Merger and Acquisition in Banking Industry

ABSTRACT
Mergers and acquisitions are the important process in the banking industry to make
financial gains enormously. Main aim of merger and acquisition in the banking
sectors is to improve the economies of scale. A merger means combination of two
companies into one company. During the merging process one company survives
and the other company loses their corporate existence. On the other hand
acquisition means takeover. Mergers and acquisitions are these days’ common
choices for business survival and development. They imply the difference of
enterprises to new conditions being one in every of them, the mixing of the
enterprises concerned within the deal. That integration is achieved through
strategic actions in structure processes and structures, in addition as through the
management of the subjective conditions that support human performance. one in
every of these conditions is that the individual and team identities. The identity
plays a vital mediating role within the adaptation and integration as a result of the
mutual acknowledgment of the self and therefore the different in any social
interaction has the facility to influence the social interaction. Mergers and
acquisition bank not only gets new brand name, new structures, product offerings
but additionally give opportunities to cross sell the new accounts acquired. The
process of mergers and acquisition is not new in the banking industry. This paper
deals with the mergers and acquisitions, types of merger, legal framework,
approval of Reserve Bank of India and historical perspectives of banks M&A,
impact of mergers and acquisition in banking industry.

INTRODUCTION
The banking system in India has undoubtedly earned numerous outstanding
achievements, in a comparatively short time, for the World’s largest and the most
diverse democracy. There have been several reforms in the Indian banking sector,
as well as quite a few successful mergers and acquisitions, which have helped it,
grow manifold. A merger happens once an independent bank loses its charter and
becomes a neighborhood of an existing bank with one headquarter and a unified
branch network. The word acquisition, conjointly called a takeover or an
acquisition, is that the shopping for of one company (the ‘target’) by another. A
sale is also friendly or hostile. The method of mergers and acquisitions was
importance in today’s world. In India, the idea of mergers and acquisitions was
first initiated by the government bodies and few accepted financial firms,
organizations conjointly took the specified initiatives to restructure the company
sector of India by process of the mergers and acquisitions policies. The industry
could be a vital space throughout those mergers and acquisitions do build immense
monetary gains. As a result of changes within the expectation of the company
customer, banks are currently forced to rethink their business and devise new
ways. Mergers and acquisitions activity can be defined as a process of restructuring
in that they result in few entity reformations with the aim to provide valid or profit
growth value of the company. The trends of merger and acquisition which have
been changed in India over years.

REVIEW OF LITERATURE
Several studies have been conducted to examine the impact of mergers and
Acquisition Ray Sarbapriya (2003) has given the analysis on performance of
Indian banks after merger with special reference to the merger of Centurion Bank
of Punjab to HDFC. Different financial parameters have been taken to analysis the
operating performance of bank for post-merger period. Analysis shows that
operating performance has been improved after merger in terms of liquidity,
leverage, profitability and shareholders wealth.

Mehta & Kakni (2006) discussed the various motivations for merger and
acquisition in the Indian Banking Industry. Paper also discussed about international
merger and acquisition scenario and compares it with Indian. Authors have
explained the role of central bank with respect to customers’ rights and size of
international players. Paper has been concluded by giving the implications for the
nation with special emphasis on Indian Banking Industry.

Goyal & Joshi (2011) have focused on motives of M&A with reference to banking
industry, with the sample size of 17 mergers. Study has been conducted on the
basis of number of branches, geographical penetration in the market and benefits
from the merger. Aspects of Financial, Human Resource and Organizational
Behavior have also been analyzed in this paper. Analyses show that small and local
banks unable to bear global economy impact, which becomes the major reason of
merger.

Goyal & Joshi (2012) have studied the growth of ICICI Bank Ltd through merger,
acquisition and amalgamation. Article explained merger as a strategy of three
phases- Pre merger, Acquisition and Post merger. Authors have analyzed the
success of ICICI bank with all its 9 mergers with different banks and non-banks
institutions. Quantitative analysis has been done which comprises retail network;
economies of scale, technology banking etc. authors concluded that with the
creation of synergy merger also provide sustainable competitive advantage. But
due to merger severe problems arises for individual and company both.

