Amity Business School

Amity Business School

NTCC (Dissertation ) Viva

Programme Name: MBA(Finance)
Class of 2024

1
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IMPACT OF MERGER AND ACQUISITION ON PERFORMANCE OF

COMMERCIAL BANKS IN INDIA
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Rationale for the Study

• Purpose: To evaluate the effectiveness of mergers and acquisitions (M&As) in
enhancing the performance of Indian commercial banks.
• Focus: Analysis of financial ratios to measure pre- and post-merger performance.
• Scope: Includes both private and public sector banks.
• Objectives:
• Assess profitability changes due to M&As.
• Determine efficiency improvements.
• Evaluate liquidity variations.
• Goal: To establish whether M&As are a viable strategy for improving profitability
and overall banking efficiency in India.
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Objectives of The Study

• Evaluate Financial Performance: Analyze post-M&A performance focusing
on metrics like ROE, ROA, cost efficiency, and CAR.
• Address Human Impact: Examine job uncertainty and employee morale,
emphasizing effective communication and change management.
• Assess Social Impact: Investigate effects on local communities and rural
areas, including access to financial services and economic development.
• Inform Stakeholders: Provide insights for policymakers, regulators, and
bank managers to promote sustainable growth and excellence in the banking
industry.
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Review of Literature
Author Name with Year Topic [Context] Methodology Key Findings
Berger, A. N., & how financial The paper uses Variation in
Humphrey, D. B. institutions allocate literature review, efficiency levels,
(1997) resources efficiently, econometric analysis, Factors
considering factors
like structure,
and possibly influencing
technology, qualitative methods efficiency:, Policy
regulation, and to assess global implications
competition, and their financial institution
impact on economic efficiency.
stability and growth.
DePamphilis, D. (2019) The book Literature Review, Value Creation,
"Mergers, Case Integration
Acquisitions, and StudiesQuantitative Challenges,
Other Analysis, Qualitative Strategic Fit,
Restructuring Analysis Financial
Activities" provides Performance
a comprehensive
overview of M&A
and corporate
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Author Name with Year Topic [Context] Methodology Key Findings

Gugler, K., Yurtoglu, B. Examines the Data Collection, Profitability and
B., & Zulehner, C. impact of mergers Econometric Market Power,
(2003) on various Analysis, Efficiency Gains,
economic and Comparative Analysis Consumer
financial outcomes Welfare
across different
countries.

Singh, S. (2018) Examines the Data Collection, Improved

effects of mergers Performance Metrics, Financial
and acquisitions Comparative Performance,
(M&A) specifically Analysis, Operational
within the Indian Econometric Models Efficiency,
banking industry. Market Share
The study aims to and
analyze the impact Competitiveness
of M&A on the
performance and
efficiency of banks
in India.
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Research Methodology
Approach:
• Mixed-Methods: Combines quantitative and qualitative techniques for a
comprehensive analysis.
Quantitative Analysis:
• Objective: Evaluate financial performance of banks pre- and post-M&A.
• Metrics: Return on Equity (ROE), Return on Assets (ROA), Cost Efficiency,
Capital Adequacy Ratio (CAR), Loan Delinquency Rates.
• Data Sources: Secondary data from bank annual reports, RBI publications,
Bloomberg, Thomson Reuters, and academic journals.
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Qualitative Analysis:

• Objective: Understand human and social impacts of M&As.

• Methods: Surveys and focus groups with bank executives, employees, and other
stakeholders.

• Data Sources: Surveys, focus groups, news stories, reports, and industry
documents.
Data Collection:

• Secondary
Primary Data:
Data: Financial
Surveys performance
and focus metrics from
groups addressing reliablemorale,
employee sources.
customer
satisfaction, and community impact.
Key Variables:
• Independent Variable: Presence of M&A in banks.
• Dependent Variables: Profitability, efficiency, capital adequacy, loan delinquency
rates, employee morale, customer satisfaction, community impact.
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Analysis
[Objective Wise]
Study Period and Sample Selection:
• Period: 2008-2018
• Sample: Four commercial banks in India that engaged in mergers during this period.
Data Analysis Tools:
• Financial Ratio Analysis: Used to estimate banks' performance using CAMEL
framework (Capital Adequacy, Asset Quality, Management, Earnings, Liquidity).
• T-Statistic: Applied to test pre- and post-merger performance significance.
Hypothesis Testing:
• H0: No significant change in CAMEL ratios pre- and post-merger.
• H1: Significant changes in CAMEL ratios pre- and post-merger.
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1. Capital Adequacy Ratio (CAR):

1. Increased for HDFC Bank post-merger, indicating improved capital
adequacy.
2. Other banks maintained or slightly improved their CAR within regulatory
requirements.

