
merger at tough times. Merger and Acquisitions help the businesses in getting the
advantage of greater market share and price efficiency. For expanding the operations and
cutting costs, banks are using Merger and Acquisitions as a technique for achieving larger
size, increase in the market share, faster growth, and synergy for becoming more
competitive through achieving economies of scale.
A faster and less expensive way of improving profitability of the banks is by merging two
weak banks with one another or merging one healthy bank with the weaker, instead of
spurring the internal growth. Mergers help with the process of diversification of products
which indirectly reduces the risk. The application for a M&A decision usually represents
one of the most crucial actions that are subordinated to the strategies of an enterprise,
which have an immediate financial implication, important consequences on the future
survival and developments.

In India, the government has adopted the path of mergers along with the other in order to
restructure the entire banking system. Many smaller and weaker banks have been merged
with one another or with other -banks, with an intention to protect the interests of
depositors. They may be implied to be forced mergers. When a specific bank depicts
serious symptoms of sickness such as huge NPAs, erosion in the net worth or substantial
decline in capital adequacy ratio, RBI imposes a moratorium under section 45(1) of

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Banking Regulation Act 1949 for a specific period on the activities of such sick banks.
During the moratorium period RBI identifies stronger banks and urges that bank to prepare
a structure of merger. In the scheme of merger, the acquisition takes up all the assets and
liabilities of the weaker banks and ensure repayment of all depositors in a situation where
they wish to withdraw their claims. The M&A activity of banks result in the overall
advantage such as better revenue efficiency related benefits, return on Asset (ROA), profit
margin (effectiveness), Return on Investment (ROI), cash flows, reserves, liquidity, etc. to
stakeholders after the post-merger or post-acquired firm is more competent and valuable. A
firm achieves growth either internally by expanding its operations, setting up new units or
externally through mergers and acquisitions (M&As), takeovers, amalgamations, joint
venture etc.
Merger and Acquisitions with the increase in the intense competition day by day have
emerged as the most preferential long term growth strategy for corporate restructuring and
to strengthen the corporate in the current globalized World. The most important rationale
behind the concept of Mergers and Acquisitions is creating synergies. Globalization,
deregulation of economies including technological development has changed the banking
landscape dramatically. With the fast-changing environment, the banking sector is
resorting to the method of consolidation, corporate restructuring and strengthening to stay
efficient and viable. For this, Mergers and Acquisitions became the well-liked strategy for
growth within the size of banks which successively play a big role in entering the
worldwide financial market. Besides Mergers and Acquisitions have been widely used for
achieving higher and greater market share, overall productivity and profitability of the
firm, expanding branch networks, strengthening their capital base, cost rationalization,
economies of scale and manpower efficiency of the new entity.

Merger of Banks in India

In the early nineties after the introduction of financial sector reforms took place,
consolidation of banks earned significance. The process started gaining momentum after
the Narasimham Committee-1 (1991), put forward the suggestion of a broad pattern of
banking sector (3 or 4 large banks, 8 to 10 national banks, local banks and rural banks).
S.H.Khan committee (1997) also reiterated the consolidation process of banks. The
Narasimham committee-II of 1998, committee of Raghuram Rajan of 2009, the Fuller
Capital Account Convertibility Committee of 2006 and the Financial Sector Assessment
Committee of 2009 were the various committees that viewed the restructuring of Indian
banking system was required and that this restructuring was to be based on considerations
such as market driven viability and profitability, which brought about the introduction of
the process called Mergers and Acquisition.
Failures and Mergers of banks during the Post Financial Sector Reform period in India:
The M&A is not restricted among Indian banks only to the post-reform period of the Indian
banking system. It is crucial to identify that many mergers during the pre-reform period
were an effort instituted by the government in order to restructure the ailing units of banks.
The outcome of the post-reform period were the market driven mergers, which were on a
progressive rise, driven by the changes in the competitive environment of the Indian

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banking system which coerced many of the incumbent banks to restructure themselves and
boost their efficiency in an attempt to ensure long term profitability and survival.
Merger in banking sector from 1992 to 1994: During 1991-92, 28 banks were liquidated
and were treated as dissolved which were replaced by two banks. On 31st March 1992, 96
banks went under liquidation. On July 6, 1991, the Reserve Bank of India suspended all
payments and other transactions of Bank of Credit and Commerce International (Overseas)
ltd., and appointed SBI as the provisional liquidator of BCCI. SBI later offered to purchase
the business of Bombay branch BCCI (O) ltd. for a consideration of Rs. 40 cr. Following
the agreement of promoters, a wholly owned subsidiary of State Bank of India viz. SBI
Commercial and International Bank ltd. (SBICI) was incorporated on October 1993, and it
commenced its business transactions from January 31, 1994. The Bank of Karad ltd. also
suffered financial crises because of the large-scale irregularities made by certain stock
brokers. The crises affected the depositor’s interest and made it difficult for the bank to
survive. RBI then over took the matter and an interim order was issued for the liquidation
of the bank on May 27, 1992. On July 20, 1994 the scheme of amalgamation with Bank of
India came into force.
Bank Mergers from 1995-2000: the merger of New Bank of India with Punjab National
Bank was a very important merger of the early 1990s of a nationalised bank. The New
Bank of India had suffered huge losses in the past four preceding years. The prudential
accounting standards and new NPA norms were introduced, which further worsened the
financial position of New Bank of India. The continuous cumulative losses and the further
erosion of deposits weakened the liquidity position of New Bank of India and threatened its
existence. Thus, keeping in mind the interest of the depositors the RBI in September 1993
decided to merge the New Bank of India with Punjab National Bank. In January 1996, the
Kashinath Seth bank ltd. merged with State Bank of India. The Punjab Cooperative bank
ltd. and Doab Bank ltd. also merged with Oriental Bank of Commerce ltd. on April 8,
1997. In June 1999, Bareily Corporation Bank ltd. Was merged with Bank of Baroda.
Bank Mergers from 2000-2005: The merger of a 57 years old private sector commercial
bank based in Tamil Nadu “Bank of Madura Ltd” was witnessed in 2001, with a new
generation private bank i.e., ICICI bank. As per the scheme of amalgamation, the swap
ratio was fixed at 2:1 that is two equity shares of ICICI Bank for every one equity share of
Bank of Madura ltd. On 26th April 2002, RBI also gave an approval for the merger of
ICICI ltd., with ICICI Bank. The Benares State Bank ltd. was merged with Bank of Baroda
in 2002.The Nedungadi Bank which incurred huge losses was also placed under a 3 months
moratorium period from November 2, 2002 and the amalgamation scheme of Nedungadi
Bank ltd. with Punjab National Bank took effect on February 1, 2003. The Global Trust
Bank (GTB), showed adverse growth in 2002 and thus was granted licence in 1994. The
RBI further instructed the bank to adopt various prudential norms for reducing its adverse
futures. However, the bank was unable to finalise the capital expansion programme from
domestic sources which was advised by RBI. With the financial position of the bank
steadily deteriorating and its solvency getting seriously affected, the RBI placed the bank
under the period of moratorium on July 24, 2004, in order to protect the interests of the
small depositors and also of the banking system. Of the numerous merger proposals, RBI
accepted the proposal by the Oriental Bank of Commerce and was forwarded to the Central
Government for its approval. As per the notification of the government the Global Trust

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Bank was merged with Oriental Bank of Commerce on August 14, 2004. A proposal for
voluntary amalgamation in 2005, was submitted by the two new era private sector banks
viz. “Bank of Punjab” and “Centurion Bank Ltd.”. The amalgamation scheme of these two
banks was approved by the RBI according to the terms of Sec. 44A of the Banking
Regulation Act, and came into effect from October,2005. The Centurion Bank eventually
changed its name to Centurion Bank of Punjab Ltd.
Bank Mergers from 2006-2013: In January,2006, a three-month moratorium period was
placed on the Ganesh Bank of Kurundwad Ltd., since the net worth of the bank had turned
out to be negative and thus the bank failed to meet the capital adequacy requirements for
various years. The Bank was merged with Federal Bank Ltd. in September,2006. In the
year 2007, an old private sector bank “Bharat Overseas Bank Ltd.” Was merged with a
nationalised bank viz. Indian Overseas Bank. In May, 2008, Centurion Bank of Punjab got
merged with HDFC Bank. Centurion Bank of Punjab had approximately 400 branches in
180 locations which supported an employee base of over 7500 employees.
Committee Reports on Bank Mergers: Since the year 1992 the Reserve Bank and the
Government has initiated several initiatives in order to strengthen the banking system.
Various committees were appointed by the government which accorded several proposals
for the same purpose.