S. Devarajappa (2012) studied the motives of merger in Indian Banking Industry.

Author has focused on the merger of HDFC and Centurion Bank of Punjab in the
year 2008. Comparison of financial performance between pre and post-merger has
been done with the help of parameters such as Gross Profit margin, Net profit
margin, and Operating profit margin, ROCE, ROE and Debt-Equity Ratio. T-test
has been used to analyze the statistical significance.

RESEARCH METHODOLOGY
1. Need For the Study
Since the early 1990s, the structure of the banking sector has significantly changed
due to the deregulation and liberalization, accompanied by divestment of public
sector banks, entry of foreign banks and merger of many banks in India and in the
world. In the post reform period about 25 bank mergers took place in India. These
mergers have important implication on the performance and profitability in the
banking system. Therefore from the point of view of both managerial and policy
interests, it is extremely important to know the impact of these merges on the
efficiency levels of banks and their temporal behavior so as to understand how the
banking industry has been reacting to these emerging challenges and which banks
are performing better than others in this period of transition.
 2. Objectives

 To study the reforms of Indian banking sector.

 To study the performance of the banks in the pre and post M & A
 To study the trends of M&A’s in Indian banking sector.
 to study on merger of SBI and its associates

3. Limitations of the Study

 The study ignores the impact of possible differences in the accounting
methods adopted by different companies.
 The factors which effect the M & A performance may not be same for all
companies.
 The cost of acquisition for mergers is not considered in the methodology.
 Analysis and Interpretation

Changes in Banking Scenario

Like all business entities, banks need to safeguard against risks, as well as
exploit obtainable opportunities indicated by existing and expected trends.
M&As in the banking sector are on the increase within the recent past, each
globally and in India. During this background of emerging world and Indian
trends within the banking sector, this article illuminates the key problems
encompassing M&As during this sector with the focus on India.

PSU banks mergers on the cards on the cards as government

mulls consolidation
 In a major move that is set to redefine Indian’s banking space, finance
minister Nirmala sitharaman announced the merger of 10 public sector
banks into four. The amalgamation scheme includes the merger of
 Allahabad bank with Indian bank
 Oriental bank of commerce(OBC) and united bank of India with Punjab
national bank (PNB)
 Syndicate bank with canara bank
 Corporation bank and Andhra bank with union bank of India

The government has announced capital infusion worth more than 55000core
into public sector banks. The table below shows the amount distributed
among the PSBs.

PSBs Capital infusion

United bank of India 1600 Crore
PNB 16000 Crore
Union bank of India 11700 Crore
Bank of Baroda 7000 Crore
Indian bank 2500 Crore
Indian overseas bank 3800 Crore
Central bank of India 3300 Crore
UCO bank 2100 Crore
Punjab and sind bank 750 Crore

Here are the List of PSU banks after merger 2020

Anchor bank Banks to be merged with Combined domestic

anchor bank branches
Punjab national bank Oriental bank of 11437
commerce + united bank
of India
Canara bank Syndicate bank 10342
Indian bank Allahabad bank -
Bank of Baroda Dena bank + vijaya bank 9490
Union bank of India Andhra bank + 9609
 corporation bank
State bank of India(SBI) State bank of Bikaner and 24000
Jaipur(SBBJ) +state bank
of Hyderabad (SBH) +
state bank of
Mysore(SBM) +state
bank of Patiala(SBP) +
state bank of Travancore
(SBT) +bhartiya mahila
bank

BOB, Dena bank and vijaya bank merged together on April 1,

2019

State run Bank of Baroda has now becomes India’s second largest public
sector bank after its merger with Dena and vijaya bank respectively. This is
the first three way merger of the banks in India making the combined
geographical reach of 9490 branches, 13400 ATMs with 85678 employees
serving 120 million customers.