A Project Report: By: Mr. Bikash Rath Reg. No. FMS-BCM-2020-23-036

“Mergers and Acquisitions of Banking Sector of India”
A PROJECT REPORT
Submitted in partial fulfilment of requirement for the award of

the degree of B. Com of Sri Sri University, Cuttack
By:
Mr. Bikash Rath
Reg. No. FMS-BCM-2020-23-036
V Semester B. Com
Under Guidance of:

DR. Giridhari Mohanta
Faculty of Management Studies (UG)

Sri Sri University
Sri Sri Vihar, Ward No.-3, Godi Sahi
Cuttack – 754004
Odisha
November 2020
CERTIFICATE FROM THE COORDINATOR
This is to Certify that this Project Report entitled “Mergers and

Acquisitions of Banking Sector of India” is a bonafide work, done and
submitted by Mr. Bikash Rath , bearing Reg. No. FMS-BCM-2020-23-036,
student of B.Com to Faculty of Management Studies as a part of his 3rd year
curriculum during 5th semester for the partial fulfilment for the award of the
degree of “B.Com of Sri Sri University.
I wish him all the success in his future endeavors.
PLACE: Cuttack
DATE: / / . Programme Coordinator

CERTIFICATE FROM THE GUIDE
This is to Certify that this Project Report entitled “Mergers and

Acquisitions of Banking Sectors of India” is a bonafide work done by Mr.
Bikash Rath , bearing Reg. No. FMS-BCM-2020-23-036, Student of B.Com
under my guidance and supervision and submitted to Faculty of Management
Studies as a part of his 3rd year curriculum during 5th semester for the partial
fulfilment for the award of the degree of B.Com of Sri Sri University.
I wish him all the success in his future endeavors.
PLACE: Cuttack NAME: Dr. Giridhari Mohanta
DATE: / / . (Faculty Guide)

Candidate’s Declaration
I do hereby declare that this project Report entitled “Mergers and

Acquisitions of Banking Sectors of India” submitted in partial fulfillment for
the award of the degree of “B.Com of Sri Sri University is my original work
carried out by me under the guidance and supervison of my faculty guide, Dr.
Giridhari Mohanta.
The findings and the suggestions given are based on the data collected by
myself. So I confidently declare that this is not a dupication work and it has not
been previously submitted for the award of any other degree, diploma,
associateship , fellowship or other similar title to any candidate of any
University or Institution.
Place: Cuttack Mr. Bikash Rath

Date: Reg. No.- FMS-BCM-2020-23-036
Acknowledgement
I am grateful to Dr. Ravish Mathew, Coordinator B. Com, Faculty of

Management studies, Sri Sri University for his valuable guidance and
encouragement in bringing out this Project Report.
It is a pleasure to express my deep sense of indebtness & profound thanks

to my project guide Dr. Giridhari Mohanta for her continuous encouragement
and assistance which helped me to complete the project successfully.
I am thankful to the faculty members and students of Faculty of

commerce and Management studies who have been directly and indirectly
involved in completing this project Report.
Mr. Bikash Rath

CONTENT TABLE
Chapter 1 Introduction
1.1 Abstract
1.2 Introduction
1.3 Theoretical background
1.4 Objectives and Data collection
Chapter 2 Industrial and Company profiles
Chapter 3 Literature Review
Chapter 4 Research Methodology
4.1 Purpose of M&As and benefits
4.2 Mergers and amalgamations under various acts
4.3 Changes in Indian Banking Scenario
Chapter 5 Data Analysis and Interpretation
5.1 Procedures of M&As
5.2 Motives, Risks, Challenges and Opportunities
5.3 HR Issues
5.4 Major Banks involved in M&As
5.7 General Perception
Chapter 6 Findings, Recommendations and Conclusion
Bibliography
Annexure
CHAPTER - 1
ABSTRACT:
This project aims to understand the various “Mergers and Acquisitions in the Banking Sector of
India” A large number of international and domestic banks all over the world are engaged in merger
and acquisition activities . To take the advantage of economies of scale is one of the main goals of
mergers and acquisitions in the banking industry. There have been various media headlines in recent
months on the Indian Banking Industry. Reports have covered a wide range of subjects. The
discussions have covered a variety of themes, including how user-friendly Indian banks are, whether
banks are prepared for the upcoming Base II deadline, and how aggressively Indian banks are
expanding into foreign markets in order to pursue the inorganic development.
INTRODUCTION:
The entire spectrum of industries are looking to strategic acquisitions both locally and internationally
because mergers and acquisitions are the only method to achieve a competitive advantage. To achieve
economies of scale, combat unhealthy sectoral competition, and establish oneself as a competitive
force to be reckoned with in the global economy. The crucial prerequisite is the consolidation of the
Indian banking industry through mergers and acquisitions based on commercial considerations and
business objectives. The banking sector is currently one of India's fastest expanding businesses. It has
changed from being a sluggish enterprise to a burgeoning sector. This industry has shown impressive
growth, making it the top destination for foreign investors seeking financial services. In the past 20
years, the Indian banking industry has undergone a fundamental transformation. The rate of growth in
the Indian banking industry is really astounding. Through mergers and acquisitions, a relatively new
feature in the Indian banking sector is advanced. It will allow banks to become top-tier institutions
and provide stakeholders with more value.
Theoritical background of the study:-
MERGER
Merger is defined as combination of two or more companies into a single company where one
survives and the others lose their corporate existence. The survivor acquires all the assets as
well as liabilities of the merged company or companies. Generally, the surviving company is the
buyer, which retains its identity, and the extinguished company is the seller. Merger is also defined as
amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and the
stock of one company stand transferred to Transferee Company in consideration of payment in the
form of:
 Equity shares in the transferee company,
 Debentures in the transferee company,
 Cash, or
 A mix of the above modes.
TYPES OF MERGERS
Merger or acquisition depends upon the purpose of the offeror company it wants to achieve. Based on
the offerors‟ objectives profile, combinations could be vertical, horizontal, circular and
conglomeratic as precisely described below with reference to the purpose in view of the offeror
company.
 Vertical combination:
An organisation would wish to acquire another organisation or pursue a merger with that organisation
in order to grow, promoting backward integration to integrate supply-side resources and forward
integration toward market outlets. The acquiring firm makes an effort to reduce its raw material and
finished goods inventories through the merger with another unit. It also implements its production
plans in accordance with its goals and makes working capital investment savings. To put it another
way, in vertical mergers, the merging company would be either a supplier or a buyer using its product
as a base for final manufacturing. The acquirer company gains the following main advantages from
the vertical combination: i.e.
1. It gains a strong position because of imperfect market of the intermediary products, scarcity
of resources and purchased products;
2. Has control over products specifications.
 Horizontal combination:
It is a merger of two rival companies that are in the same stage of the production process. The target
company and the purchasing company are both in the same industry. The main goal of these mergers
is to increase market segments, exert better control over the market, reduce working capital
investment, eliminate competition concentration in the product, eliminate duplication of facilities and
operations, and broaden the product line in order to achieve economies of scale in production.
 Circular combination:
Companies producing distinct products seek amalgamation to share common distribution and
research facilities to obtain economies by elimination of cost on duplication and promoting market
enlargement. The acquiring company obtains benefits in the form of economies of resource sharing
and diversification.
 Conglomerate combination:
It is a merger of two businesses from unrelated industries, such as DCM and Modi Industries. The
main goal of these mergers is to maximise the use of financial resources, increase debt capacity, and
reorganise their financial systems in order to better serve their shareholders through increased
leveraging and EPS, a lower average cost of capital, and an increase in the present value of the
outstanding shares. A merger improves the acquirer company's overall stability and establishes
balance throughout its entire portfolio of several items and production methods..
ACQUISITION
Acquisition in general sense is acquiring the ownership in the property. In the context of business
combinations, an acquisition is the purchase by one company of a controlling interest in the
share capital of another existing company.
Methods of Acquisition:
An acquisition may be affected by:-
 Agreement with the persons holding majority interest in the company management like
members of the board or major shareholders commanding majority of voting power;
 Purchase of shares in open market;
 To make takeover offer to the general body of shareholders;
 Purchase of new shares by private treaty;
 Acquisition of share capital through the following forms of considerations viz. Means of cash,
issuance of loan capital, or insurance of share capital.