The Narasimhan Committee I - In the committee’s first report of 1991 it recommended

several measures to restructure the banking system of India. The committee accorded that
the number of public sector banks must be reduced through the process of Mergers and
Acquisitions. The committee had made the following important recommendations.
1. That there needed to be 3 to 4 large banks of global character.
2. Eight to Ten national character banks to be engaged in the country for universal
banking
3. Some banks from local area whose operational area is confined to a specific region.
4. Regional Rural Banks including some rural banks whose main function was to
finance the agricultural and allied activities credit requirements in the rural areas.
The committee further suggested the merger of powerful banks in public as well as private
sector amongst themselves and in certain cases even with developmental financial
institutions and non- banking financial institutions.
Narasimhan Committee II- The second report based on the structural issues of banking
sector of the Narasimhan committee (April 1998) made many suggestions. The Merger
among the banks and Domestic Financial Institutions and also the non-Banking financial
Institutions needed to be supported on the synergies, the locational and specific business
complementarities and should necessarily make sound commercial sense. Merger of public
sector banks must emerge from bank’s management, the government being the common
stakeholder in order to play a supportive role. Such mergers could however be worthwhile
which can lead to rationalisation of the work force and the network of the branch, or else
the merger of public sector banks might weigh down the management with operational

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issues and the attention would be distracted from the real issues. It would be mandatory to
evolve policies to be aimed at “right sizing and redeploying the excess staff either by way
of retaining them and thereby giving them appropriate option of alternative employment or
by bringing up of a Voluntary Retirement Scheme with significant incentives. Merger must
not be considered as a means of bailing out feeble banks. Merger amongst the strong banks
and financial institutions would strengthen greater economic and commercial sense. It
however can be seen from the suggestions of the Narasimhan Committee that the merger of
Public sector banks would be expected to emerge from the banks management with the
government playing the supportive role as a common stakeholder.
Joint Parliamentary Committee for Merger of Banks in India: While scrutinizing the issues
related to the developments stated above, the “Joint Parliamentary committee” (JPC) on the
scams taking place in the stock market and matters incidental thereto has made the required
observations and suggestions in para 10.87 of the report on the main role of RBI related to
bank mergers. Bank merger is a modern phenomenon in India and before the implementation
of merger, the sanction of RBI is mandatory as stipulated in section 44A of the banking
Regulation Act,1949, where the role of RBI is restricted. No merger is applicable unless the
draft of merger scheme has been placed in front of the shareholders of the banking companies
and accepted by a resolution which is passed by the majority representing two-third of the
shareholder’s value. RBI has no role to play regarding the SWAP ratio which is arrived at the
end. In case of any contradiction by a shareholder, RBI has to decide the price value of the
share, which shall be terminal. As per the Companies Act, the approval of the court is
necessary before the amalgamation/merger of two companies which also corroborates fair
price. Taking the above observations into consideration, the JPC made the following
suggestions on the role of RBI in mergers of Banks.

a) To lay down the guidelines in order to process a merger proposal in accordance with the
abilities of investment bankers.
b) The key parameters that form a structure to determine the SWAP ratios.

c) Disclosures from the Banks.

d) The level at which the board would be involved of having a meaningful board level
deliberation.
e) Procedure for buying or selling of shares directly or indirectly, before, during and after
the discussion period etc, by the promoter.
Report of Varma Committee on Bank Mergers: In the month of February 1999, a “Working
group on the Restructuring of Weak PSB” was appointed by RBI under the guidance and
chairmanship of Shri M.S. Varma, which worked to identify weak PSB and to suggest
various schemes in order to restructure and strengthen the weak banks. To identify the
weak public sector banks the committee set in motion some important parameters, which
posed to be essential for a strong financial bank. Depending on these parameters PSB’s
were classified into three major categories- i) the banks that met all the considered
parameters ii) the banks that met none of the parameters. iii) The banks where some of the
parameters were identified. An exhaustive examination was made by the Woking Group
case by case of the financial strengths and weakness of all the present Public sector banks

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and also recommended a two-stage operation to restructure the weak banks. The Group
was of the opinion that the merger or privatisation of banks would be relevant only after
the operational efficiency of the banks is enhanced. The committee accorded that the
privatisation or merger of the weak banks PSB’s must be considered as a last resort. In the
course of the first stage the bank shall undertake the restructuring of the operation
activities, organisational goals, financial and systematic restructuring. The efficiency in
operational activities could be attained only through adoption of modern technology,
reduction in cost of operations, reduction in the level of Non-Performing Assets,
improvising the practice of corporate governance, updating the legal system, adopting
measures of staff rationalisation, enhancing the efficiency and management involvement of
bank. the Working Group estimated that in the following three years the overall cost to
restructure the weak banks would approximately be Rs. 5500 cr. Out of which Rs.3000 cr.
would be infused as the capital, Rs. 1000 cr. would be for the buying out of the NPA’s,
staff rationalisation measures would cost around Rs. 1100 to 1200 cr. and the upgradation
of technology would cost Rs. 300 to Rs. 400 cr. The Group also suggested the constitution
of Financial Restructuring Authority. In order to speed up the recovery process in weak
banks, the committee suggested that the Debt Recovery Tribunals shall be set up to take
their cases on an urgent basis. However, in the budget of 2000-01 the then Finance
Minister notified the constitution of an Authority for all weak banks namely the Financial
Restructuring Authority. Under the preferred framework, the statutes governing PSB’s
would be amended in order to dispense with the suspension of board of directors on the
basis of suggestions from RBI and also for the constitution of a FRA which would
comprise the experts and professionals. This would also enable the FRA to exercise their
special powers, including all powers vested in the Board of the bank. In order to achieve
the prescribed Capital Adequacy Norms, the Government would also consider the
recapitalisation of the weaker banks.

Current scenario:
Recently the Government of India announced the consolidation of 10 Public sector banks
into 4 major banks. The Reserve bank of India notified through its official circular about
the merger of banks in the new financial year, which would help the government to
efficiently manage the capital. Once this merger is implemented, there would be 12 public
sector banks in India, as compared to 27 public sector banks in the year 2017.The
Government of India has infused a capital of Rs. 55,000 crores or more in public sector
banks.

Punjab national Bank (PNB) took over Oriental Bank of Commerce along with United
Bank of India. PNB bank became the second largest bank of the country having a business
size of
s.17.94 lakh crores, the first being State Bank of India. Canara Bank overtook Syndicate
Bank which makes it the fourth largest public sector bank in India. The combined business
would be of Rs, 15.20 lakh crores after the merger, with a capital of Rs.6500 crore being

13
infused by the Government. Andhra Bank and Corporation Bank are to be taken over by
Union Bank Of India and it will become 5th largest Public Sector Bank after the merger.
The merged bank will have a combined business base of Rs 14.59 lakh crore. The
government is set to provide Rs 11,700 crore to Union Bank because of its higher Net NPA
ratio which is 6.85%. Indian Bank will have a combined business of Rs. 8.07 lakh crores
after its merger with Allahabad bank to become the 7th largest public sector bank. The
government shall provide a capital of Rs.2500 crores in order to complete the merger.

Benefits and Issues of Bank Mergers and Acquisitions:

Indian economy is witnessing a fast-paced growth post the liberalization period and the
banking sector is one of them. Merger and Acquisition in the banking sector has facilitated
evidences that it is a necessary and most useful tool for the survival of the weaker banks by
merging itself into the larger banks. In today’s time nearly every bank in the middle-market
of the banking industry is trying to either acquire another bank in the sector or be acquired
by a larger bank. A lot of banks see an acquisition or merger as an opportunity to expand
their presence or scale up their operations quickly. There is a huge potential present in the
rural markets of India that have not yet been exposed by the majority of the banks.
However, a bank acquisition is not completely without its drawbacks. The few benefits and
issues of the mergers and acquisition of the banks are listed below.

