International Journal of Economics, Commerce and Research (IJECR) ISSN 2250-0006 Vol.

3, Issue 1, Mar 2013, 29-34 TJPRC Pvt. Ltd.

IMPACT OF ECONOMIC CRISIS ON THE EMPLOYMENT SIDE: A STUDY OF MERGED BANKS IN INDIA DURING THE POST-RECESSION PERIOD
K ANTONY AKHIL Research Scholar, Central University of Kerala, Kasaragod, Kerala, India

ABSTRACT
The present paper examines the impact of economic crisis in merged banks of India between 1993 and 2010 from an employment perspective. The study underscores the fact that employee reduction is a common feature among merged banks, irrespective of the ownership. Using multiple regression model, we found that number of branches is an important variable in predicting employment induced changes in merged banks of India. It suggests the need for embracing branch expansion strategies to give an extra push for employment and to meet the ever-increasing customer needs in the banking sector.

KEYWORDS: Banks, Merger, Employment, Neo-Liberalism INTRODUCTION

The economic crisis of 2008 has debilitated all economies in some way or other. The global growth slumped, unemployment burgeoned, banking activity plummeted and a good many financial institutions were obliterated from the face of financial world. As for India, the impact of sub-prime crisis on banks was almost negligible due to limited exposure to toxic assets owing to the counter-cyclical prudential norms prescribed by the Reserve Bank. However, the employment sector was very weak and it was not insulated from the crisis as there was strong linkage between banking and other sectors of the economy. As per the Global Employment Trends Report (2009) of International Labour Organisation, more than 50 million people are likely to lose their jobs due to the crisis. The present study examines the effectiveness of human resource management policies in merged banks of India during the post-recession period.

OVERVIEW OF BANK MERGERS IN INDIA

In the wake of liberalization, the economy witnessed an upsurge in merger and acquisition activity. Size and competence have been the hall-mark of business enterprises in India. The three motives for merger and acquisition are to improve revenue and profitability, achieve faster growth in scale and acquisition of new technology or competence. Tax shields and investment savings are the least important gains perceived from merger and acquisition transaction (Mantravadi and Reddy, 2008). Mergers and amalgamations are characterised by a combination of the assets and liabilities of acquired and acquiring firms, wherein one company survives and the other goes out of business or loses its identity. An acquisition, on the other hand, refers to the purchase of one organisation by another so that the acquirer retains control. In the wake of bank failures in many parts of the country, the banking sector in India was under severe threat prior to independence. The banks could no longer stand in isolation. Though merger and acquisition was not popular at that time, the Imperial Bank of India was formed via the merger route. The transit from pre-liberalisation period to neo-liberalism and the implementation of Basel-II norms accelerated the pace of merger and acquisition deals in India. Further it was the need of the hour to grow in size and catch up with global financial markets through resource redeployment.

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Based on the motives of merger deals, forced mergers, voluntary amalgamations and universal banking models took place in the country. The procedure for voluntary amalgamation of two companies is laid down under Section 44-A of the Banking Regulation Act, 1949. The RBI will sanction the voluntary amalgamation of banks only if the swap ratio is agreed upon by the two companies involved in merger transaction and their financial position is disclosed completely. Furthermore, the RBI will look into the benefits of amalgamation to the new entity. On the other hand, compulsory amalgamations are carried out by the Reserve Bank of India in the interest of the depositors, shareholders or in the interest of the banking system or the public at large. The sanction of the two Houses of Parliament is required for the same. Out of the 22 bank mergers in the post-merger period between 1993 and 2008, 14 were of forced mergers, 6 were voluntary mergers and the other two were universal banking models. Universal banking refers to the undertaking of many financial activities by one institution under one roof. In India, IDBI and ICICI are the two banks that have achieved the benchmark of universal banking models. However, they could not cater to the needs of all customers which might have an adverse impact on brand image.