OBJECTIVES OF THE STUDY
The objectives of this study and the purposes of this project are:-
 To study the purpose and benefits of mergers and acquisitions in the Banking sector.
 To understand Bank merger/amalgamation under various Acts and study the changes in the
indian banking scenario.
 To study the Procedure of Bank Mergers and Acquisitions and the motives behind consolidation
in the Banking sector.
 To study the risk involved, HR issues, opportunities and challenges in merger and acquisition
along with the major Banks involved in Mergers and Acquisitions
 To study the general perception.
DATA COLLECTION
The analysis is purely based on the secondary data research based on:
 Business Magazines and finance books
 Internet Sources
CHAPTER - 2
INDUSTRIAL AND COMPANY PROFILES
INDUSTRIAL PROFILE OF THE BANKING INDUSTRY:-
Banks are essential to the functioning of the entire financial system because they collect deposits from
consumers all over the country and make the money available for lending or purchasing securities.
The banking sector is now crucial for the financial health of people, businesses, countries, and the
entire world. It is now an essential component of any country's economic development.
A bank is a type of financial institution that offers its clients banking and other financial services. A
significant part of the world's economies is played by banks, which are a component of the financial
services sector. They have a significant role in promoting economic expansion. The banking industry
is a crucial endeavour. Banks' handling of capital transfers enables economies to expand and thrive.
Banks serve as a conduit between the providers of capital and the recipients of capital since both
businesses and governments require capital to function.
Banks are substantial, intricate businesses. Their customers vary from private individuals and
businesses up to national governments and central banks. In order to provide financial products and
services, this industry establishes and maintains financial relationships with a wide range of clients,
from private individuals to governments.
The banking industry provides its clients with a number of services, such as protecting their cash and
valuables and giving them access to a wide range of credit loans to satisfy their diverse demands, such
as home loans, consumer loans, personal loans, etc. Additionally, banks offer credit as well as
payment options such checking accounts, money orders, and cashier's checks. Additionally, banks
provide insurance and investment goods. The key operational activities are listed below:
 Acceptance of Deposits
 Lending of Funds
 Clearing of Cheques
 Remittance of Funds
 Lockers & Safe Deposits
 Bill Payment Services
 Online Banking
 Credit & Debit Cards

 Overseas Banking Services
 Wealth Management
 Investment Banking
 Social Objectives
The financial sector is expanding quickly. The assets of the 1,000 largest banks are thought to be
valued close to Rs. 814.48 trillion INR. Due to the industry's expansion, banks now oversee a wide
range of tasks. The bank offers a wide range of products and services. The following explains the key
functions of the bank:
 Provide security to the savings of customers by safeguarding it
 Offering interest on the deposits kept with it
 Control the supply of money and credit
 Arrange funds to the parties who need them by borrowing from parties who have surplus
 Encourage public confidence in the working of the financial system
 Increase savings speedily and efficiently
 Avoid focus of financial powers in the hands of a few individuals and institutions
 Set equal norms and conditions to all types of customers
Some of the conventional divisions between banks, insurance companies, and securities businesses
are quickly fading as a range of models for collaboration and integration among finance industries
have evolved. Despite all of these changes, banks continue to fulfil their core function of receiving
deposits and disbursing cash from these deposits. Recent technological advancements have allowed
banks to expand their reach globally, and clients no longer need to visit bank locations for every
transaction because the majority of them can be completed online.
The development in cross-border activity has led to a rise in the demand for banks that can offer a
variety of services to people of different nationalities across boundaries. Despite these improvements
in cross-border activity, the banking sector has not yet become as globally integrated as some other
sectors. Without a doubt, "Technology" will serve as a catalyst for this expansion, opening up
tremendous opportunities for professionals with a solid grasp of the banking sector.
COMPANY PROFILE:-
These are some of the highly known banking companies in the indian banking sector:-
SBI:-
ICICI BANK:-
HDFC BANK:-
CHAPTER - 3
LITERATURE REVIEW
For the objective of this study, a number of research papers have been examined in order to develop a
comprehension of how mergers and acquisitions work. The different effects of mergers on businesses
were intensively examined in these publications. A company can guarantee both internal and external
growth. Internal expansion can be achieved by expanding operations or by adding new divisions, and
external growth can take the shape of takeovers, joint ventures, mergers, and acquisitions, etc.
Numerous studies have looked into the numerous factors that influence mergers and acquisitions with
an emphasis on how these events affect the Indian financial services industry.
According to a 2011 study by Sinha Pankaj and Gupta Sushant, there was a favourable impact for the
enterprises because, in the majority of cases, their profitability worsened liquidity. After a few years
of mergers and acquisitions, firms that had trouble managing their liquidity may have been able to
take advantage of the synergies created by the merger and acquisition. The study compared the firms'
pre- and post-analytics. A number of financial metrics, including Earnings before Interest and Tax
(EBIT), Return on Shareholder Funds, Profit Margin, Interest Coverage, Current Ratio, and Cost
Efficiency, among others, were also used to demonstrate the favourable effects.
Kuriakose Sony and Gireesh Kumar G. S (2010)[4] examined the strategic and financial similarities
of combined banks and evaluated their relativity using the pertinent financial variables of each bank.
The study's findings showed that public sector banks were opposed to this form of restructuring while
only private sector banks supported the voluntary merger wave in the Indian banking sector. Target
banks have greater debt than bidder banks, therefore the merger helps the bids get the best capital
structure, and target companies' asset quality is very low.
Anand Manoj and Singh Jagandeep[5] (2008) investigated how five Indian banks' merger
announcements affected the shareholders bank. These mergers included the Times Bank joining
HDFC Bank, the Bank of Madurai joining ICICI Bank, ICICI Ltd joining ICICI Bank, Global Trust
Bank joining Oriental Bank of Commerce, and Bank of Punjab joining Centurion Bank. The wealth of
the shareholders was positively and significantly impacted by the news of the Bank's merger.
Using before and post financial ratios to analyse the impact of mergers on enterprises, Mantravadi
Pramod & Reddy A Vidyadhar (2007) assessed the impact of mergers on the operating performance
of acquiring firms in various industries. They chose all mergers involving publicly traded and public
limited companies in India between 1991 and 2003, and the results indicated that there was no
variance in the impact of mergers on operating performance. The banking and financial sector, in
particular, had a somewhat negative effect on operational performance while having a marginally
beneficial influence on the profitability of the pharmaceutical, textile, and electrical equipment sectors
in India. After the merger, some of the industries experienced a large reduction in assets, return on
investment, and profitability.
Regarding the various drivers of mergers and acquisitions, Mehta Jay and Kakani Ram Kumar (2006)
noted that there were many reasons for mergers in the Indian banking sector, many of which continue
to hold the attention of researchers. This is primarily because of the stringent control regulations that
caused a wave of mergers and acquisitions in the banking industry. The study found that mergers and
acquisitions are essential for the state to develop a small number of large banks, even though a
fragmented Indian banking structure may be extremely advantageous to the client due to competition
among banks.In a study of 56 mergers in US industries, Müslümov Alövsat (2002) investigated the
role of synergy as a driving force behind mergers. He looked at how cash flows improved as a result
of more productive asset utilization, higher sales, and improved operating cash flows for the surviving
company. The non-parametric test was used as the most appropriate method of evaluating post-merger
performance because it adds additional value and demonstrates the improvement of the bidder firm
with price to book ratio.
R. Srivassan et al. (2009) provided their opinions on the financial ramifications and issues associated
with merger and acquisitions (M&As). They highlighted the cases for consolidation and discussed
synergy-based mergers, emphasising that while mergers are intended to increase a company's size,
they do not always guarantee that their combined profits will be maximised over the long term.
CHAPTER - 4
RESEARCH METHODOLOGY
PURPOSES OF MERGERS AND ACQUISITIONS :-