1. BENEFITS:

a. Scale of Operations:
A bank merger helps the institution to quickly scale up their operations and
instantaneously gain a huge number of new clients. Not only does a bank get more
capital to work with in order to lend and invest because of an acquisition, but also
the acquisition provides a larger and broader geographical footprint for the banks to
operate.
b. Efficiency:
Acquisitions also help the bank to perform more efficiently, not only in respect of
efficiency ratio, but also in respect of the banking operations. Every bank has an
infrastructure made for compliance, risk management, accounting, operations and
IT. Financially, a larger bank has a lower aggregated risk profile due to a larger
number of similar-risks, complimentary loans overall decrease the institutional risk.
c. Business Gaps are Filled:Bank M&As empower the business to upgrade the
product or technological gaps. Acquiring a bank which has small operations but
which offers a unique revenue model or a financial product sometimes is easier
than constructing a business unit from scratch. And, from a technical perspective,

14
 being acquired by a larger bank allows an institution to upgrade its technological
platform significantly.
d. Talent and Team Upgrade:
Every bank benefit from a merger or acquisition as regards to the increase in talent
at leadership’s disposal. An acquisition represents the possibility of bolstering the
team or strengthening the team of top managers.

2. ISSUES:

a. Poor Culture Fit:

There are plenty of prospects, however, bank M&As only look at the two banking
institutions on paper without taking into consideration their personnel or working
culture into account. Failure to assess the cultural fit is one of the main reasons why
many bank mergers ultimately are unsuccessful. Throughout the process, the banks
have to make sure to thoroughly communicate and double-check that employee are
willingly adapting to the changing environment.
b. Not Enough Commitment:
The risk of execution is yet another major issue in bank mergers. In certain cases,
banking executives don’t commit valuable time and resources into converging the
two banking platforms together and the resulting impact is felt on the customers
because of which the newly merged bank fails completely.
c. Customer Impact and Perception:
While undergoing the process of an M&A event, it is crucial that attention is paid
to the impact it has on the customers. Customers often emotionally respond to a
bank acquisition and hence it is essential that customers perception is managed with
regular and careful communication. And once the M&A is fully undergone, its
impact on the customers must be considered at every stage: Anything from
upgradation of technological platforms to financial products which might impact
the customers negatively if thorough attention is not paid.

d. Compliance and Risk Consistency:

A final issue to consider during the merger or acquisition is the culture of risk and
compliance of every bank involved. Every financial institution handles banking
compliance and regulations with different perspective, however, it is important that
the two banks merging together must agree on their approach in order to move
forward. When two mismatched risk cultures are clashed during a bank merger, it
adversely affects the profitability of the business if they do not arrive at an
amicable working solution.

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Bank M&As are complex procedures with the possibility of an extraordinary
payoff or extraordinary peril thus it is important that these benefits and issues are
kept in mind in order to combine the processes of each different bank.

16
CHAPTER 2- REVIEW OF LITERATURE:
Veena and Patti (2016) conducted research on the Financial Performance Analysis with
respect to pre- and post-merger by taking the reference of ICICI Bank Ltd. By assessing
the leverage and growth ratios the research was aimed at analysing the performance of
ICICI bank. The data collected by the authors was from secondary sources such as websites
and annual reports for 10 years that is starting from the year 2007-08 to 2016-17 and the
reliability of these sources was measured through group statistics. T-test was applied for
financial ratios to measure the analysis of pre- and post-merger data. The research found
out that there were no significant differences seen between the performance of ICICI bank
pre- and post-merger and that there was no relation established between the profitability
ratios, leverage ratio and growth ratio performance of ICIC bank. The research concluded
that the financial performance of the bank post-merger was better than its performance
before or pre-merger and that it was positively impacted.
Mondal, Pal and Ray (2017) in their study the performance of the Indian banks due to the
influence of merger attempted to analyse the impact on the operational performance of
various banks during the post-merger period for which the data was collected from the
secondary sources such as bank website, annual reports of numerous years etc, for a total
period of 4 years that is two years pre-merger and two years after the merger took place.
The paper concludes that mergers helped the banks to improve their financial performance
and base and also provided certain tax benefits. The results suggested that the efficiency
and the functioning of the banks enhanced in consideration with the different parameters
used in for comparison. Significant improvements were displayed by major financial
indicators in the operating performance after the merger was undertaken. The study
revealed that the financial ratios on an average of the banks in India in terms of liquidity,
leverage, shareholders wealth and profit parameters showed a remarkable improvement
post-merger of these Indian banks.
Patel (2018), in his research paper the financial performance pre and post-merger taking
into account the Indian perspective compared the long term profitability of Indian banks
namely Bank of Baroda, Oriental Bank of Commerce, Indian Overseas Bank, IDBI Bank
and State Bank of India. Various variables were considered in order to evaluate the
performance and it was found that the merger had a negative impact on the performance of
the banks specifically on the Net Profit Ratio, the Return on equity (ROE), yield on
investment, etc. The researcher has taken into consideration a total duration of 11 years and
the data five years before the merger and five years after the merger is evaluated in order to
test the hypothesis that was established by him. The study concluded that for most of the
variables the above-mentioned banks showed a negative impact and that there was a
positive impact on the bank for a few variables. It was found out that the profitability of all
the banks eventually decreased in the post-merger period. A mixed impact of the merger
was seen, the assets, equity, and investments of all the above-mentioned banks increased
significantly but some of these banks could not optimally utilize these resources which
thereby resulted in a steep decrease in those particular yields.
Sethy (2017) conducted research on the performance of banks financially due to the impact
of merger with a special reference to the State Bank group. The research aimed at
determining the technical efficiency through non parametric approach of all the banks

17
during the period starting from the year 2005 to 2016 which measured the effect using the
paired T test and variable of Earnings Per Share (EPS), Market Price to Book Value
(P/Bv), Price to Earnings ratio (P/E). The study along with the above-mentioned variables
applied the Krukshal Wallis test in order to depict the differences among the various banks.
To measure the effect of merger on the State Bank of Saurashtra in the year 2009 and State
Bank of Indore during 2010 with the State Bank of India, the research conducted a paired t
test by taking into consideration some selective indicators such as Earnings Per Share
(EPS), Price to Earnings ( P/E) and Market Price to Book Value ratio for a total period of
four years pre and post-merger of State bank of India with State Bank of Saurashtra in
2009 and with State Bank of Indore in 2010 for the period of five years. The study was
conducted to decide whether, there occurred improvements in the performance post-
merger. The result depicted that the banks did not show a great performance in the post-
merger era when they were compared to the pre-merger period and had an inconsequential
impact on the Return on Assets ratio (ROA).
Goyal and Joshi (2012) analysed in their research paper on the merger and acquisition of
the banks with special reference to ICICI bank which is considered as the largest private
sector bank acquiring around nine financial firms and making its way through successfully.
Their study aimed at the growth of ICICI bank attained through mergers and acquisition.
Their paper concludes that M&As are to be considered as a successful corporate event that
can create synergy in the organizations and provide for competitive advantage, however,
these events also parallelly have potential to create some negative impacts on the
performance of the individuals as well as the companies.
Ck (2017) in his paper the performance of the firm and of the shareholder wealth due to
merger with a special reference to ICICI Bank ltd and Bank of Rajasthan analysed the
impact of merger which was measured with three different perspectives namely,
profitability, efficiency of operations and performance of the business. The data used by
the researcher was five years before the merger took place and five years after the merger
and was collected from various databases and annual reports of the banks. The paper
concludes that the net profit margin, the earnings per share, the return on assets of the
banks improved post-merger, whereas the price to earnings ratio and the return on equity
did not depict any significant changes pre and post-merger.
S and B (2020) evaluated the pre- and post-performance of Kotak Mahindra Bank and
Bank of Baroda and studied the impact of merger on these banks. Ratio analysis, t test and
percent change were all performed and evaluated. the data collected was from secondary
sources and for the period starting from 2014 to 2020. It analysed that the performance of
Kotak Mahindra bank based on profitability, operational efficiency etc had a positive
impact in the post-merger period when compared with the pre-merger period, however,
there were signs of negative impact on the performance of Bank of Baroda post-merger.
Ghosh and Dutta (2015) in their study a pre and post analysis of performance parameters in
the banking industry due to mergers measured the changes in the level of performance of
banks due to the mergers and its overall impact by taking into considerations certain
financial and Human resource parameters. The data collected was for 10 BSE listed
companies for the period starting from 2000 to 2010 which underwent Mergers and
acquisition deals. Their study concluded that capital adequacy ratio, return om capital

