A study on M&A of Indian bank ing sector – strategic and financial implications A STUDY ON MERGER AND ACQUISITION OF INDIAN BANKING SECTOR-STRATEGIC AND FINANCIAL IMPLICATIONS Submittedto Lovely Professional University In partial fulfillment of the requirements for the award of degree ofMASTER OF BUSINESS ADMINISTRATION Submitted By Submitted to Abhishek Verma (3440070066) Ms Neha Tikko Maneesh Ranjan (3440070090) lecturerNeha Sharma (3440070013) Rahul Verma (3440070004) DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY PHAGWARA - 1 –
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A study on M&A of Indian banking sector – strategic and financial implications
(1) Public Sector Banks which include
(a) State Bank of India and its associates
(b) Nationalized Banks
(2) Private Sector Banks comprise
(a) Indian private banks and
(b) Foreign Banks
(3) Regional Rural Banks
Indian Banking Sectors had started witnessing three major reforms which played a key role in reforming
the present situation of the Indian Banking system These reforms were Narishmam Committee I (1991),
Narishmam Committee II (1997) and Verma Committee (1999).Environment in which Indian Banking
sectors were operated witnessed a remarkable change due to these reforms.
The objectives of these reforms were to improve the current conditions of Indian Banking system and to
make them enhance there efficiency and promote a diversified and competitive financial sytem.Thus theoutcomes of these reforms were to consolidate the Indian banking sectors through merger and
acquisition. Technological progress and financial deregulation have played an important role in
accelerating the process of merger and acquisition in Indian banking industry.This technological
advancement had led to increase productivity and performance as a result the overall profit maximization
was there.Size and scale of production was increased to a distinct level.Due to these reasons Indian
banks became capable of facing globalization and thus can generate capital from foreign also.
Mergers and acquisitions in Indian banking sector have initiated through the recommendations of
Narasimham committee. The committee recommended that merger between banks and Development
Financial Institutions (DFI's) and Non Banking Financial Corporation's (NBFCs) no to seen as a mean of
bailing out weak banks. The committees also stressed, that the combined value of new bank will be
greater, than the combined value of merged banks, and have a "forced multiplier effect."
A study on M&A of Indian banking sector – strategic and financial implications
(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.They explained the benefits and drawbacks of some key M&A deals 2000
onwards.
A. Vasudevan suggested that there is little empirical literature on the impact of mergers in banking in
India, but what there is supports the view that banks significantly improve their profit and operational
efficiencies following consolidation, that has happened both for reasons of financial strength and
efficiency. A. Vasudevan surveys the merger scene in the banking sector .
K. Ravichandran, Fauzias Mat-Nor, Rasidah Mohd-Said suggested that the banking sector of India is
considered as a booming sector and the soundness of the banking system has been vital for the
development of the country’s economy. The financial performance suggests that the banks are becoming
more focused on their retail activities (intermediation) and the main reasons for their merger is to scale
up their operations. A comprehensive study is undertaken to investigate the performance of those banks
three years before the merger took place and three years after the completion of the said merger. Also the
profitability of the firm is significantly affected giving a negative impact on the returns.They showedthat they have adopted CRAMEL (Capital Adequacy, Resources Raising Ability, Asset Quality,
Management Quality, Earnings Quality, Liquidity) model to assess efficiency and performance of the
Indian banking institutions.
Jay Mehta, Ram Kumar Kakani suggested the motives of merger and acquisition of Indian banking
sector.India is moving slowly from “large number of small banks” to “small number of large
banks”.They also compared the International merger and acquisition with Indian scene.They studied the
significant role of the state and the central bank in protecting customers interest’s vis-à-vis creating
players of International size. It is observed that the banking industry is moving from traditional savings-
cum-lending functions to other services as well such as Bank-assurance and securities trading. They
provided the holistic approach to compare the rationale behind M&A in India and the international
A study on M&A of Indian banking sector – strategic and financial implications
SCOPE OF STUDY
Efforts have been made to measure the impact of banks merger and acquisition on employees and
staffs.A sample of banks who have undergone the process of merger and acquisition in last ten years
have been taken.The implications of merger and acquisition on the financial performace of the entities is
studied here.The second part of the study is in the adjustment of stock prices to the announcement of
merger and acquisition.
OBJECTIVES OF STUDY
1. To study the financial impact of Merger and Acquisition of the selected banks between pre and
post-merger periods.
2. To study the impact of Merger and Acquisition of the selected banks on the operating
performance of Banking Index between pre and post-merger period.
3. To study the factors influencing M&A of banks in Indian banking scenario
LIMITATION OF STUDY
1. The study is totally based on banking sector and no comparison with other sectors is made here.2. To generate the information about the profitability and liquidity position during M&A.
3. The study is limited to five years before merger and five years after merger only.
4. Accounting ratios have its own limitation which is also applied to the study.
Kaur Pardeep,Kaur Gian, 2010, Impact of Mergers on the Cost Efficiency of Indian Commercial Banks, Eurasian Journal of Business and Economics,vol3 (5),pp 27-50
http://ejbe.org/EJBE2010Vol03No05p27KAUR-KAUR.pdf
Rai rohan,2011, corporate excellence through mergers and acquisitions: aStudy of icici bank – bank of madura merger, asian journal of technology & management research,, vol.