Merger of Banking Sector

Topics: Banks of India, Financial ratios, Bank Pages: 23 (7637 words) Published: December 28, 2012
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The purpose of this paper is to explore various motivations of Merger and Acquisitions in the Indian banking sector. This includes the various aspects of banking Industry’s Merger and Acquisitions. It also compares pre and post merger financial performance of merged banks with the help of financial parameters like Gross-Profit Margin, Net- Profit Margin, Operating Profit Margin, Return on Capital Employed (ROCE), Return on Equity (ROE) and Debt-Equity Ratio. Through literature review it comes to know that most of the work done high lightened the impact of Merger and Acquisitions on different aspects of the companies. The data of Merger and Acquisitions since economic liberalization are collected for a set of various financial parameters. This study also examines the changes occurring in the acquiring firms on the basis of financial ground and also the overall impact of Merger and acquisitions (M&As) on acquiring banks. The Researcher used independent t-test for testing the statistical significance and this test is applied not only for the ratio analysis but also to test the effect of Merger and Acquisitions on the performance of banks. This performance is being tested on the basis of two grounds i.e. Pre merger and Post merger. The result of the study indicates that the banks have been positively affected by the event of Merger and acquisitions (M&As). These results suggest that merged banks can obtain efficiency and gains through Merger and Acquisitions (M&As) and passes the benefits to the equity share holders’ in the form of dividend. Keywords: Merger & Acquisitions, Banking, Financial parameters, Profitability, Indian Banks.

In the globalized economy, Merger and Acquisitions (M&As) acts as an important tool for the growth and expansion of the economy. The main motive behind the Merger and acquisitions (M&As) is to create synergy, that is one plus one is more than two and this rationale beguiles the companies for merger at the tough times. Merger and Acquisitions (M&As) help the companies in getting the benefits of greater market share and cost efficiency. Companies are confronted with the facts that the only big players can survive as there is a cut throat competition in the market and the success of the merger depends on how well the two companies integrate themselves in carrying out day to day operations.

Copyright © 2011. Academy of Knowledge Process

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One size does not fit for all, therefore many companies finds the best way to go ahead like to expand ownership precincts through Merger and acquisitions (M&As). Merger creates synergy and economies of scale. For expanding the operations and cutting costs, Business entrepreneur and Banking Sector are using Merger and Acquisitions world wide as a strategy for achieving larger size, increased market share, faster growth, and synergy for becoming more competitive through economies of scale. A merger is a combination of two or more companies into one company or it may be in the form of one or more companies being merged into existing companies or a new company may be formed to merge two or more existing companies. On the other hand, when one company takes over another company and clearly well-known itself as the new owner, this is called Acquisition. The companies must follow legal procedure of Merger and Acquisitions (M&As) which has given by RBI, SEBI, Companies’ Act 1956 and Banking Regulation Act 1949. Growth is always the priority of all companies and confers...
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