18
employed and earnings per shares depicted a better performance in the post-merger period,
however, no significant differences were to be evaluated.
Ravichandran & Pandeeswari (2016) studied the impact on selected backs due to merger
with reference to Financial performance, which concentrated on the profitability of banks
post-merger. The study conducted was for Centurion bank of Punjab and HDFC Bank.
There were various variables used for evaluation and the data was collected from the
annual reports of the banks. Their study concluded that there was significant increase in the
performance of the Total Capital Ratio, the Earnings Per Share, the Dividend Pay-out ratio
etc.
Kumar (2013) attempted to compare the performance of Bharat Overseas bank and Indian
Overseas Bank before and after the merger of the two banks. The parameters taken into
consideration were the investment and advances, Business employees, Return on Assets,
etc. The information was sourced from various books, studies, annual reports, Indian Bank
Association journals, RBI bulletins, and various other websites. The study concludes that
certain conditions prior to the merger should be satisfied in order for the merger to be
beneficial. Merger should not be seen as a potential tool for a company to dominate and
emerge as a monopoly in the market.
B. Rajesh Kumar, K.M Suhas (2014), in their study based on an analysis on value creation
in the merger of Indian Banks depicted that the announcement of merger made value-
creating activities such as increase in the prices of the stock after the merger was
announced. The operating performance is compared between the pre-merger and post-
merger performance and is based on three distinct models that were used by the
researchers. There is no evidence that provides support to improve the performance of the
corporates post-merger.
Sharma (2009), in his study pointed out that economies of scale was one of the main
reasons behind M&A. he implied that banks were involved in M&As in order to curb down
their operating costs by shutting down their branch networks and laying off additional
employees. He emphasized that the banks also integrated new systems of information
technology and risk management in the banks so as to reduce the costs. Increase in the
competition further incentivized the banks to succeed and thereby use the large capital base
and the market power in their advantage. The author mentioned that economies of scale
which generated through Mergers and Acquisitions were exploited as the business of one
bank were merged with that of another business providing financial services and this in
turn gave them the advantage of existing distribution networks.it was concluded that
however, the banks can create cost and revenue efficiencies by acquiring existing
information from the target in the Mergers and Acquisition deals.
Singh and Das (2018) in their study based on the impact on the performance of the banks
due to mergers and acquisition assessed the areas of evaluating the impact on the banks
during the pre and the post-merger period. The authors studied the performance by taking
into consideration various variables such as the Net Profit Margin Ratio (NPM), the
operating profit ratio, the earnings per share, etc. it was found that the strategies and
procedures that were part of the factors along with the physical and social factors played a
crucial role in the process of Merger and Acquisition. To conclude further the authors
stated that there were no abnormal returns visible on the value of stock of the acquiring

19
banks, but however there were significant returns on the value of the target bank stocks in
the process of Mergers.
Sahni and Gambhir (2018) evaluated the performance of commercial banks in India after
the merger took place. For this the case of Centurion Bank of Punjab Ltd and HDFC Bank
was selected and various data variables were collected using the (Capital Adequacy, Asset
Quality, Management Quality, Earning Quality and Liquidity) CAMEL Model. The data
collected was for 10 years together, five years being before the merger took place and five
years after the merger was undertaken from the annual reports of the mentioned banks,
websites and other sources. T-test was also performed by the researchers and it was found
that the ratios that were considered related to the capital adequacy, asset quality, earnings
quality all did perform well whereas ratios related to Management quality and liquidity
ratios did not perform as expected. Ali and Sharma (2019) in their research a operating
performance pre and post-merger of state Bank of India analysed the financial position of
SBI. The financial parameters were used to evaluate the position of SBI using the t test
model after five SBI associates were merged into it. The researchers found out that the
State Bank of India did not in the initial phase perform well however, the performance was
elevated two years after the merger was completed and it not only increased the overall
profitability but also reduced its operating costs and this in turn increased its efficiency.
Mantravadi & Reddy (2007) stated that the merging of the same group of companies do not
positively affect the financial position of the consolidated company. They observed that
there were no significant changes in the operating and gross profit margins, but there
seemed a decline in the Net Profit Margin (NPM), Return on Capital Employed (ROCE)
and Return on Net-Worth after the merger. The research stated that the decline in Return
on Capital Employed suggested that the efficiency enhancement did not specifically
motivate mergers, but it only aimed at the consolidation of the basic asset structure of the
banks.
Athma and Bhavani (2012) analysed the performance of State Bank of India and HDFC
bank pre and post-merger. The data sourced was of secondary nature and was collected
from various websites and annual reports and the period selected was the post liberalization
period that is from the year 1991 to 2017. Employee and branch productivity ratios, T-test,
regression analysis, etc were some of the tools through which the data was analysed. The
research found that all the key parameters in the pre-merger period depicted an increase in
their trend except for the number of employees in the case of State Bank of India and in the
post-merger duration the key parameters showed increasing trends. The study concluded
that there was overall increase in the performance of both the banks when taken into
consideration the productivity ratios and the key parameters.
Patil and Chandra (2020) studied about the mergers taking place in the Banking sector of
India. The researcher attempted to know how the performance of the banks were impacted
and whether the merger could accelerate the economic growth or dampen it further. The
data was collected for top 10 largest banks in India from secondary sources such as RBI
bulletins, annual reports of the banks and various other websites. The paper stated that the
process of consolidation surely brought liquidity and transparency in the business and it led
to effective administration of the banks but it also exposed a single bank individually an
instable and unexpected risk. The authors concluded by stating that the profits of the new

20
banks merged together would reduce and this will increase the instability and also the
functioning of the banks.
Khan (2011) studied the concept of Merger and Acquisition of banking sector in India in
the post liberalization period. The study compared the pre- and post-merger performance of
the various merged banks by using various financial parameters such as Net Profit Margin
(NPM), Return on capital Employed (ROCE), Debt to Equity ratio (D/E), etc. The author
has used Ttests independently in order to test the statistical significance and also the impact
of merger and acquisition on the bank’s performance. Further to evaluate the data was
collected through Annual reports, Bombay Stock exchange website, etc. The researchers
concluded that after analysing and performing all the tests, it was observed that the
efficiency of the banks significantly increased and this can help attain greater benefits to
the equity shareholders. Goyal K.A. & Joshi Vijay (2011) in their paper, gave a summary
on the Indian banking system and highlighted the changes that occurred within the banking
sector after post liberalization period and defined the Merger and Acquisitions as per AS-
14. The necessity of Merger and Acquisition in India has been examined under this study.
It also gave the thought of changes that occurred after M&As within the banking sector in
terms of monetary, human resource & legal aspects. The paper described the advantages
that begun through M&As and examined that M&As may be a strategic tool for expanding
their horizon and corporations just like the ICICI Bank has used merger as their expansion
strategy in rural market to enhance customers base and market share. The sample of a total
of 17 Mergers of post liberalization period were collected and discussed about Mergers and
Acquisitions.

21
CHAPTER 3- RESEARCH METHODOLOGY:

Methodology
Banking sector plays a crucial role in every economy and is considered as one of the fastest
growing sectors of India. The competition is grown to be intense and irrespective of the
threats from the international players and other domestic banks – both Private and Public
have also seen rigorous competitive edge grabbing the potential opportunities.
To test the research prediction, method of comparing the performance of Kotak Mahindra
Bank and ING Vysya Bank pre and post- merger and acquisitions (M&As) is adopted, by
using the following financial parameters namely; Earnings Per Share, Return on Net
Worth, Dividend Per Share, Book Value per share, Net profit margin, Operating profit
margin and Return on capital employed. The time period selected for the data analysis is
four years before the merger and six years after the merger of both the banks and the
financial ratios of them are compared. For the calculation of the pre-merger performance,
individual bank ratios are considered whereas after the merger, the financial performance is
calculated by combining the data of both the banks.
For the purpose of analysing the data and arriving at the findings the statistical and
financial ratios along with tabulation techniques are used. The hypothesis is tested using
the t-test, the p-value, standard deviation and the mean with the financial data of Kotak
Mahindra Bank and ING Vysya Bank.

