Synergic Advantages of Mergers & Acquisitions - A Case Study on Private Sector Banks in India
In the banking context, over a period of time consolidation and merger have become the need of the hour due to various developments in the financial system in general and in banking sector in particular. In view of various synergies and advantages of mergers and acquisitions, banks and the policy makers are in favor of consolidations of banks in India. However, there is a flip side of the Indian banking system in terms of competitive advantage to meet global standards and to shoulder the greater responsibility of larger expansion of business. Apparently, the Indian banking is highly skewed in terms of the size of banks and as nearly 50% market share is occupied by major five public sector banks. The consolidation of banks has always been a focused issue in the banking industry in the past and it has geared spark again with change in government in the year, 2014. There is a proposal for consolidation of entire public sector banks to emerge into few bigger banks in terms of size, operational strength, capital adequacy and efficiencies. The implementation of Basel- III norm has further given impetus to this concept. Increased capital requirements and increased level of non-performing assets are also crucial factors to support this move. Narshimam Committee set up in 1998 also recommended voluntary merger of Indian banks. The private sector banks have been pioneered in the process of mergers and acquisitions and there have been several instances for banks mergers in the recent past. However, these mergers have remained market driven.
In the changing context and economic scenario, the mergers and acquisitions in the banking industry have become more crucial as it not only brings efficiency to the banking industry but also economies of scale and scope which make the banking system more vibrant and strong.....................
Significance of Synergies in Banking Mergers
Synergies play a very significant role in all kinds of mergers and acquisitions, irrespective of sector and industry. Due to the globalization of financial markets, M&A present huge investment opportunities. ‘Synergies are the present value of the net additional cash flow that is generated by a combination of two Banks that could not have been generated by either bank on its own’ virtually it’s an art and science of making merger 2+2=5 effect brought out by synergy (Bill Pursche)..........
Voluntary Mergers of Private Sector Banks
For the purpose of this case study, examples of two private sector banks have been taken (Exhibit I):..........
Bank of Rajasthan before the Merger (Merging Entity)
Bank of Rajasthan (BOR) was set up in Udaipur in 1943 and its Central Office located in Jaipur. It was one of the very old private sector banks. BOR had a market capitalization of INR1,600 crore at a much lower level as compared to ICICI Bank’s capitalization of INR99,000 crore.............
Performance of ICICI Bank
Ho: there is no difference between pre-merger and post-merger performance of bank
Ha: there is difference between pre-merger and post-merger performance of bank
......................
To test the above hypothesis, the trend analysis was undertaken on various financial performance parameters for the past 9 years. From the analysis..........
Centurion Bank of Punjab before the Merger
Merging entity: Centurion Bank of Punjab is one of the leading new generation private sector banks in India. In 2005, Centurion Bank and Bank of Punjab agreed to a merger and the combined bank took as its name Centurion Bank of Punjab. Bank of Punjab had been founded in 1995. Further, in 2006 CBOP acquired Lord Krishna Bank. Centurion Bank of Punjab operates on a strong nationwide franchise of 394 branches and 452 ATMs in 180 locations across the country and apart from Indian stock exchange CBOP also listed on the Luxembourg Stock Exchange. As a combined entity...............
Performance of HDFC Bank
Ho: there is no difference between per merger and post-merger performance of bank
Ha: there is difference between pre-merger and post-merger performance of bank
To prove the hypothesis the hypothesis was tested first after which the trend analysis was performed on financial performance of past 9 years to observe significant points about the change in health of bank. And also to analyse.............
Case: Bank of Rajasthan Ltd., Merged with ICICI Bank
The amalgamation of the Transferor Bank with the Transferee Bank was in accordance with the provisions of the Scheme formulated pursuant to Section 44A of the Banking Regulation Act, 1949, Reserve Bank of India’s guidelines for merger/amalgamation of private sector banks dated May 11th 2005, and in accordance with the..........
Case: Centurion Bank of Punjab (CBOP) Merger with HDFC Bank
The Reserve Bank of India has sanctioned the Scheme of Amalgamation of Centurion Bank of Punjab Ltd. with HDFC Bank Ltd. The Scheme has been sanctioned in exercise of the powers contained in Sub-section (4) of Section 44A of the Banking Regulation Act, 1949. The Scheme will come into force with effect from May 23rd 2008. All the branches of..........
Exhibits
Exhibit I: Details of the Two Private Sector Banks
Exhibit II: Mergers by ICICI Bank Ltd. in India
Exhibit III: ICICI Bank Profile
Exhibit IV: t-Test: Paired Two Sample for Means
Exhibit V: HDFC Bank Profile
Exhibit VI: t-Test: Paired Two Sample for Means