REVIEW OF LITERATURE
The empirical studies which tried to place its focus on the impact of merger activity on the employment front in the banking sector are very limited in number. They are chronologically listed below. Mylonidis and Kelnikola (2005) focused on the merging activity in the Greek banking system over the period 1999-2000. They took a sample of four acquirers and five target banks that are of relatively the same size and the nonmerging banks that comprises of two large banks and two small banks are referred to as the control group. The pre-merger and post-merger periods in their study corresponds to 1997-1999 and 2000-2002 respectively whereas the control group covers the entire period. For analytical purposes, the pre-merger and post-merger averages of a set of financial ratios were calculated to assess the impact of merger game. The various ratios of profitability examined in the study were return on assets, return on equity, net profit margin and equity multiplier. Similarly, the ratios of total assets to number of employees, net profits to number of employees and number of employees to the number of subsidiaries have been used to measure labour productivity. One of the major findings emerged from the study is that profit, operating efficiency and labour productivity ratios of the acquirer and acquired banks did not show any improvement after merger, if the comparison was not made with the corresponding ratios of the control group. Mylonakis (2006) examined the dynamics of labour market in Greek banking sector. He selected a sample of five large banks that have gone through the merger in the period of 1998-2003. The result came out of the study was that staff per branch ratio declined due to the restructuring process and the introduction of latest technologies into the organization. Further, staff effectiveness in terms of operating revenue per employee, general administrative expenses per employee and pre-tax profits to personal expenses showed an improvement on an average as a result of merger and acquisition process. Gunu (2009) noted that merger activities have given rise to increasing employment in the Nigerian banking sector. Using multiple regression analysis, he asserted that shareholders fund, total assets and number of branches accounted for 62 per cent of employment in the banking industry but shareholders fund and total assets were not significant variables as total number of branches. Gunu and Olabisi (2011) applied the simple regression method by taking number of branches as an independent variable and number of staff a dependent variable. They arrived at the conclusion that the number of branches is an important variable in predicting the merger induced employment changes in Nigerian banks.

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Indeed there is dearth of literature in Indian context. Moreover, none of the study has investigated the impact of merger on the employment side particularly during the post- recession period. The present study thus abridges the research gap in the area.

METHODOLOGY
The study examines the impact of the banks merged in India from 1993 to 2010. The acquirer banks which have lost their identity or merged with other banks have been discarded from the study. Accordingly 11 banks have been taken as samples of which 8 of them are public sector banks and the remaining are private sector banks. Punjab National Bank, Oriental Bank of Commerce, Bank of Baroda, Indian Overseas Bank, IDBI Ltd., Bank of India, State Bank of India and Union Bank of India come in the list of merged public sector banks. While Federal Bank, HDFC Bank and ICICI Bank belong to the list of private banks. The period 2009-10 has been taken for the analysis as during this period Indian economy witnessed the partial withdrawal of fiscal stimulus. The method of analysis used for the study was multiple regression analysis. Multiple regression was used to establish the relationship between number of employees which is a dependent variable total assets, wages as percentage to total expenses and the number of branches which were independent variables. The ownership of merged banks in India is set as dummy variable in which public sector banks are coded as one and the private banks zero. Statistical package for social science was used to run the regression analysis.

IMPACT ON EMPLOYMENT
The scope of merger and acquisition activity is limited in comparison to the challenges of it. The synergy realization from the combined effect increases financial efficiency and the increased pace of merger and acquisition might result in the diversification of risks among different financial institutions. It is the integration of similar and complementary operations of bidder and target that creates synergies for the benefit of shareholders, customers and employees (Larsson and Finkelstein, 1999). Merger and acquisition game involves the integration of different cultures and manpower in varied legal, tax and regulatory environments. So long as there is organizational commitment on the part of human resources, their issues are of utmost importance in the changed economic environment and remain to be the greatest challenge for a merged bank. The dysfunctional outcomes of mergers such as employee morale, turnover intention and absenteeism have been the main area of concern for researchers (Schweiger and DeNisi, 1991; Chambers et al., 2009; Lin et al., 2010). In postmerger scenario, occupational stress increases and a cost-benefit analysis is carried out by the employee whether to continue or not in the organization. This distraction is further enhanced by the asymmetric information that arises between new management and workers in matters of compensation, changes in pensions, rules and guidelines to be followed etc. In such a situation, experienced workers cannot bear with malversation, assigning new duties and low payments and they may quit the job quickly. On the other side, low-quality workers still continue since they are scarcely in a position to find new jobs. In addition, the outsiders cannot enter into the new organization since they often fail to predict the future policies of it a priori. The success of any merger programme hinges on how well existing workers are taken care of.