Ratios
Net Income−Preferred Dividends
Earnings Per Share =
End−of−period common shares outstanding

Return on Net Worth = Net Income

___________________________________
Shareholder’s Equity
Dividend Per Share = Total Dividend Paid
________________________________
Shares Outstanding

Book Value Per Share = Total Shareholders equity – Preferred equity

________________________________________________________
Total Outstanding Shares

22
Net Profit Margin = Net Profit
___________________________* 100
Sales
Operating Profit Margin = Operating Profit
____________________________*100
Sales
Return On Capital Employed = Net Profit
______________________________* 100
Total Assets

RESEARCH GAP:

It is observed that, most of the research work has been done on trends, framework &
policies and human aspect which is required to be investigated, however, the profitability
and financial analysis of the mergers have not been given critical importance. The current
study manages to investigate the details of M&As with greater emphasis on the banking
sector in India with respect to post liberalization period. The study also further discusses
the performance pre and the post-merger of Kotak Mahindra Bank and ING Vysya Bank.

SCOPE AND OBJECTIVES OF THE STUDY

• To evaluate the performance of Kotak Mahindra Bank and ING Vysya Bank in terms
of net profitability.
• To analyse the performance of both the banks before and after merger in terms of
earnings per share, dividend per share, return on capital employed, etc.
• To find out the impact of merger on company’s Operating Profit.
• To examine the effects of merger on Return on Net Worth.
• To examine the fluctuation of merger on the book Value of the share
• To find out the net profit margin of both the banks pre and post-merger.

23
HYPOTHESIS

1. To test whether there is significant difference in the Earnings per share pre and
postmerger.
H0 (Null Hypothesis) There is no significant difference between the Earnings per
Share pre and post-merger.
Ha (Alternate Hypothesis) There is significant difference between the Earnings per
Share pre and post-merger.
2. To test whether there is significant difference in the Return on Net worth pre and
postmerger.
H0 (Null Hypothesis) There is no significant difference between the Return on Net
Worth pre and post-merger.
Ha (Alternate Hypothesis) There is significant difference between the Return on Net
Worth pre and post-merger.
3. To test whether there is significant difference in the Dividend per share pre and
postmerger.
H0 (Null Hypothesis) There is no significant difference between the Dividend per
Share pre and post-merger.
Ha (Alternate Hypothesis) There is significant difference between the Dividend per
Share pre and post-merger.
4. To test whether there is significant difference in the Book Value per share pre and
postmerger.
H0 (Null Hypothesis) There is no significant difference between the Book Value per
Share pre and post-merger.
Ha (Alternate Hypothesis) There is significant difference between the Book Value
per Share pre and post-merger.
5. To test whether there is significant difference in the Net Profit Margin pre and
postmerger.
H0 (Null Hypothesis) There is no significant difference between the Net Profit
Margin pre and post-merger.
Ha (Alternate Hypothesis) There is significant difference between the Net Profit
Margin pre and post-merger.
6. To test whether there is significant difference in the Operating Profit pre and
postmerger.
H0 (Null Hypothesis) There is no significant difference between the Operating
Profit pre and post-merger.

24
 Ha (Alternate Hypothesis) There is significant difference between the Net Profit
Margin pre and post-merger.
7. To test whether there is significant difference in the Return on Capital Employed
pre and post-merger.
H0 (Null Hypothesis) There is no significant difference between the Return on
Capital Employed pre and post-merger.
Ha (Alternate Hypothesis) There is significant difference between the Return on
Capital Employed pre and post-merger.

Data Collection
In order to evaluate and investigate, data is collected from Merger and Acquisitions
(M&As) database of Banking sector of India in the post liberalization regime. The financial
and accounting data of banks is collected from Kotak Mahindra Bank’s Annual Report and
ING Vysya Bank’s Annual Reports for examining the impact of Mergers on the financial
performance of these two banks. Financial data is secondary in nature and is collected from
Bombay Stock Exchange (BSE), National Stock Exchange (NSE), money control.com and
other websites for the study. The data before merger is for 4 years starting from 2010-11 to
2013-14 and the data after merger is for 6 years starting from 2014-15 to 2019-2020, and
since the data sample is not equal, the two sample T- test was performed and the results
were collected.

25
CHAPTER 4- DATA ANALYSIS AND INTERPRETATION:
Data Analysis
This research is an endeavour to screen the effect of merger and acquisition of the Indian
banking segment. Even though the data of two separate periods and time line have been
considered in order to evaluate and examine the profitability performance of Kotak
Mahindra Bank and ING Vysya after their merger, however, the methodology depends on
past observations and data which represents the complete research work found in the two
different stages of Bank merger.

Table. 1

Before Merger

2010-11 2011-12 2012-13 2013-14

Earnings per
share 11.35 14.69 18.31 19.62
Return on
Net worth 11.97 13.59 14.37 12.23
Dividend per
share 0.5 0.6 0.7 0.8
Book Value
per share 92.74 107.75 126.77 159.46
Net Profit
Margin 19.52 17.55 16.91 17.13
Operating Profit 0.89 1.74 2.48 1.17
Return on Capital Employed 2.77 2.62 2.66 3.05

26
 Table 1.

After Merger
2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Earnings Per
Share 24.2 11.42 18.57 21.54 25.52 30.88
Return on Net
Worth 13.19 8.72 12.35 10.89 11.47 12.25
Dividend Per
Share 0.9 0.5 0.6 0.7 0.8 0
Book Value Per
Share 183.13 130.63 150.02 196.7 222.14 253.62
Net Profit
Margin 19.19 12.75 19.27 20.68 20.32 22.08
Operating Profit -1.67 -3.18 -0.37 0.16 1.09 2.13
Return on
Capital
Employed 2.96 2.2 2.9 2.8 2.77 2.86

In Table 1 the data of Kotak Mahindra Bank is collected for the period before merger from
2010-11 to 2013-14 and the data from 2014-15 to 2019-20 after merger. To analyse the
financial performance of Kotak Mahindra Bank after the Merger and acquisition, the
financial as well as accounting ratios are considered such as Earnings Per Share, Return on
Net Worth, Dividend Per Share, Book Value per share, Net Profit Margin, Operating Profit
Margin and Return on Capital Employed.

The Table depicts the performance of the bank and the ratios can be seen to fluctuate. The

27
Earnings per share (EPS) is a number that describes a company’s profit per outstanding
share in the market, it is calculated on a quarterly or yearly basis. EPS is calculated by
taking the corporate’s net income and dividing by the number of shares outstanding. EPS is
one of the crucial variables to determine a company’s prices of shares. A higher EPS
depicts that the company is much more profitable and has more profits to distribute to
shareholders. The Earnings per share can be seen to 19.62 in the year 2013-14 that is
before the merger with ING Vysya bank and the ratio immediately after merger that is for
the period 2014-15 can be seen at 24.2 and it increased to 30.88 in the year 2019-20. This
shows that the earnings per share have increased substantially after merger as compared to
earnings per share before merger of Kotak Mahindra Bank.

The next row describes the performance of Return on Net worth. It is a ratio to measure the
profitability of the company and is expressed in terms of percentage. Return on Net Worth
(RONW) is calculated by dividing the Net income of the Company by the Shareholder’s
Equity. It is also known as Return on Equity (ROE). A higher percentage of Return on Net
worth indicates that the company has prudently used the shareholder’s wealth, however, a
lower RONW depicts that the company has not efficiently deployed the shareholder’s
money. The table shows that the return on Net Worth of Kotak Mahindra Bank before the
merger that is in the year 2013-14 stood at 12.23 % which rose to 13.19 % immediately
after the merger in the year 2014-15, however, it did not continue to grow and it can be
seen at 12.25% in the year 2019-20.