2. Non-Performing Assets (NPA):

1. SBI's NPA ratio increased post-merger, indicating higher bad debts.
2. Kotak Mahindra Bank and HDFC Bank showed a decrease in NPA ratios
post-merger.
3. ICICI Bank's NPA ratio also decreased post-merger.

3. Return on Assets (ROA):

1. SBI and Kotak Mahindra Bank saw a decline in ROA post-merger.
2. HDFC Bank and ICICI Bank improved their ROA post-merger.
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4.Profit Before Tax (PBT):

1. Decline for SBI and Kotak Mahindra Bank post-merger.
2. Increase for HDFC Bank and ICICI Bank post-merger.

5.Investment Deposit Ratio (IDR):

3. SBI and ICICI Bank's IDR increased post-merger.
4. No significant change for Kotak Mahindra Bank and HDFC Bank.

Statistical Significance:

• T-test Results:
• Significant improvement in ROA and PBT for ICICI Bank post-merger (p-
values < 0.05).
• No significant impact on CAR, NPA, and IDR (p-values > 0.05).
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The survey shows over half of employees are uncertain about job security after the
merger, with 64.9% feeling overloaded.

Communication was effective for 48.6%, but concerns about promotions and
competition remain. About 45.9% may leave, and 70.3% are satisfied with training,
while 16.2% are not.

Overall, the merger raises significant concerns about job security, workload, and
retention.
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Findings of The Study

• Mergers positively impacted certain financial metrics (ROA, PBT) for some banks
(HDFC, ICICI).

• No significant change or negative impact on other metrics (CAR, NPA) for some
banks (SBI, Kotak Mahindra).

• Mixed results suggest the need for effective integration strategies to realize merger
benefits fully.
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• Success depends on:

• Effective integration strategies
• Tight cost controls

• Importance of the human dimension:

• Job uncertainty
• Reduced employee morale
• Necessitates strong communication and change management

•Social impact of M&As:

•Rural branch closures hinder local economic development
•Need for regulations to ensure service continuity in underprivileged areas
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Suggestions &
Recommendations
1. Communication and Change Management:
1. Emphasize the importance of effective communication, change
management, and equity implementation during the integration
process to address job uncertainty, employee morale, and
productivity concerns.
2. Social Impact Assessment:
1. Assess the social impact of M&A, particularly on local
communities and rural areas, examining factors such as access to
financial services, economic development, and regulatory measures
aimed at mitigating negative consequences.
3. Financial Performance Metrics:
1. Use quantitative analysis to assess the financial performance of
banks before and after mergers. Key metrics include Return on
Equity (ROE), Return on Assets (ROA), Cost-to-Income Ratio, and
Capital Adequacy Ratio (CAR).
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1. Human Dimension:
1. Highlight the human dimension of M&As, including job losses,
employee uncertainties, and significant disruptions to local
community businesses.
2. Regulatory Framework:
1. Ensure regulatory frameworks are robust enough to guarantee stability
and client care while encouraging innovation and competition.
3. Employee Welfare and Community Upliftment:
1. Consider the welfare of new generation employees and the upliftment
of surrounding communities as part of the M&A strategy.
4. Continuous Dialogue:
1. Foster continuous conversations between policymakers, regulators,
bank managers, industry practitioners, and experts to promote
transparency, teamwork, and responsible banking policies.
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Conclusions
The report concludes that mergers and acquisitions (M&As) in India's banking sector can
enhance profitability, efficiency, and capital adequacy if effectively managed. However,
they also pose challenges such as job losses, employee uncertainty, and reduced access to
services in rural areas.

Strong communication, change management, and a robust regulatory framework are

essential to address these issues and ensure stability, client protection, and continued
service to underserved communities. Effective M&As can drive sustainable and
inclusive growth in the banking sector.
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Scope of Further Research

Further research should explore the long-term effects of M&As on financial
performance, delve deeper into the human impact, assess social impacts on
local communities, conduct comparative regional studies, examine the
influence of regulatory frameworks, and develop innovative financial metrics
to better capture M&A outcomes​