A STUDY ON MERGERS AND ACQUISITION IN BANKING

INDUSTRY OF INDIA

ABSTRACT:
This paper presents secondary study on why banks are going for mergers and
acquisition. The emphasis is on what motives the banks are getting through these process and
what all steps they have to consider before going for M&A process. The limitation of this
study is that it is purely based on qualitative data. This paper can be extended to further
research by conducting analysis on quantitative data. From the literature review it is found
out that there is only limited number of studies conducted in the area of mergers and
acquisition in Indian banking industry. So this paper consists of Mergers and Acquisition that
had happened in India in 2019. In this year most of mergers and acquisition occurred in
banking sector i.e. Punjab National Bank and Canara Bank. From the data obtained it is found
out that most of the banks are going for Mergers and Acquisition to increase their value and
to increase their profit.

Key Words: Mergers and Acquisition, Indian banking industry, Motives

INTRODUCTION:
Mergers and Acquisition is becoming a trend in modern world. In short term we can
define it as consolidation of companies. Merging means two companies are combined to form
a new company where as acquisition means one company is taken over by the other
company. In corporate finance world M&A is one of the major aspects.

Government of India (GoI) has announced the third round of bank merger plan to
revive public sector banks along with flagging economy from five year low. Finance minister
Nirmala Sitharaman recently declared the merger plan of 10 public banks into four. As per
the finance minister, the merger would help to manage the capital more efficiently. The
amalgamation of the PSBs is based on bad loans intensity and regional factors.

After the mergers, the country will have 12 public sector banks, including State Bank of India
(SBI) and Bank of Baroda (BoB).

What’s also noteworthy is the fact that the government has announced capital infusion worth
more than Rs 55,000 crores into public sector banks (PSBs). The government is seriously
considering to reduce the number of public sector banks (PSUs) from the existing 21 to 12
with a view to creating 3-4 global sized banks.
REVIEW OF LITERATURE:
Mergers and Acquisition is a vast area and the number of research conducted in this
area is large, so it was easy to get literature on this particular topic.

 Dr. Neena Sinha et al (2010) in their study described the impact of mergers and
acquisitions on the financial efficiency of the selected financial institutions in India.
The analysis consists of two stages. Firstly, by using the ratio analysis approach,
they calculated the change in the position of the companies during the period
2000-2008. Secondly, they examine changes in the efficiency of the companies
during the pre and post merger periods by using nonparametric Wilcox on signed rank
test. The result revealed a significant change in the earnings of the shareholders,
there is no significant change in liquidity position of the firms.

 Nisarg A Joshi and Jay M Desai in their study measured the operating performance
and shareholder value of acquiring companies and comparing their performance
before and after the merger. They used Operating Profit Margin, Gross Operating
Margin, Net Profit Margin, Return on Capital Employed, Return on Net Worth, Debt-
Equity Ratio, and EPS P/E for studying the impact. They concluded that as in
previous studies, mergers do not improve performance at least in the immediate short
term.

 Jagdish R. Raiyani (2010) in her study investigated the extent to which mergers
lead to efficiency. The financial performance of the bank has been examined by
analyzing data relevant to the select indicators for five years before the merger and
five years after the merger. It is found that the private sector merged banks are
dominating over the public sector merged banks in profitability and liquidity but in
case of capital adequacy, the results are contrary.

 Rehana Kouser and Irum Saba (2011) explored the effects of merger on profitability
of the bank by using six different financial ratios. They have selected 10 commercial
banks that faced M&A during the period from 1999 to 2010. The lists of banks were
selected from the Karachi Stock Exchange (KSE). Quantitative data analysis
techniques are used for inference. Analysis was done by using paired t-test. The
results recommend that operating financial performance of all commercial bank’s
M&A included in the sample from banking industry had declined later.

 Mehroz Nida Dilshad (2012)13 measured the efficiency of market with respect
to announcements of mergers and acquisitions using an event study
methodology. The study analyzed the effects of banks mergers and their
announcements on the prices of stocks, in Europe. Evidence here supports that
significant cumulative abnormal returns were short lived for the acquirers. At the end
of the event window, the cumulative abnormal returns were 0.
OBJECTIVES OF THE STUDY:
The primary objective of the research is the analysis of Mergers and Acquisitions in
India in recent times. Therefore, the core objectives of the study can be described as follows:

 To examine the trends in M&A in India

 To study about the purpose and procedures in merger and acquisition
 To know about the merger between Punjab National Bank and Canara Bank
 To limit competition.
 To utilize under-utilized market power
 To overcome the problem of slow growth and profitability in one‘s own industry.
 To achieve diversification

SCOPE OF THE STUDY:

It is seen that, most of the works have been done on trends, policies & their
framework, human aspect which is needed to be investigated, whereas profitability and
financial analysis of the mergers have not give due importance. The present study would go
to investigate the detail of Merger and Acquisitions (M&As) with greater focus on the Indian
banking sector. The study will also discuss the pre and the post merger performance of banks.
An attempt is made to predict the future of the ongoing Merger and Acquisitions (M&As) on
the basis of financial performance of Indian banking sector.

RESEARCH METHODOLOGY:
The present research is conclusive, descriptive. The study was conducted on
secondary source of data books, articles, journals, e-sources and the relevant case laws.

For the purpose of evaluation of investigation data is collected from merger and
Acquisition (M$As) of Indian Banking Industry. The financial and accounting data of banks
is collected from banks annual reports to examine the impact of merger on financial
performance of the banks.

Research has taken The sample under study includes 2 banks case of merger as
Punjab National Bank and Canara Bank.