Dividend Per Share (DPS) is the metric of measuring a company’s strength. A consistent
record of a company of paying dividends every year or increasing the dividend value every
year is interpreted to be a sign of positive expectations from the company for future
growth. This in turn attracts new additional investors and directly results in an increase in
the company’s price of share. DPS can be termed as the sum of the dividends declared and
issued by a corporation for each outstanding ordinary share. The DPS is calculated by
dividing the total dividends that the company or business has paid out inclusive of the
interim dividends over a period by the number of ordinary shares outstanding of the shares
issued. In the table 1 above the dividend per share of Kotak Mahindra Bank before and
after merger from the period 2010-11 to the period 2019-20 is given. The ratio shows that
the bank had been consistently increasing the dividend per share from 2010-11 to 2013-14.
In the year 2014-15 Kotak bank gave a dividend of Rs.0.9 per share, the highest dividend
per share as compared to the previous years. It can be seen that the highest dividend was
given right after the merger of Kotak Bank and ING Vysya Bank took place. However, it
can be seen that the value of dividend per share decreased to
Rs.0.5 in the year 2015-16 and picked up in the further years only to end at 0 in the year
201920 that is the bank did not pay any dividend to the shareholders in the year 2019-20.
One can witness the fluctuations in the value of dividend throughout the years.
Book value per share (BVPS) refers to the ratio of equity which is available to common
shareholders and is divided by the number of shares outstanding of the company. This ratio
represents the company’s minimum value of its equity and measures the book value of the
company on a per-share basis. The BVPS effectively indicates the company’s net value of

28
assets based on per share. A higher BVPS indicates that the stock is undervalued in relation
to the current price of stock in the market. This ratio is usually used by the investors in
order to evaluate the stock price of the company they wish to invest in. in the table 1 above,
the BVPS of Kotak Mahindra bank before the merger that is in the year 2010-11 was Rs.
92.74/- which increased to Rs. 159.46/- in the year 2013-14. The Book value of share
immediately after the merger increased to Rs. 183.13/- and witnessed a decrease to
Rs.130.63 in 2015-16. The BVPS in 2019-20 can be seen at Rs.253.62/-. This means that
the Book value has been increasing for Kotak Mahindra Bank after the merger with ING
Vysya bank.

The Net Profit Margin (NPM) ratio compares the company's profits to the total amount of
money the company has brought in. This ratio gives an analyst the wider perspective of a
company's financial stability. The companies that manage to generate greater profits are
considered to be more efficient. NPM measures how much net income the company has
generated as a percent of revenues it has received. The ratio is typically expressed in
percentage format but can also be presented in decimal form. The Net Profit Margin of
Kotak Mahindra Bank mentioned in the table 1 above for the year 2010-11 was 19.52 and
in 2013-14 was 17.13 before the merger with ING Vysya Bank, the NPM in 2014-15 just
after the merger was at
19.19 which gradually increased in the year 2019-20 to 20.08.

A company’s Operating Profit Margin, is a good indicator to see how well the company is
being managed and how efficiently it is generating profits from sales. It is also referred to
as Return on Sales (ROS). Operating profit margin depicts the proportion of revenues that
are made available to cover the non-operating costs of the company such as, paying
interest, and is the main reason why investors and lenders pay most attention to the
operating profit margin.
It is calculated by dividing a company’s operating income by its total or net sales. Higher
ratios are considered better, which means that the company is efficient in its operations and
is better at turning over its sales into profits. The Operating Profit Margin is expressed on a
per-sale basis after accounting for variable costs but before paying any interest or taxes
(EBIT). The operating profit of Kotak Mahindra bank stood at 0.89 in 2010-11 and which
was increased to 1.17 in the year 2013-14 the year before the merger of the two banks took
place. However, the operating profit can be seen to be in negative number that is -1.67 in

29
the year 2014-15 immediately after the year of merger and thus one can see that the merger
affected the profit margin of the bank, which further deteriorated in the following year of
2015-15 at -3.16.
Although there was a steep fall for the bank’s performance of Operating profit, the bank
recovered and posted an operating profit margin at 2.13 in the year 2019-20.

Return on capital employed (ROCE) is a ratio which is calculated to assess a company's

profitability and its capital efficiency. This financial ratio helps one to understand how
efficiently a company is generating profits from its capital which it has put to use. The
ROCE ratio is one of various profitability ratios which the financial managers,
stakeholders, and potential investors may use in order to analyse a company for investment.
ROCE is similar to the ratio Return on Invested Capital (ROIC). The formula for ROCE is
calculated by dividing Net Operating Profit or Earnings Before Interest and Taxes (EBIT)
by the Capital Employed. in the table 1 above, the ROCE of Kotak Mahindra Bank in the
year 2010-11 was 2.77 and in the year prior to the merger with ING Vysya Bank in 2013-
14 had increased to 3.05. the return on capital employed reduced marginally to 2.96 after
the merger in 2014-15 and the ROCE can be seen at 2.86 in the year 2019-20 this means
that the bank has been consistent in the performance of efficiently generating profits from
its capital.

Table 2

Before Merger

2010-11 2011-12 2012-13 2013-14

Earnings per
share
26.45 31.85 40.36 36.61
Return on Net
worth
12.14 11.46 13.24 9.3
Dividend per
share
3 4 5.5 6
Book Value
per share
216.91 265.1 298.79 374.87
Net Profit Margin 11.82 11.83 12.6 12.63
Operating Profit -12.48 -5.53 -2.34 -4.02
Return on Capital Employed 0 0 0 0

30
 Table 2
After Merger

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20

Earnings Per Share 24.2 11.42 18.57 21.54 25.52 30.88
Return on Net
worth 13.19 8.72 12.35 10.89 11.47 12.25
Dividend per share 0.9 0.5 0.6 0.7 0.8 0
Book Value per
share 183.13 130.63 150.02 196.7 222.14 253.62
Net Profit Margin 19.19 12.75 19.27 20.68 20.32 22.08
Operating profit -1.67 -3.18 -0.37 0.16 1.09 2.13
Return on Capital
Employed 2.96 2.2 2.9 2.8 2.77 2.86

In Table 2 presented above the data of ING Vysya Bank is collected for the period before
merger from 2010-11 to 2013-14 and the data from 2014-15 to 2019-20 after merger. To
analyse the financial performance of ING Vysya Bank after the Merger and acquisition, the
financial as well as accounting ratios are considered such as Earnings Per Share, Return on
Net Worth, Dividend Per Share, Book Value per share, Net Profit Margin, Operating Profit
Margin and Return on Capital Employed.

The first ratio earnings per share of ING Vysya Bank in the year 2010-11 was at 26.45 that
means for one share the bank earned 26.45, which gradually increased year on year and
stood at 36.61 in the year 2013-14 that is before the merger with Kotak Mahindra Bank.
However, the EPS after the merger for the period 2014-15 declined to 24.2 which was
much more lesser than the value compared to with the year 2010-11 and even 2013-14.

Further analysing the Return on Net worth Ratio of ING Vysya bank, it is seen that the
ratio was at 12.14 in the year 2010-11 which fell to 9.3 in 2013-14 the year after the merger
took place. Moving forward in the year 2014-15, the ratio increased to 13.19 immediately
after the merger. The ratio further fell to an all-time low at 8.72 in 2015-15 but however
recovered in the following years and stood at 12.15 in the year 2019-20.
Dividend per share for ING Vysya in 2010-11 was Rs. 3 and increased to ₨ 6 in the year
201314. However, the dividend per share in 2014-15 after the merger took place reduced to
0.9 that means the Dividend Per Share was affected due to the merger. The Dividend Per

31
Share went on reducing furthermore and was 0 in the year 2019-20, which means no
dividend was distributed to the shareholders.
The Book Value per share stood at 216.19 in the year 2010-11 and is at 253.62 in the year
2019-20. Through the numbers it can been seen that the value has increased but it is not
effectively increased considering the number of years taken to measure. The Book Value
Per Share suffered badly in 2015-16 and was reduced to 130.63 but slowly and steadily
recovered in the following years.
The next row in the table shows the Net Profit Margin of ING Vysya bank. The Net Profit
Margin stood at 11.82 in the year 2010-11 and increased gradually to 12.63 in 2013-14 the
period before the merger. The period after merger saw a consistent increase in the Net
Profit Margin and it stood at 22.08 in 2019-20.
Operating profit of ING Vysya bank was in negative at -12.48 starting from 2010-11 to the
year 2013-14 before the merger took place and continued to be in negative from 2014-15 to
2016-17 even after the merger. However, the position improved in 2017-18 and the
negatives were converted to a positive number and stood at 2.13 in 2019-20.
As it can be seen in the table 2 above the Return on Capital Employed of ING Vysya bank
was 0 for the years starting from 2010-11 to 2013-14 before the merger. But, after the
merger took place in 2014-15, the number increased to 2.96 and in the year 2019-20 the
Return On Capital Employed of ING Vysya bank was 2.86.