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International experience shows that employment loss and job shifting are the most likely phenomenon in postmerger scenario. The data on the trend of employment in merged banks of India is given below. Table 1: Total Number of Staff in Merged Banks of India from 2005 to 2010 Year 2005 2006 2007 2008 2009 Number of Staff 447116 454749 457255 473236 511507 Percentage Change ----1.71 0.55 3.49 8.08

2010 510800 -0.14 Source: Computed from a Profile of Banks, RBI, Various Issues As shown in Table 1, total number of employees in merged banks of India in 2005 was 447116, this increased to 454749 in year 2006 by 1.71%. The total number of employees showed an increasing trend over the years except 2010, in which a sudden dip in the number of employees was found. Within a short span of 6 years, Punjab National Bank has reduced the number of employees from 58329 during 2004-05 to 53417 during 2009-10. During the same period, Bank of India showed an employment decrease of 3018. The highest employment loss was recorded in case of State Bank of India. The private sector banks are found to be far better in human resource management.

RESULTS AND DISCUSSIONS

The regression analysis was undertaken between number of employees and strategic variables. The Table 2 shows that independent variables explains 98.1% (R2=0.981) of total variance and Sig is less than 0.05 (p=0.000), which shows that the model is good and accurate one. Table 2: Model Summary R Adjusted R Std. Error of the F Sig. F Square Square Estimate Change Change 1 0.991 0.981 0.969 9422.87597 78.124 0 a. Predictors: (Constant), Total assets, wages as percentage to total expenses, number of branches, ownership of bank b. Dependent Variable: Number of employees Model R To investigate the existence of multicollinearity, the variance inflation factor for each of the independent variables is computed. As reported in the last column of Table 3, the variance inflation factor for the explanatory variables are less than 2.0, suggesting that multicollinearity is not likely to be a major issue in the model. Table 3: Coefficients Unstandardized Coefficients B Std. Error 10929.877 10838.83 0.001 433.097 11.31 0.004 793.44 0.77 6810.997

Model 1 (Constant) Total assets Wages as percentage to total expenses Number of branches

Standardized Coefficients Beta 0.017 0.036 1 -0.138

T 1.008 0.276 0.546 14.68 -2.3

Sig. 0.35 0.79 0.61 0 0.06

VIF

1.16 1.4 1.48 1.14

Ownership of bank -15667.18 a.Dependent Variable: Number of Employees

Impact of Economic Crisis on the Employment Side: A Study of Merged Banks in India During the Post-Recession Period

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A glance at the R2 value shows a high degree of explanatory power. This indicates 98 per cent variation in employment of merged banks in India is explained by independent variables. It is further confirmed by F ratio which turned to be statistically significant. This implies that independent variables like total assets, wages as percentage to total expenses and number of branches are the perfect determinants of dependent variable. The value of total assets is positive and statistically insignificant. Likewise, the coefficient of wages as percentage to total expenses though positive is not statistically significant. The coefficient of number of branches is positive and statistically significant. This indicates that a 1 unit increase in the number of branches would increase employment by around 11 units. Finally the coeffiecient of ownership of bank is negative but not statistically significant.

CONCLUSIONS
So far we examined the impact of economic crisis in merged banks of India between 1993 and 2010 from an employment perspective. The employment loss was mordent during the period 2009-10. The study underscores the fact that employee reduction is a common feature among merged banks, irrespective of the ownership. The study found that number of branches is an important variable in studying the employment induced changes in merged banks of India. It suggests the need for embracing branch expansion strategies to give an extra push for employment and to meet the ever-increasing customer needs in the banking sector.

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