The corporate objectives of an offeror firm must represent the reason for acquiring another company.
It must choose the precise goals that will be attained through acquisition. The primary goal of a
merger or company combination is to accelerate corporate business growth. Product development and
market position might lead to quicker growth. Other potential purposes for acquisition are short
listed below: -
 Procurement of supplies:
1. To safeguard the source of supplies of raw materials or intermediary product;
2. To obtain economies of purchase in the form of discount, savings in transportation costs,

overhead costs in buying department, etc.;
3. To share the benefits of suppliers‟ economies by standardizing the materials.
 Revamping production facilities:
1. To achieve economies of scale by amalgamating production facilities through more

intensive utilization of plant and resources;
2. To standardize product specifications, improvement of quality of product, expanding
3. Market and aiming at consumers satisfaction through strengthening after sale Services;
4. To obtain improved production technology and know-how from the offered company
5. To reduce cost, improve quality and produce competitive products to retain and Improve
market share.
 Market expansion and strategy:
1. To eliminate competition and protect existing market;
2. To obtain a new market outlets in possession of the offeree;
3. To obtain new product for diversification or substitution of existing products and to

enhance the product range;
4. Strengthening retain outlets and sale the goods to rationalize distribution;
5. To reduce advertising cost and improve public image of the offeree company;
6. Strategic control of patents and copyrights.
 Financial strength:
1. To improve liquidity and have direct access to cash resource;
2. To dispose of surplus and outdated assets for cash out of combined enterprise;
3. To enhance gearing capacity, borrow on better strength and the greater assets backing;
4. To avail tax benefits;
5. To improve EPS (Earning Per Share).
 General gains:
1. To improve its own image and attract superior managerial talents to manage its affairs;
2. To offer better satisfaction to consumers or users of the product.
 Own developmental plans:
The acquisition's goal is supported by the offeror company's own growth strategies. A company only
considers acquiring another company after it has developed its own expansion strategy and looked at
its internal strengths, where it may not face any tax, accounting, or valuation issues but may
experience resource constraints due to funding restrictions and a lack of managerial talent. It must
strive for a good combination where it may supplement its finances by issuing securities, obtain extra
financial resources, remove competition, and increase its position on the market.
 Strategic purpose:
The Acquirer Company sees the merger as a means of achieving strategic goals through many types
of combinations, including horizontal and vertical mergers, product and market extensions, and other
specific unrelated goals based on corporate strategy. To achieve this goal, numerous forms of
combinations that are inherently different from one another are used, such as vertical or horizontal
combinations.
 Corporate friendliness:
Even though it is uncommon, it is true that business organisations occasionally show signs of
cooperation despite their rivalry when rescuing one another from hostile takeovers and encouraging
situations of collaboration sharing goodwill in order to reach new performance heights through
corporate mergers. By working toward this goal, the corporation aims to create circular combinations..
 Desired level of integration:
To achieve the desired level of integration between the two combining business houses, mergers and
acquisitions are pursued. Operational or financial integration may be involved. Combinations of
conglomerates are created as a result. When choosing a suitable partner for a merger or acquisition in
business combinations, the offeror company's goals and requirements play a significant role.
BENEFITS OF MERGERS AND ACQUISITIONS :-

 GROWTH OR DIVERSIFICATION: - Companies that want to develop quickly in terms of
size, market share, or product variety may discover that a merger might help them achieve this
goal rather than going through the time-consuming process of internal expansion or
diversification. By joining forces with another company, the company may quickly accomplish
the same goal. Additionally, this approach is frequently less expensive than the option of building
the required production capability and capacity. If a company can locate an appropriate going
concern, it may be able to expand operations in an existing or new product area. It might build
and sell more or new products while avoiding many of the risks related to a design.
 SYNERGISM: - The basis of synergism is pretty straightforward. When the value of the
combination exceeds the sum of the values of its parts, synergism exists. Synergism is, in other
words, "2+2=5". However, analysing synergy can be challenging, and occasionally its
implementations can be rather subtle. Synergism, which can be broadly defined to include any
additional value brought about by business mergers, is the primary economic basis for mergers.
The increase in operational or financial efficiency may be the source of the incremental value.
 Operating Synergism: Operating synergism might be the outcome of scale efficiencies, a

certain amount of monopoly power, or improved managerial effectiveness. Value may be
attained through increasing sales volume in relation to the number of assistants engaged,
improving profit margins, or lowering operating risks. Although operating synergy often
results from either vertical or horizontal integration, conglomerate growth can also have
some synergistic effects. Additionally, a company might occasionally purchase another to
acquire patents, copyrights, technical know-how, marketing expertise, certain fixes assets,
customer relationships, or managerial staff. Operating synergism happens when these
intangible assets can be combined with the current assets and organisational structure of the
acquiring firm to create additional value. Although it might be challenging to estimate that
value, it might be the main driving force behind.
Financial synergism-Among these are incremental values resulting from complementary internal
funds flows more efficient use of financial leverage, increase external financial capability and
income tax advantages.
a) Complementary internal funds flows
Seasonal or cyclical fluctuations in funds flows sometimes may be reduced or eliminated by

merger. If so, financial synergism results in reduction of working capital requirements of the
combination compared to those of the firms standing alone.
b) More efficient use of Financial Leverage
A more effective utilisation of financial leverage may lead to financial synergy. The acquiring firm
may have little debt and want to use the high debt of the acquired firm to increase the earning power
of the combination, or it may borrow to finance a cash acquisition of a low debt firm, giving the
combination more leverage. The benefit of financial leverage must be weighed against the elevated
financial risk.
c) Increased External Financial Capabilities
Many mergers take place when the acquired firm can no longer afford to operate, especially those
involving relatively small companies and huge ones. A situation like this where a small, expanding
business has increasing financial needs is typical. The company's bank credit has been used up, and it
has almost no access to long-term debt or stock markets. When a small business experiences
operational challenges, the bank occasionally notifies them that their loan will not be extended. A
large company in this circumstance may be able to get a good deal on a buyer if it has the cash and
credit to pay for the needs of smaller companies. proposing a merger to the tiny business. The small
company's only option may be to try to persuade two or more large companies to propose a merger in
order to increase competition among those vying for acquisition. The circumstances of the smaller
company might not be as dire. It might not be in danger if a loan that is about to mature is not
renewed. However, its management may understand that in order for it to continue growing and
taking advantage of its market, finance must be within its means. Although it will have a stronger
negotiating position, the financial synergy of the acquiring firm's superior financial competence may
be the driving force for the merger. Sometimes the purchased company has the financial resources..
The acquisition of a cash rich firm whose operations have matured may provide additional financing
to facilitate growth of the acquiring firm. In some cases, the acquiring may be able to recover all or
parts of the cost of acquiring the cash rich firm when the merger is consummated and the cash then
belongs to it.
d) The Income Tax Advantages
If a firm A has earnings before taxes of approximately Rs. 10 crores per year and firm B is currently
breaking even with a loss carryover of Rs. 20 crores amassed from profitable operations in prior years,
then income tax considerations may in some cases provide the financial synergy driving a merger. By
combining A and B, the surviving corporation will be able to use the loss carries forward, avoiding
income taxes in the future.
Counter-Synergism: Some elements may work against the merger's anticipated synergistic effects.
There is frequently an additional layer of bureaucracy and overhead costs. Do the benefits outweigh
the drawbacks? Managers of the acquiring firm may occasionally be offered long-term employment
contracts. These are frequently advantageous, but they can also be harmful. Personality or policy
issues may arise and impede operations or result in the buying out of such contracts to eliminate the
authority figure's personal position. Management of the acquiring firm may not have sufficient
knowledge of the industry to adequately control the acquired firm, especially in conglomerate
mergersThe staff of the purchased firm may become enraged by attempts to keep control. The
consequent decrease in efficiency may destroy anticipated operating synergies or potentially lower the
acquired firm's post-merger profitability. The point is that mergers do not always result in the desired
outcomes. The list of potential counter-synergism causes might go on forever. When evaluating a
potential merger, negative aspects and the risks associated with them must also be taken into account.
Other motives For Merger:-