32
 Table 3

Mean, Standard Deviation and T-values of Financial Ratios of Kotak

Mahindra Bank Pre and Post-Merger
Standard
deviation
Financial Ratios Mergers Mean t- Value Significant
Earnings per share Before 15.99 6.02 -1.6328 0.1411448
After 22.02 6.63
Return on Net 1.70476 0.1266371
worth
Before 13.04 3.73
After 11.48 1.56
Dividend per share Before 0.65 0.13 0.39094 0.7060453
After 0.58 0.32
Book Value -2.624 0.0304614
per share
Before 121.68 66.43
After 189.37 45.37
Net Profit Margin Before 17.78 1.19 -0.7346 0.4835831
After 19.05 3.26
Operating Profit Before 1.57 0.70 1.85251 0.101086
After -0.31 1.91
Return on Capital Before 2.78 0.19 0.16575 0.8724674
Employed
After 2.75 0.28

Table 3 above presents the tests that are carried out in order to know whether the merger
impacted Kotak Mahindra Bank positively or negatively. The Mean, standard deviation and
the t-value using the t-test and the significant value of the bank were all calculated. The
Financial ratios that were used are Earnings per share, Return on Net worth, Dividend per
share, Book Value per share, Net Profit Margin, Operating profit and Return on capital
employed.
The observation of each ratio in the sample is considered to be as an independent variable.
Pre- merger two different banks carried out the operating business activities independently
in the market and post- merger the bidder bank is carrying business of both the banks

33
combined. With respect to the view of the purpose & objectives of the study independent t-
test is being employed under this study.
The Mean and standard deviation of all the ratios before and after the merger were
calculated, in order to understand how the bank performed before the merger and how did
it perform after the merger. In order to find out the t value and the significant value of the
ratios before and after the merger, where the period before merger was taken as four years
that is from 2010-11 to 2013-14 and the period after merger was for Six years starting from
2014-15 to 2019-20. Thus, to calculate the t-Value two sample t-test was applied as the
sample differed in size. The alpha value was taken to be 0.05 and the Hypothesis were
formed H0 or Null Hypothesis where the ratios showed no significant difference in the
value before and after the merger and Ha or Alternate Hypothesis where the ratios showed
significant value pre and post-merger.
The t-test is calculated as:

𝑛
t = 𝑥1− 𝑥2 𝑛1
√ 2 𝑛1+ 2
𝑠 𝑛

𝑥1 = Σ𝑛𝑥11 , 𝑥2 = Σ𝑛𝑥22

Where, x1 is taken to be the mean of combined ratio of the pre-merger period for both the
banks and x2 is taken to be the mean of the acquiring bank (Kotak Mahindra Bank) post-
merger, the number of observations is represented by n1 and n2 of 1st and 2nd series
respectively. S is taken to be the combined standard deviation of both the series.

Where, A1 and A2 are taken to be the assumed means of 1st and 2nd series.
The t test is used to understand how significant the differences between two groups are. A
ttest is used as a hypothesis testing tool, which allows testing of an assumption applicable
to a population. A t-test focuses at the t-statistic, the values of t-distribution , and the
degrees of freedom that determines the statistical value of significance.
The t score is a ratio between the difference among the two groups and the difference
within the groups. Where the t score is larger, the difference between the groups is more.
The smaller the t score, there is more similarity between the groups.
This test is applied only when it can be assumed that there are two distributions that have
the same variance. it is defined in this way so that its square is an unbiased estimator of the

34
common variance whether or not the population means are the same. In these formulae, 𝑥1
− A1 is the number of degrees of freedom for each group, and the total sample size minus
two
(that is, n1 + n2 − 2) is the total number of degrees of freedom, which is used in testing the
significance.

35
CHAPTER 5- FINDINGS AND RECOMMENDATIONS:

Findings:

Findings-1

Earnings per share: The Earnings per share of Kotak Mahindra Bank stood at Rs. 19.62 in
the year 2013-14 that is before merger and the earnings per share of ING Vysya bank stood
at Rs. 36.61 in 2013-14 before merger. The combined or the post-merger earnings per share
of Kotak Mahindra Bank and ING Vysya bank stood at Rs. 24.2. In order to find out
whether the performance of Kotak Mahindra Bank was affected due to merger the t test
was applied. The data sample of pre and post-merger was different and thus the two-
sample t test was used to arrive at the value. With the two-sample t test, it was found that
the significance value of EPS was 0.14, which is higher than the alpha value of 0.05 which
was used while testing. Thus, the value is insignificant and therefore, the H0 or Null
Hypothesis is accepted that is there is no significant difference in the earnings per ratio of
Kotak Mahindra Bank after the merger.
Findings-2

Return on Net-worth: The Return on Net-Worth of Kotak Mahindra Bank stood at 12.23 in
the year 2013-14 that is before merger and the Return on Net-Worth of ING Vysya bank
stood at 9.3 in 2013-14 before merger. The combined or the post-merger earnings per share
of Kotak Mahindra Bank and ING Vysya bank stood at 13.19. In order to find out whether
the performance of Kotak Mahindra Bank was affected due to the merger, the t test was
applied. The data sample of pre and post-merger was different and thus the two- sample t
test was used to arrive at the value. With the two-sample t test, it was found that the
significance value of RONW was 0.12, which is higher than the alpha value of 0.05 which
was used while testing. Thus, the value is insignificant and therefore, the H0 or Null
Hypothesis is accepted that is there is no significant difference in the Return on Net-Worth
of Kotak Mahindra Bank after the merger.
Findings-3

Dividend per share: The Dividend per share of Kotak Mahindra Bank stood at Rs. 0.8 in
the year 2013-14 that is before merger and the Dividend per share of ING Vysya bank
stood at Rs. 6 in 2013-14 before merger. The combined or the post-merger earnings per
share of Kotak Mahindra Bank and ING Vysya bank stood at Rs.0.9. In order to find out
whether the performance of Kotak Mahindra Bank was affected due to merger the t test
was applied. The data sample of pre and post-merger was different and thus the two-sample
t test was used to arrive at the value. With the two-sample t test, it was found that the
significance value of DPS was 0.70, which is higher than the alpha value of 0.05 which
was used while testing. Thus, the value is insignificant and therefore, the H0 or Null
Hypothesis is accepted that is there is no significant difference in the Dividend per share of
Kotak Mahindra Bank after the merger.
Findings-4

36
Book Value Per Share: The Book Value per share of Kotak Mahindra Bank stood at Rs.
159.46 in the year 2013-14 that is before merger and the Book Value per share of ING
Vysya bank stood at Rs. 374.87 in 2013-14 before merger. The combined or the post-
merger book value per share of Kotak Mahindra Bank and ING Vysya bank stood at Rs.
183.13. In order to find out whether the performance of Kotak Mahindra Bank was affected
due to merger the t test was applied. The data sample of pre and post-merger was different
and thus the two- sample t test was used to arrive at the value. With the two-sample t test, it
was found that the significance value of BVPS was 0.03, which is lower than the alpha
value of 0.05 which was used while testing. Thus, the value is significant and therefore, the
H1 or Alternate Hypothesis is accepted that is there is significant difference in the Book
Value per share of Kotak Mahindra Bank after the merger.
Findings-5

Net Profit Margin: The Net Profit Margin of Kotak Mahindra Bank stood at 17.13 in the
year 2013-14 that is before merger and the Net Profit Margin of ING Vysya bank stood at
12.63 in 2013-14 before merger. The combined or the post-merger net profit margin of
Kotak Mahindra Bank and ING Vysya bank stood at 19.19. In order to find out whether the
performance of Kotak Mahindra Bank was affected due to merger the t test was applied.
The data sample of pre and post-merger was different and thus the two- sample t test was
used to arrive at the value. With the two-sample t test, it was found that the significance
value of Net Profit Margin was 0.48, which is higher than the alpha value of 0.05 which
was used while testing. Thus, the value is insignificant and therefore, the H0 or Null
Hypothesis is accepted that is there is no significant difference in the Net Profit Margin of
Kotak Mahindra Bank after the merger.