Merger may be motivated by two other factors that should not be classified under synergism. These
are the opportunities for acquiring firm to obtain assets at bargain price and the desire of shareholders
of the acquired firm to increase the liquidity of their holdings.
1. Purchase of Assets at Bargain Prices
The potential to acquire assets, particularly land, mineral rights, plant, and equipment, at a cheaper
cost than would be incurred if they were purchased or built at the current market values may be one
explanation for mergers. Expanding businesses considering building plants, developing mines, or
purchasing equipment have frequently discovered that the desired assets could be obtained where by
heaper by acquiring a business that already owned and operated that asset. This is true if the market
price of many socks has been significantly below the replacement cost of the assets they represent.
The assets were already in place, and a group of people knew how to manage them and market their
products, so risk could be minimised.Many of the mergers can be financed by cash tender offers to
the acquired firm‟s shareholders at price substantially above the current market. Even so, the
assets can be acquired for less than their current casts of construction. The basic factor underlying
this apparently is that inflation in construction costs not fully rejected in stock prices because of high
interest rates and limited optimism by stock investors regarding future economic conditions.
2. Increased Managerial Skills or Technology
Occasionally a firm will have good potential that is finds it unable to develop fully because of
deficiencies in certain areas of management or an absence of needed product or production
technology. If the firm cannot hire the management or the technology it needs, it might combine
with a compatible firm that has needed managerial, personnel or technical expertise. Of course,
any merger, regardless of specific motive for it, should contribute to the maximization of owner‟s
wealth.
3. Acquiring new technology
To stay competitive, companies need to stay on top of technological developments and their
business applications. By buying a smaller company with unique technologies, a large company
can maintain or develop a competitive edge.
BANK MERGER/AMALGAMATION UNDER VARIOUS ACTS

The relevant provisions regarding merger, amalgamation and acquisition of banks under various acts
are discussed in brief as under:
Mergers- banking Regulation act 1949
Amalgamations of banking companies under B R Act fall under categories are voluntary
amalgamation and compulsory amalgamation.
Section 44A Voluntary Amalgamation of Banking Companies.
The Banking Regulation Act of 1949's Section 44A outlines the process to be followed in the event
that banking organisations decide to merge voluntarily. According to these laws, a banking company
may merge with another banking company with the consent of shareholders of each banking company,
as determined by a resolution adopted by a majority of two thirds in value of shareholders of each of
the aforementioned firms. The bank must secure Reserve Bank permission before approving the
merger plan. However, the JPC's observations indicate that RBI's role is constrained. When it is
convinced that the plan is in the best interest of the depositors of the merging banks, the reserve bank
typically supports amalgamation.
A Reading the wording of Section 44A of the Banking Regulation Act of 1949 carefully reveals that
the Reserve Bank is given the authority to approve banking company merger plans, not the High
Court. Additionally, the reserve bank has the authority to ascertain the Markey value of minority
shareholders' shares that were cast against the amalgamation plan. The provisions of section 44A on
voluntary amalgamation are not applicable in the case of the merger of two public sector banks or the
merger of a nationalised bank/SBI with a banking company or vice versa because nationalised banks
are not considered to be banking companies and SBI is governed by a separate statute. These mergers
must be attempted in accordance with the rules of the relevant statutes under which they are
established. Furthermore, the clause does not allow for the voluntary merger of any other financial
business, such as an NBFC, with a banking firm. Therefore, only section 44A of the BR act permits
the merger of a baking company with a banking company.
Sector 45- Compulsory Amalgamation of banks
Under section 45(4) of the banking regulation act, reserve bank may prepare a scheme of
amalgamation of a banking company with other institution (the transferee bank) under sub- section
(15) of section 45. Banking institution means any banking company and includes SBI and subsidiary
banks or a corresponding new bank. A compulsory amalgamation is a pressed into action where the
financial position of the bank has become week and urgent measures are required to be taken to
safeguard the depositor‟s interest. Section 45 of the Banking regulation Act, 1949 provides for a
bank to be reconstructed or amalgamated compulsorily‟
i.e. without the consent of its members or creditors, with any other banking institutions as
defined in sub section(15) thereof. Action under there provision of this section is taken by reserve
bank in consultation with the central government in the case of banks, which are weak, unsound or
improperly managed. Under the provisions, RBI can apply to the central government for suspension
of business by a banking company and prepare a scheme of reconstitution or amalgamation in order
to safeguard the interests of the depositors.
Under compulsory amalgamation, reserve bank has the power to amalgamate a banking
company with any other banking company, nationalized bank, SBI and subsidiary of SBI. Whereas
under voluntary amalgamation, a banking company can be amalgamated with banking company can
be amalgamated with another banking company only. Meaning thereby, a banking company can not
be merged with a nationalized bank or any other financial entity.
Companies Act
The major component of the Businesses Act of 1956 that addresses the reconstruction and
amalgamation of companies is Section 394. A voluntary merger of two banking companies is
permitted per section 44A of the Banking Regulation Act of 1949. If any company, such as a non-
banking finance company and a banking company, were to merge, the merger would be governed by
the requirements of Section 394 of the Companies Act, and such plans might be allowed by the high
courts without further action by the RBI. The central government may combine two or more
businesses in the public interest under section 396 of the act.
State Bank of India Act, 1955
According to Section 35 of the State Bank of India Act, 1955, SBI has the authority to negotiate the
purchase of any banking institution's operations, including its assets and liabilities, with the approval
of the central government and, if necessary, after consulting the RBI. The terms and circumstances of
the acquisition must be presented for approval to the central government by the SBI central board, the
relevant banking institution, and the reserve bank of India. Any acquisition plan may be approved by
the central government, and such plans take effect as of the date noted in the order of sanction.
As per sub-section (13) of section 38 of the SBI act, banking institution is defined as under “banking
institution” includes any individual or any association of individuals (whether incorporated or not or
whether a department of government or a separate institution), carrying on the business of banking.
Therefore, SBI is permitted to purchase the business of any other banking organisation. Any
individual or group of individuals conducting banking activity. Any individual or group of individuals
conducting banking activity is included under the SBI Act's very broad acquisition provisions. That
refers to the person or group of people conducting banking business. That implies that the person or
group of people conducting banking business may also include NBFCs and urban cooperative banks.
However, it should be noted that the definition of banking institution under section 38(13) of the SBI
act makes no specific mention of a corresponding new bank or banking business.
It is unclear if SBI, an RRB, or its own subsidiary can purchase a corresponding new bank or an RRB
under the terms of section 35. By construing the concept of a banking institution as broadly as
possible to include anyone engaged in the banking industry, such power must be assumed. It is also
possible to make the case that if State Bank of India is given the authority to acquire the business of
any individual engaged in banking, it should also be possible to acquire any corporation engaged in
banking, provided that it complies with all applicable laws. However, in our opinion, relying on such
interpretations in the matter of the acquisition of banking business is not advised. Any such
acquisition affects right to property and rights of many other stakeholders in the organization to be
acquired. The powers for acquisition are therefore required to be very clearly and specifically
provided by statue so that any possibility of challenge to the action of acquisition by any stakeholder
are minimized and such stakeholders are aware of their rights by virtue of clear statutory provisions.
Nationalised banks may be amalgamated with any other nationalized bank or with another banking
institution. i.e. banking company or SBI or a subsidiary. A nationalized bank can not be
amalgamated with NBFC. The central government may merge a relevant new bank with a banking
company or vice versa in accordance with the terms of section 9. The question of whether the
provisions of the companies act apply to a merger in which a comparable new bank merges with a
banking company that is the transferee bank raises itself. The requirements of section 9 do not
expressly exclude the application of the businesses act to any plan for a corporate merger. A
transferee company is not defined by section 394(4)(b) of the Companies Act as any other company
other than a company as defined by the Companies Act.However, regardless of whether a company
falls under the purview of the Companies Act, every body corporate is considered to be a transferor
firm. This clause has the result that any corporation that merges with a company is subject to the
provisions on amalgamations and mergers in the Companies Act. Therefore, it will be necessary to
adhere to the terms of the businesses act if, in accordance with section 9(2)(c) of the nationalisation
act, a comparable new bank is to combine with a banking company (transferee company). The
merging plan must be approved by 34 of the transferee banking company's shareholders who are
present and eligible to vote. Section 44A of the Banking Regulation Act which empowers RBI to
approve amalgamation of any two banking companies requires approval of shareholders of each
company 2/3 rd in value. But since section44A does not apply if a Banking company is to be merged
with a corresponding new bank, approval of 3/4 th in value of shareholders will apply to such merger
in compliance with the companies act.
Amalgamation of co-operative banks with Other Entities Co-operative banks are under the
regulation and supervision of reserve bank of India under the provision of banking regulation act
1949(as applicable to cooperative banks). However constitution, composition and administration of
the cooperative societies are under supervision of registrar of co-operative societies of respective
states (in case of Maharashtra State, cooperative societies are governed by the positions of
Maharashtra co operative societies act, 1961)
Amalgamation of cooperative banks The Registrar of Cooperative Societies may combine two or
more cooperative banks in the public interest or to ensure the appropriate management of one or more
cooperative banks under section 18A of the Maharashtra State Cooperative Societies Act of 1961
(MCS Act). An entirely new creature is created through amalgamation.
No plan for the amalgamation or reconstruction of banks is allowed under section 110A of the MCS
Act without the approval of the Reserve Bank of India. Consequently, any other organisation can be
combined with a cooperative bank.
CHANGES IN INDIAN BANKING SCENARIO

Like all business entities, banks want to safeguard against risks, as well as exploit available
opportunities indicated by existing and expected trends. M&As in the banking sector have been on
the rise in the recent past, both globally and in India. In this backdrop of emerging global and Indian
trends in the banking sector, this article illuminates the key issues surrounding M&As in this sector
with the focus on India. It seeks to explain the motives behind some M&As that have occurred in
India post-2000, analyse the benefits and costs to both parties involved and the consequences
for the merged entity. A look at the future of the Indian banking sector, and some key
recommendations for banks, follow from this analysis.
In terms of mergers and acquisitions, the international banking environment has experienced
significant volatility in recent years. The fundamental driving force has been deregulation, which has
been accomplished through three main channels: the elimination of interest rate regulations, the
erasure of distinctions between banks and other financial intermediaries, and the lowering of entrance
barriers. Disintermediation, investor demands for higher returns, price competitiveness, decreased
margins, declining spreads, and rivalry across geographies have all been caused by it, requiring banks
to find new ways to increase revenues. Consolidation has been a key strategic instrument in this, and
it has spread globally as a result of what seem to be the benefits of economies of scale, geographic
diversification, reduced costs due to branch and staff rationalisation, cross-border expansion, and
market share concentration. Banks are now thinking about M&As because of the new Basel II
regulations.M&As that have happened post-2000 in India to understand the intent (of the targets and
the acquirers), resulting synergies (both operational and financial), modalities of the deal,
congruence of the process with the vision and goals of the involved banks, and the long term
implications of the merger. The article also analyses emerging future trends and recommends
steps that banks should consider, given the forecasted scenario.
CHAPTER - 5
DATA ANALYSIS AND INTERPRETATION
The Indian Banking Sector
The history of Indian banking can be divided into three main phases :
Phase I (1786- 1969) - Initial phase of banking in India when many small banks were set up
Phase II (1969- 1991) - Nationalisation, regularisation and growth Phase
III (1991 onwards) - Liberalisation and its aftermath
The Indian banking industry is now mature in terms of supply, product range, and reach thanks to the
reforms in Phase III, and banks have strong, stable, and transparent balance sheets. The primary
growth drivers are an increase in consumer demand for credit, the spread of ATMs and debit cards, a
reduction in non-performing assets (NPAs) as a result of securitization, better macroeconomic
conditions, diversification, interest rate spreads, and regulatory and policy reforms (e.g. amendments
to the Banking Regulation Act).
Recent years have seen the emergence of several trends, including increased competitiveness, product
innovation and branding, a focus on bolstering risk management procedures, and a focus on
technology. The Basel II rules will also cost Indian banks money because they would require more
capital and necessitate expensive methods for maintaining and creating databases.
PROCEDURE OF BANK MERGERS AND AQUISITIONS
• The procedure for merger either voluntary or otherwise is outlined in the respective state statutes/
the Banking regulation Act. The Registrars, being the authorities vested with the responsibility of
administering the Acts, will be ensuring that the due process prescribed in the Statutes has been
complied with before they seek the approval of the RBI. They would also be ensuring compliance
with the statutory procedures for notifying the amalgamation after obtaining the sanction of the RBI.
• Before deciding on the merger, the authorized officials of the acquiring bank and the merging bank
sit together and discuss the procedural modalities and financial terms. After the conclusion of the
discussions, a scheme is prepared incorporating therein the all the details of both the banks and the
area terms and conditions. Once the scheme is finalized, it is tabled in the meeting of Board of
directors of respective banks. The board discusses the scheme threadbare and accords its approval if
the proposal is found to be financially viable and beneficial in long run.
• After the Board approval of the merger proposal, an extra ordinary general meeting of the
shareholders of the respective banks is convened to discuss the proposal and seek their approval.
• After the board approval of the merger proposal, a registered valuer is appointed to valuate
both the banks. The valuer valuates the banks on the basis of its share capital, market capital, assets
and liabilities, its reach and anticipated growth and sends its report to the respective banks.
• Once the valuation is accepted by the respective banks, they send the proposal along with all
relevant documents such as Board approval, shareholders approval, valuation report etc to Reserve
Bank of India and other regulatory bodies such Security & exchange board of India (SEBI) for
their approval.
• After obtaining approvals from all the concerned institutions, authorized officials of both the
banks sit together and discuss and finalize share allocation proportion by the acquiring bank to the
shareholders of the merging bank (SWAP ratio) • After completion of the above procedures, a
merger and acquisition agreement is signed by the bank.
RBI Guidelines on Mergers & Acquisitions of Banks
With a view to facilitating consolidation and emergence of strong entities and providing an avenue
for non disruptive exit of weak/unviable entities in the banking sector, it has been decided to
frame guidelines to encourage merger/amalgamation in the sector.
Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to
formulate a scheme with regard to merger and amalgamation of banks, the State Governments have
incorporated in their respective Acts a provision for obtaining prior sanction in writing, of RBI for an
order, inter alia, for sanctioning a scheme of amalgamation or reconstruction.
The request for merger can emanate from banks registered under the same State Act or from banks
registered under the Multi State Co-operative Societies Act (Central Act) for takeover of a bank/s
registered under State Act. While the State Acts specifically provide for merger of co-operative
societies registered under them, the position with regard to take over of a co-operative bank
registered under the State Act by a co-operative bank registered under the central. Although there are
no specific provisions in the State Acts or the Central Act for the merger of a cooperative society
under the State Acts with that under the Central Act, it is felt that, if all concerned including
administrators of the concerned Acts are agreeable to order merger/ amalgamation, RBI may consider
proposals on merits leaving the question of compliance with relevant statutes to the administrators of
the Acts. In other words, Reserve Bank will confine its examination only to financial aspects
and to the interests of depositors as well as the stability of the financial system while
considering such proposals.
Information & Documents to be furnished by BY THE ACQUIRER OF BANKS
1. Draft scheme of amalgamation as approved by the Board of Directors of the acquirer bank.
2. Copies of the reports of the valuers appointed for the determination of realizable value of assets
(net of amount payable to creditors having precedence over depositors) of the acquired bank.
3. Information which is considered relevant for the consideration of the scheme of merger
including in particular:-
 Annual reports of each of the Banks for each of the three completed financial years
immediately preceding the proposed date for merger.
 Financial results, if any, published by each of the Banks for any period subsequent to the
financial statements prepared for the financial year immediately preceding the proposed
date of merger.
 Pro-forma combined balance sheet of the acquiring bank as it will appear consequent
on the merger.
 Computation based on such pro-forma balance sheet of the following:-
I. Tier I Capital
II. Tier II Capital
III. Risk-weighted Assets
IV. Gross and Net npas
V. Ratio of Tier I Capital to Risk-weighted Assets
VI. Ratio of Tier II Capital to Risk-weighted Assets
VII. Ratio of Total Capital to Risk-weighted Assets
VIII. Tier I Capital to Total Assets
IX. Gross and Net npas to Advances
X. Cash Reserve Ratio
XI. Statutory Liquidity Ratio