Findings-6

Operating Profit: The Operating Profit of Kotak Mahindra Bank stood at 1.17 in the year
201314 that is before merger and the Operating Profit of ING Vysya bank stood at -4.02 in
2013-14 before merger. The combined or the post-merger operating profit of Kotak
Mahindra Bank and ING Vysya bank stood at -1.67. In order to find out whether the
performance of Kotak Mahindra Bank was affected due to merger the t test was applied.
The data sample of pre and post-merger was different and thus the two- sample t test was
used to arrive at the value. With the two-sample t test, it was found that the significance
value of Operating Profit was 0.10, which is higher than the alpha value of 0.05 which was
used while testing. Thus, the value is insignificant and therefore, the H0 or Null Hypothesis
is accepted that is there is no significant difference in the Operating profit of Kotak
Mahindra Bank after the merger.
Findings-7

Return on Capital Employed: The Return on Capital Employed of Kotak Mahindra Bank
stood at 3.05 in the year 2013-14 that is before merger and the Return on Capital Employed
of ING Vysya bank stood at 0 in 2013-14 before merger. The combined or the post-merger
earnings per share of Kotak Mahindra Bank and ING Vysya bank stood at 2.96. In order to
find out whether the performance of Kotak Mahindra Bank was affected due to merger the

37
t test was applied. The data sample of pre and post-merger was different and thus the two-
sample t test was used to arrive at the value. With the two-sample t test, it was found that
the significance value of ROCE was 0.87, which is higher than the alpha value of 0.05
which was used while testing. Thus, the value is insignificant and therefore, the H0 or Null
Hypothesis is accepted that is there is no significant difference in the Operating Profit of
Kotak Mahindra Bank after the merger.

Recommendations:
The emphasis of mergers and acquisition is on the financial gain and to increase in price of
the banks being acquired. It is based on the certain conditions and situations which
suggests that merger will or will not increase the share and profit of the acquiring entity.
The primary purpose of M&A is to curb the competitors and protect existing markets in the
economy. mergers and acquisitions have their sets of advantages and disadvantages.
However, mergers are beneficial for the magnification and development of the country
only when it does not tend to increase the competition issues. Merger enhances the
competition edge of the industry so as to compete in the global economic market but
mergers also tend to shrink the industry because number of firms reduces. Mergers are
effective for the banks to reinforce their financial base thereby providing tax benefits and
direct access to cash resources. In banking industry, it aids the weaker banks to stabilize
their orientation by merging with larger and powerful banks.
The rationale behind the merger of Kotak Mahindra bank and ING Vysya bank to create
revenue synergies and increase the cost efficiency thereby reducing the cost of expansion
as ING bank had diversified branch network as well as provide benefits to the investors and
customers due to their effectiveness in managing the capital expenses. The merger
increased their number of customers and thereby the result could be seen in the increased
earnings per share, the increase in return on capital employed, net profit margin and
operating profit margin after the merger. With the t-test application it was found that there
was no significant difference in the performance of the bank pre and post-merger and that
the rationale to increase the investors and customers benefit could not be seen to be
fulfilled to a greater extent. There was a significant difference seen in the book value per
share of the company which depicted that the net asset value of the company increased.
However, the merger was supposed to increase the customer base and benefit the
customers but the bank did not actually create benefits to the customers, the dividend per
share ratio of the bank was seen to be declining.
Merger and Acquisition in the banking sector aims at increasing the efficiency and giving
more benefit and building trust in the customers where the customers feel secured to invest
and to earn return in exchange. However, there are many factors that change the perception
of the investors about the merger and affects their trust and faith in mergers due to the
inadequate performance of the banking sector after merger in totality.

38
CHAPTER 6- CONCLUSION:
Indian banking system is one of the quickest creating areas within the developing
economies which has transformed into a proficient apparatus in order to encourage the
advancement of the Indian economy. Initially banks coincided to spare the non-performing
banks or nonproductive banks however, as time moved forward the framework excessively
progressed. Within the ongoing occasions M&As were ought to be the most worthwhile
instrument for the Indian economy as far as the grounds for development of business,
benefit and hierarchical rebuilding was concerned and furthermore it was confirmed to be
of a helpful apparatus for enduring the powerless banks and thereby converging them into
bigger banks. India has been one of the foremost searched country for M&A bargains.
Despite the vital fact that Indian economy remains within the arena of a new born child, yet
at an equivalent stature the economy is enormously sufficient to offer prospects to remote
speculations.
Merger has taken into account together the use of gizmo for growth and expansion of
Indian banking sector. It is regarded helpful and nowadays essential for the survival of
weaker banks that are merging into larger banks. Major advantage of the merger of banks
is to show resistance to the pressure that emerges due to the competition at the worldwide
level. Bank mergers and acquisitions are aimed towards amplifying the efficiency,
enhancing the competitive advantage, achieving synergies and improving shareholder’s
value. Mergers and Acquisitions pursue the profitability, liquidity and solvency
perspectives of a corporation. The study was administered to work out whether
improvements occur within the post-merger and acquisition period. The analysis and
results show that banking companies did not performed well during the post- merger and
acquisition era as compared to the pre-merger and acquisition era. this is often supported
by the very fact that merger and acquisition had an insignificant impact on the Return on
Assets. Which is the overall standard for measuring the financial performance with regards
to the statistical significance it has on other ratios.
After the merger it is seen that various financial parameters of the bank performance are
improved in both cases and a few parameters show no change. There are various motives,
which magnetize the bank for merger but it's not necessary to achieve all the objectives
postmerger, the dimensions of the bank will increase but there exists no guarantee to
extend the net profitability after merger. The success of merger depends upon synergies
gained and created after the merger and overall performance of bank, the financial
performance of the ING Vysya bank is improved after the merger and is affected
positively, the reaction is presented in terms of Earnings per share, return on Net worth,
Net profit margin, Dividend per share, Book Value per share operating Profits and Return
on Capital Employed. The Indian Banking Sector has used Merger and Acquisitions
(M&As) as a tool to expand and global recognition. The Sick banks came through the
merger, enhanced its branch network, improved the rural reach, increased market share and
improved infrastructure through Merger and Acquisitions (M&As). For the level of high
competition this strategy additionally appeared as a mode of survival within the present
market.
Equalizing the playing field between domestic and foreign banks is especially important
for a competitive setting. The favoured concept that enormous banking firms are more

39
efficient and fewer risky than smaller firms or the notion that the worldwide banking
system is consolidating so as to eliminate excess capacity, could also be a number of the
forces but one cannot deny the very fact that today public policies are encouraging the
banks to merge. The question isn't consolidation to hide weaknesses, but to create stronger
financial sector. Though each bank and branch are often effective too, but the combined
assets, systems and technology platforms of the company will mitigate the danger and
extend the credit, which one particular bank cannot do. From the central bank’s view point
main concern over bank consolidation is its effect on systematic risk and hence on financial
stability. Financial integration results in reduced financial cost, increases market
competition, better use of technology and reduces economic dependence.
But before allowing mergers to proceed, it must be ensured that certain conditions must be
satisfied in order that the merger proves to be beneficial for all the concerned. Clear
reasons must exist for M&A, which can include revenue growth, lower costs and improved
return on assets. Merger shouldn't only create strong domestic banks, but these banks
should even be within the position to compete internationally. Market driven merger is
most desirable. At an equivalent time, regulators should act as a facilitator if the merger
meets the objectives of soundness and stability. Merger shouldn't cause emergence of 1 or
group of dominant banks which will engage in monopolistic behaviour. Merger of banks
should be in public interest.
Management of banks involved in merger should be “fit and proper” and adequately skilled
to finish the mixing process and manage the risks thereof. Capital acts as the last defence to
soak up losses. Therefore, the merger process should ensure that the merged entities should
be adequately capitalised to satisfy these requirements. While it's desirable that the
ownership of merged entity is with diversified shareholders, it should be ensured that no
single shareholder or group of shareholders is in a position to exercise undue influence on
the banks. Since the merger leads to the creation of huge financial conglomerates, the
regulatory authorities should make sure that the prevailing supervisory practices are
capable supervise such entities. Unless these conditions are satisfied, there's every danger
of merger derailing the steady improvement within the health of Indian banking industry
that has taken place consequent to banking sector reforms.
Researcher suggests, for future research in the area of M&A, it could be the study on
impact of merger only on the acquiring banks by comparing pre and post-merger
performance and taking more banks to a larger sample concerning a longer time period for
the study which could give better results.

40
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