4. Information certified by the values as is considered relevant to understand the net realizable value
of assets of the acquired bank including in particular:- A. The method of valuation used by the
values
B. The information and documents on which the values have relied and the extent of the verification,
if any, made by the values to test the accuracy of such information
C. If the values have relied upon projected information, the names and designations of the persons
who have provided such information and the extent of verification, if any, made by the values in
relation to such information
D. Details of the projected information on which the values have relied
E. Detailed computation of the realizable value of assets of the acquired bank.
5. Such other information and explanations as the Reserve Bank may require.
MOTIVES BEHIND CONSOLIDATION IN BANKING SECTOR
Based on the cases, we can narrow down the motives behind M&As to the following :
Growth - Organic growth takes time and dynamic firms prefer acquisitions to grow quickly in size
and geographical reach.
Synergy - The merged entity, in most cases, has better ability in terms of both revenue enhancement
and cost reduction.
Managerial efficiency - Acquirer can better manage the resources of the target whose value, in turn,
rises after the acquisition.
Strategic motives - Two banks with complementary business interests can strengthen their
positions in the market through merger.
Market entry - Cash rich firms use the acquisition route to buyout an established player in a
new market and then build upon the existing platform.
Tax shields and financial safeguards - Tax concessions act as a catalyst for a strong bank to acquire
distressed banks that have accumulated losses and unclaimed depreciation benefits in their books.
Regulatory intervention - To protect depositors, and prevent the destabilisation of the financial
services sector, the RBI steps in to force the merger of a distressed bank.
RISKS IN BANK MERGERS AND ACQUISITIONS
 The size of the organisation inevitably grows when two banks combine to form one. It's not
always better to be big. The management may not be able to regulate the size if it becomes too
large. The bigger size can end up being a liability rather than a benefit.
 Results from consolidation take time to develop; they are not always visible right away. Losses
and challenging interim periods occasionally follow mergers and acquisitions before the eventual
returns start to flow. Any merger must have enough of patience, endurance, and tenacity to be
successful. All might not go according to plan, which explains why mergers fail so frequently..
 The decision made at the top is mostly to blame for consolidation. The decision is top-heavy, and
it's possible that neither organization's lower levels will agree to it. As a result, employees
experience poor living conditions, sadness, and a lack of desire. Such a workforce is unable to
produce high-quality outcomes. Therefore, the only thing that can open the way is personal
management of the highest calibre with a humane touch.
 For instance, a PSU bank or an older generation bank and a foreign bank with more advanced
technology may have very distinct structures, systems, and procedures. The previous structures,
techniques, and practises might not be appropriate in the new environment. To integrate both
organisations, a comprehensive overhaul and systems analysis must be carried out. It takes a long
time to complete this process, and many cautious methods must be used to minimise friction.
 There is a problem of valuation associated with all mergers. The shareholder of existing entities
has to be given new shares. Till now a foolproof valuation system for transfer and compensation
is yet to emerge.
 Further, there is also a problem of brand projection. This becomes more complicated
when existing brands themselves have a good appeal. Question arises whether the earlier brands
should continue to be projected or should they be submerged in favour of a new comprehensive
identity. Goodwill is often towards a brand and its sub-merger is usually not taken kindly.
CHALLENGES AND OPPORTUNITIES IN INDIAN BANKING SECTOR
In a few years, there will be a bigger presence of foreign firms in the Indian financial system, and
certain Indian banks will soon start competing on a worldwide scale. Additionally, there is
competition on both domestic and foreign turf. Going global in search of new markets, clients, and
earnings has become the new guiding principle for Indian banks. But for this to happen, the Indian
banking sector will need to overcome some obstacles. Some of them include:
 FOREIGN BANKS: Over time, there are more foreign banks operating in India. Numerous
questions will thus arise, including how smaller national banks will compete in India with them
and whether they would need to establish a stronger global presence. Second, how will the
overlaps and potential conflicts between the regulators in the home countries of international
banks and those in the host countries be handled and resolved in the upcoming years? Recent
years have shown that even quite severe regulatory actions taken by regulators against these
multinational banks have had little to no market or reputational impact on them in terms of their
stock price or other similar indicators.Thus, there is loss of regulatory effectiveness as a result of
the presence of such financial conglomerates. Hence there is inevitable tension between the
benefits that such global conglomerates bring and some regulatory and market structure and
competition issues that may arise.
 A LARGER MARKET FOR CAPITAL - The calibrated opening of the capital account
and current account convertibility are key components of the Indian financial reform process.
It must be understood that the volatility of capital inflows does not cause an unacceptable
disturbance in the determination of exchange rates, which will inevitably have an impact on
the real sector, as well as in domestic monetary circumstances. Risk management of non-
financial companies and prudential rules and oversight are two ways to mitigate the
susceptibility of financial intermediaries. This will necessitate market expansion, increased
regulatory capability in these sectors, and the development of human resources in both
financial intermediaries and non-financial organisations..
 IT- Its essential to banking, thus technology is the key. Foreign banks and the new private
sector banks have always embraced technology and continue to do so today. Although
public sector banks have reached a level of computerization of 70%, the goal is to reach
100%. In recent years, networking has also gotten a lot of attention within banks. The most
recent development in the banking sector that has been noticed is banks sharing ATMs. In
this particular sector, India could need to significantly "catch up." Indian banks would be
prudent to make the most of this locally accessible, cutting-edge knowledge that is available
on a global scale.
 CONSOLIDATION - We are gradually transitioning from a system of "many small banks"

to "few giant banks." The current era is one of mergers and acquisitions, which are focused
on identified core strengths. This pattern has been successfully demonstrated by the mergers
of the HDFC Bank and Times Bank, Stanchart and ANZ Grindlays, and Centurion Bank and
Bank of Punjab. Older private sector banks should give mergers and acquisitions serious
consideration because many of them are unable to cushion their NPAs, expand their
clientele, or adopt new technology due to a finite capital base.
 PUBLIC SECTOR BANKS - Having a broad and extensive reach, public sector banks have the
ability to make a significant contribution to achieving financial inclusion. However, they are also
the ones who must overcome the most challenging obstacles in human resource development.
They will need to make significant investments in skill development across the board: at the top
level for setting new strategic goals, in the middle for putting those goals into practise, and at the
cutting edge lower levels for delivering the new service modes. These banks will also confront
additional recruitment difficulties given the age distribution of their workforce and the
unfavourable compensation arrangements compared to the more liberated private sector.
 Basel II – As of 2006, RBI has made it mandatory for Scheduled banks to follow Basel II
norms. Basel II is extremely data intensive and requires good quality data for better results.
Data versioning conflicts and data integrity problems have just one resolution, namely
banks need to streamline their operations and adopt enterprise wide IT architectures. Banks
need to look towards ensuring a risk culture, which penetrates throughout the organization.
 COST MANAGEMENT- Cost containment is a key to sustainability of bank profits as

well as their long-term viability. In India, however, in 2003, operating costs as proportion of
total assets of scheduled commercial banks stood at 2.24%, which is quite high as compared
to in other economies. The tasks ahead are thus clear and within reach.
 RECOVERY MANAGEMENT- This is crucial for the financial industry's stability. In

spite of the overhang concerns and generally challenging climate, Indian banks have done a
great job of keeping the amount of non-performing loans (NPL) under control. The banks'
interest margins are related to recovery management as well. The future health and
competitiveness of Indian banks rest on cost and recovery management supported by an
enabling legal environment. In order to improve recovery management in India, institutional,
legal, and judicial processes must move quickly and effectively.
 REACH AND INNOVATION - Greater demand for financial savings options is a result of
higher sustained growth. There also seems to be a growing diversification of productive
options, especially in rural areas. There are also increased demands for infrastructure
investment from the public and commercial sectors as well as through public-private
partnerships. Industrial expansion has also picked up speed. As a result, the banking system
needs to grow and develop. Banks will need to be creative, search for fresh delivery methods,
and improve access for the underserved. It will be necessary to find creative ways to supply
credit in order to meet the expanding rural credit needs. It will be necessary to secure
funding for the emerging expansion of non-agricultural service businesses in rural
areas.Greater efforts will need to be made on information technology for record keeping,
service delivery, and reduction in transactions costs, risk assessment and risk management.
Banks will have to invest in new skills through new recruitment and through intensive
training of existing personnel.
 RISK MANAGEMENT – Banking in modern economies is all about risk management.

The successful negotiation and implementation of Basel II Accord is likely to lead to an
even sharper focus on the risk measurement and risk management at the institutional level.
Sound risk management practices would be an important pillar for staying ahead of the
competition. Banks can, on their part, formulate „early warning indicators‟ suited to their
own requirements, business profile and risk appetite in order to better monitor and manage
risks.
 GOVERNANCE – As competition increases, banks work to maintain their clientele, and

regulators shift away from restrictions and micro-regulation, the quality of corporate
governance in the banking industry becomes increasingly important. Continuously pursuing
greatness should be the goal. To serve the needs and realities of our society while being in
harmony with the global perspective, improvement in policy-framework, regulatory regime,
market perceptions, and in fact, popular sentiments relating to bank governance must be at
the top of the agenda.
HR ISSUES IN MERGERS & ACQUISITIONS
People issues like staffing decision, organizational design, etc., are most sensitive issues in case of
M&A negotiations, but it has been found that these issues are often being overlooked.
 Before the new organization is formed, goals are established, efficiencies projected and
opportunities appraised as staff, technology, products, services and know-how are combined.
 But what happens to the employees of the two companies? How will they adjust to the new
corporate environment? Will some choose to leave?
 When a merger is announced, company employees become concerned about job security and
rumors start flying creating an atmosphere of confusion, and uncertainty about change.
 Roles, behaviors and attitudes of managers affect employees' adjustment to M&A.
 Multiple waves of anxiety and culture clashes are most common causes of merger failure.
 HR plays an important role in anticipating and reducing the impact of these cultural clashes.
 Lack of communication leads to suspicion, demoralization, loss of key personnel and business
even before the contract has been signed.
 Gaining emotional and intellectual buy-in from the staff is not easy, and so the employees need
to know why merger is happening so that they can work out options for themselves.
 Major stress on the accompany merger activity are: -
 Power status and prestige changes
 Loss of identity
 Uncertainty
 Unequal compensation may become issue of contention among new co-workers.
MAJOR BANKS INVOLVED IN MERGERS AND ACQUISITIONS

The cases chosen for the purpose of this study were selected based on their prominence and
recency (all post-2000) to ensure that the motives driving the deals will remain relevant in the current
context.
HDFC Bank Acquires Centurion Bank of Punjab (May '08)

HDFC bank is merged with Centurion Bank of Punjab
 New entity is named as “HDFC bank itself”.
 The merger will strengthen HDFC Bank's distribution network in the northern and the southern
regions.
 HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion Bank of
Punjab for Rs 9,510 crore
Intent
For HDFC Bank, this merger provided an opportunity to add scale, geography (northern and
southern states) and management bandwidth. In addition, there was a potential of business synergy
and cultural fit between the two organizations.
For CBoP, HDFC bank would exploit its underutilized branch network that had the requisite
expertise in retail liabilities, transaction banking and third party distribution. The combined
entity would improve productivity levels of CBoP branches by leveraging HDFC Bank's brand
name.
Benefits
With 1,148 branches and 2,358 ATMs, the transaction produced an entity with an asset size of Rs.
1,09,718 crore, making it the seventh largest in India (the largest in terms of branches in the private
sector). The strong SME connections CBoP has supplemented HDFC Bank's preference for well-
regarded corporate organisations. Cross-selling opportunities were abundant in the near future. The
Centurion Bank and BoP integration earlier showed that CBoP management has significant
experience with larger banks operating businesses of the scale comparable to HDFC Bank.
Drawbacks
The merged entity will not lend home loans given the conflict of interest with parent HDFC and
may even sell down CBoP's home-loan book to it. The retail portfolio of the merged entity will have
more by way of unsecured and twowheeler loans, which have come under pressure recently.
Bank of Baroda Acquires South Gujarat Local Area Bank Ltd (June '04)
Intent
The RBI reported that South Gujarat Local Area Bank has experienced net losses for three years in a
row and seen a marked decrease in its capital and reserves. To address this, the RBI first enacted a
moratorium under Section 45 of the Banking Regulation Act 1949. After extending the moratorium
for a maximum of six months, it was decided that all seven SGLAB branches would operate as Bank
of Baroda branches. In conjunction with the RBI, the Government of India made the ultimate decision
about the merger. Bank of Baroda denounced the forced merger and was opposed to it.
Benefits
As a result of being effectively transferred to Bank of Baroda, SGLAB's clients now have the benefit
of doing business with a larger, more secure bank. Except for the fact that it was able to merge with a
larger bank and keep its branches and clients, albeit under a different name, SGLAB did not gain
anything. Due to BoB's size (total assets of Rs. 793.2 billion at the time of the merger), the inclusion
of a minor liability had little impact on it. Although not significantly, it acquired seven additional
outlets and the SGLAB's current clientele. As a result, its standing in rural Gujarat was further
enhanced.
Drawbacks
There was no widespread criticism or any apparent drawback of the merger since the financials
involved were not very high.
ICICI Bank Ltd. Acquires Bank of Madura (March '01)
Intent
Without obtaining the RBI's approval for branch development, ICICI Bank Ltd. planned to expand its
network. Given that BoM's cash management division was in the top five in terms of volume, the
company was a logical target. Additionally, there was a chance of changing its asset profile after the
merger to permit improved spreads and build a more reliable micro-credit system.
BoM wanted a (financially and technologically) strong private sector bank to add shareholder value,
enhance career opportunities for its employees and provide first rate, technology-based, modern
banking services to its customers.
Benefits
The combined company's branch network went from 97 to 378, with 97 of those locations located in
rural areas. 9 From 2.46% to 3.55 %, the net interest margin grew. From Rs 87 crores to Rs 171 crores,
ICICI's core fee revenue virtually doubled. In addition to entering the small and medium segment,
IBL added 1.2 million new client accounts. Because it had the largest client base in the nation, the
ICICI group was able to cross-sell various goods and services.
Drawbacks
Since BoM had comparatively more NPAs than IBL, the Capital Adequacy Ratio of the merged
entity was lower (from 19% to about 17%). The two banks also had a cultural misfit with BoM
having a trade-union system and IBL workers being young and upwardly mobile, unlike those for
BoM. There were technological issues as well as IBL used Banks 2000 software, which was very
different from
BoM's ISBS software. With the manual interpretations and procedures and the lack of awareness of
the technology utilisation in BoM, there were hindrances in the merged entity.
Oriental Bank of Commerce Acquires Global Trust Bank Ltd (August '04)
Intent
Following the merger, there appeared to be a synergy for Oriental Bank of Commerce given that
recovery was the strength of OBC and bad assets were the weakness of Global Trust Bank. 10 Along
with the tax benefits from the merger, the fact that GTB is a bank with roots in the south would give
OBC the competitive edge it needs in the area. GTB was forced into the merger as a result of an RBI
decision after it declared bankruptcy, so it had no choice.
Benefits
OBC benefited from the 104 branches, 276 ATMs, 1400 workers, and one million clients of GTB.
The two banks shared an IT infrastructure as well. The merger also filled in the gaps in
computerization and advanced technologies that OBC had. The contemporary GTB infrastructure
enhanced OBC's presence in southern states.
Drawbacks
The merger caused OBC to have a low CAR, which was bad for solvency. The bank's business
growth was similarly less than its peers' (15%), at 5%. Given the relevant RBI regulations, a capital
adequacy ratio of less than 11% might also prevent dividend declaration.
GENERAL PERCEPTIONS ON MERGERS AND ACQUISITIONS OF
INDIAN BANKING SECTOR
Based on the conducted survey this is the general perception of mergers and acquisitions of the indian
banking sector:-
1. Age and Gender Representation:-
Age: It was largely dominated by the age group of 18-25 and 25-35 year old respondents.
 30.4 % of respondents were in the age group of 18-25 years.
 17.4 % of respondents were in the age group of 45 above years.
Gender: The respondents were majorly males with 52.2% and the rest being females with 47.8% and
with no “Other”.
2. Current Occupation:-
Current Occupation: The respondents were largely students with 43.5% and the free lancers, others
and employees being the same with 8.7%.
 43.5% of respondents were Students.
 30.4% of respondents were Business owners.
 8.7% of respondents were Employees.
 8.7% of respondents were Freelancers.
 8.7% of respondents were Others.
3. Mergers and Acquisitions known of:-
The majorly known M&As to the respondents were Indian & Allahabad Bank, Canara & Syndicate
Bank and PNB & OCB & UBI Banks whereas the least known amongst the respondents was Axis
Bank & Freecharge.
 60.9% of the respondents knew about the Indian & Allahabad Banks.
 60.9% of the respondents knew about the Canara & Syndicate Banks.
 60.9% of the respondents knew about the PNB & OCB & UBI Banks.
 39.1% of the respondents knew about the IDBI & IDBI Bank.
 34.8% of the respondents knew about the AXIS Bank & Freecharge.
 34.8% of the respondents knew about the Other M&As.
4. Benefits to the Indian Economy:-
Out of all the respondents 73.9% agree to that the M&As have benefited the economy whereas 8.7%
of them disagreed.
 21.7% of the respondents Strongly Agree to the statement.
 52.2% of the respondents Agree to the statement.
 17.4% of the respondents are Neutral to the statement.
 4.35% of the respondents Disagree to the statement.
 4.35% of the respondents Strongly Disagree to the statement.
5. Rise or Fall of M&A trend:-

The respondents agreeing to the statement are 78.2% and disagreeing being 8.7%.
 13% of the respondents are Neutral to the statement.
6. M&A trend help increase the flow of capital of our economy:-
The 65.2% of the respondents are in favor of the statement while 4.4% being in disagreement.

7. Shareholder’s View:-
A total of 56.5% of the respondents agree to the statement where as 17.4% disagree.
 0% of the respondents Strongly Disagree to the statement.
8. M&A’s after results perception:-
Here, 56.5% respondents agree to the statement and 13.1% disagree.

Here, 69.5% of the respondents agree to the statement whereas, 17.5% disagree.
 13% of the respondents are Neutral to the statement.
9. Perception on Forced M&As:-
Here, 56.5% of the respondents agree and the rest remain neutral.
 0% of the respondents Disagree or Strongly Disagree to the statement.

10. Perception of benefits of M&As:-
Here, 47.8% of the respondents agree to the statement whereas, 13.1% disagree.
Here, 56.5% of the respondents believe it to be fast and prominent whereas, 4.4% don’t.
 13% of the respondents Strongly Agree to the statement.

Here, 56.5% believe it creates financial synergy and provides better tax benefits whereas, 8.7% don’t.
Here, 52.2% of the respondents agree whereas, 8.7% disagree.

Here, 30.4% of the respondents agree whereas, 13.1% disagree and majority are at neutral with 56.5%.
 13% of the respondents Strongly Agree to the statement.

11. Reliability of M&As:-
Here 52.1% of the respondents find M&As reliable for bank consolidations whereas, 21.8% don’t.

 13% of the respondents Disagree to the statement.
Here, 56.5% agree to the statement and 13.1% disagree.

CHAPTER - 6
Findings, Recommendations & Conclusion
Based on the trends in the banking sector and the insights from the cases highlighted in this
study, one can list some steps for the future which banks should consider, both in terms of
consolidation and general business. Firstly, banks can work towards a synergy-based merger
plan that could take shape latest by 2009 end with minimisation of technology-related
expenditure as a goal. There is also a need to note that merger or large size is just a facilitator,
but no guarantee for improved profitability on a sustained basis. Hence, the thrust should be
on improving risk management capabilities, corporate governance and strategic business
planning. In the short run, attempt options like outsourcing, strategic alliances, etc. can
be considered. Banks need to take advantage of this fast changing environment, where
product life cycles are short, time to market is critical and first mover advantage could be a
decisive factor in deciding who wins in future. Post-M&A, the resulting larger size should not
affect agility. The aim should be to create a nimble giant, rather than a clumsy dinosaur. At
the same time, lack of size should not be taken to imply irrelevance as specialized players
can still seek to provide niche and boutique services.The banking industry in India can
grow and expand by mergers and acquisitions. By joining a larger bank, weaker banks have a
better chance of surviving. This study demonstrates the effects of M&As on the Indian
banking industry. Additionally, the findings imply that banks' performance and efficiency
have improved since the merger. The primary goal is to increase net profits following the
merger in order to convince the shareholders that the management was justified in choosing
to merge.
BIBLIOGRAPHY
Prasanna Chandra, Financial Management, Theory and Practice (Tata McGRAW
Hill) J Fred Weston and Samuel C. Weaver, Mergers and Acquisitions. EBSCO
Research Database
www.banknetindia.com 'Developments in Commercial banking (2004)',
http://www.rbi.org.in/scripts/PublicationsView.aspx?Id=6935
http://www.ibtimes.com/articles
http://www.thehindubusinessline.com
www.icici.com
www.bankofrajasthan.com
ANNEXURE
Age, Gender, Current Occupation
What mergers or acquisitions you know of?
They benefited the economy?
Mergers and acquisitions will increase in the coming years?
The M&A increased capital flow of our economy?
M&As are enhancements of safety nets in the views of share holders?
M&As give better results than being separate entities?
Wealth management grows harder after M&As?
Forced M&As leads to decline in wealth of the bidders?
M&As helps avoiding monopolies and keeping taxes under control?
M&As are a fast and prominent and authentic strategy for expansion?
M&As create financial synergy and provide better tax benefits?
M&As offer maximization of profits and wealth?
Its a solution to major challenges like economic scope, integration, developing resources,etc.?
M&As help increasing consumers and improving balance sheets and cash flow statements?
M&As bring abundance of liquidity to the economy?
M&As are reliable for bank consolidations?
M&As helps in corporate restructuring?
M&As provides resources and capabilities to become a global bank?

A Project Report: By: Mr. Bikash Rath Reg. No. FMS-BCM-2020-23-036

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“Mergers and Acquisitions of Banking Sector of India”

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I wish him all the success in his future endeavors.

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PLACE: Cuttack NAME: Dr. Giridhari Mohanta

DATE: / / . (Faculty Guide)

I do hereby declare that this project Report entitled “Mergers and

Place: Cuttack Mr. Bikash Rath

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1.3 Theoretical background

1.4 Objectives and Data collection

Chapter 2 Industrial and Company profiles

Chapter 3 Literature Review

Chapter 4 Research Methodology

4.1 Purpose of M&As and benefits

4.2 Mergers and amalgamations under various acts

4.3 Changes in Indian Banking Scenario

Chapter 5 Data Analysis and Interpretation

5.1 Procedures of M&As

5.2 Motives, Risks, Challenges and Opportunities

5.4 Major Banks involved in M&As

5.7 General Perception

Chapter 6 Findings, Recommendations and Conclusion

Theoritical background of the study:-

 Equity shares in the transferee company,

 Debentures in the transferee company,

 A mix of the above modes.

2. Has control over products specifications.

An acquisition may be affected by:-

 Purchase of shares in open market;

 To make takeover offer to the general body of shareholders;

 Purchase of new shares by private treaty;

 To study the general perception.

 Business Magazines and finance books

INDUSTRIAL PROFILE OF THE BANKING INDUSTRY:-

 Lockers & Safe Deposits

 Bill Payment Services

 Credit & Debit Cards

 Provide security to the savings of customers by safeguarding it

 Offering interest on the deposits kept with it

 Control the supply of money and credit

 Encourage public confidence in the working of the financial system

 Increase savings speedily and efficiently

 Set equal norms and conditions to all types of customers

PURPOSES OF MERGERS AND ACQUISITIONS :-

1. To safeguard the source of supplies of raw materials or intermediary product;

2. To obtain economies of purchase in the form of discount, savings in transportation costs,

3. To share the benefits of suppliers‟ economies by standardizing the materials.

 Revamping production facilities:

1. To achieve economies of scale by amalgamating production facilities through more

2. To standardize product specifications, improvement of quality of product, expanding

 Market expansion and strategy:

1. To eliminate competition and protect existing market;

2. To obtain a new market outlets in possession of the offeree;

3. To obtain new product for diversification or substitution of existing products and to