A RESEARCH PROPOSAL ON

IMPACT OF PRE AND POST MERGERS IN

SELECTED PUBLIC AND PRIVATE SECTOR BANKS
IN INDIA: “A STUDY FROM FINANCIAL
PERSPECTIVE”

SUBMITTED TO

VEER NARMAD SOUTH GUJARAT UNIVERSITY

SURAT

FOR THE DEGREE OF

DOCTOR OF PHILOSOPHY
IN COMMERCE

BY DILSHAD JAL PATEL

MAY 2018
TABLE OF CONTENTS

1. INTRODUCTION

2. REVIEW OF LITERATURE

3. RESEARCH METHODOLOGY

1. RESEARCH PROBLEM

2. RESEARCH OBJECTIVES

4. HYPOTHESIS OF THE STUDY

5. TIME PERIOD OF STUDY

6. METHOD OF DATA COLLECTION

7. TOOLS OF DATA ANALYSIS

8. LIMITATIONS OF THE STUDY

9. SIGNIFICANCE OF THE STUDY

10. CHAPTER OUTLINE

11. BIBLOGRAPHY
IMPACT OF PRE AND POST MERGERS IN SELECTED PUBLIC AND
PRIVATE SECTOR BANKS IN INDIA: “A STUDY FROM FINANCIAL
PERSPECTIVE”
1. INTRODUCTION:

Banking is as old as our civilization. Banking sector plays a very significant role in the
economy of a country. It is central to a nation’s economy as it caters to the needs of credit for
all the sections of the society.

India is not only the world’s largest independent democracy, but also an emerging economic
giant. Without a sound and effective banking system, no country can have a healthy
economy. For the past few decades, India’s banking system has several outstanding
achievements to its credit.

Globally mergers and acquisitions have become a major way of corporate restructuring and
the financial services industry has also experienced merger waves leading to the emergence
of very large banks and financial institutions.

1.1 CORPORATE RESTRUCTURING:

Restructuring of business is an integral part of the new economic paradigm. As controls and
restrictions give way to competition and free trade, restructuring and reorganization become
essential. Restructuring usually involves major organizational change such as shift in
corporate strategies to meet increased competition or changed market conditions or for
growth.

This can be achieved either internally by expanding its operations, establishing new units or
externally through mergers and acquisitions (M&As), takeover, amalgamations, joint venture
etc. With the level of competition getting intense day by day, Mergers and Acquisitions have
emerged as the most preferred long term strategy of corporate restructuring and strengthening
in the present globalised world.

Companies are increasingly using mergers and acquisitions (M&A) mainly for
entering new markets, aiming asset growth, garnering greater market
share/additional manufacturing capacities, and gaining complementary strengths
and competencies, and to become more competitive in the market place.

1.2 MERGERS AND ACQUISITIONS IN INDIAN BANKING SECTOR:

Mergers and Acquisitions in Indian banking sector have been initiated in response to the
various economic reforms introduced by the government of India since 1991, in its move
towards liberalisation, privatisation and globalisation. On the recommendation of
Narasimham Committee I (1991), Narasimham committee II (1997) and Verma Committee
(1999) policy makers cautiously introduced various reforms in the Indian Banking Sector.
The main objective of these reforms was to improve the efficiency of the Indian banks and to
promote a diversified and competitive financial system.
Mergers in banks are considered for the purpose of:

1. Expansion/diversification.

2. Upgradation of technology.

3. Loss making bank merged with another healthy bank for revival.

4. Healthy bank merged with another healthy bank to become financially stronger, to meet
competitive pressures.

5. Growth in profits.

6. Increase market share, etc.

Because of its immense importance, the proposed research is going to explore mergers and
acquisitions in the Banking sector of India.

2. REVIEW OF LITERATURE:

Ahmed Badreldin and Christian Kalhoefer (2009) in their paper examined the
performance of Egyptian banks that have undergone mergers or acquisitions during the
period 2002-2007. A sample of 10 banks was selected out of which 4 had undergone
Domestic M&A and the remaining 6 had undergone Cross-Border M&A in the Egyptian
banking sector. An emphasis was on acquiring banks due to the unavailability of financial
information. For measuring the pre and post-merger financial performance of acquirer banks
ROE method was used. Further for extensive analysis, Schierenbeck’s Basic ROE Scheme
Diagram was applied. The study concluded that mergers and acquisitions have not had a clear
effect on the profitability of banks in the Egyptian banking sector. Only minor positive
effects on the credit risk position was found.

Onaolapo Adekunle Abdul-Ramon and Ajala Oladayo Ayorinde (2012) emphasised on

the effect of merger and acquisition on performance of seven Nigerian commercial banks
which were selected using convenience and judgmental sample selection methods. For
studying the performance a greater emphasis was given on gross earnings, profit after tax and
deposit profile as financial efficiency parameters. Secondary data were collected from
published annual report of selected banks and subsequently analysed applying regression
analysis. The study showed an enhanced financial performance leading to improved financial
efficiency post-merger. The researchers also suggested that banks should be more aggressive
in financial products marketing to increase financial efficiency for an improved financial
position and that every bank official should be a potential marketer and further emphasised
on Man power training and re-training.
Sony Kuriakose, M S Senam Raju and G S Gireesh Kumar (2012) in their study of ICICI
Bank- Bank of Rajasthan Merger discussed issues related to merger i.e. strategic similarities
of the merging entities for which Strategic Similarity Index is used to analyse the probable
impact of merger on the post-merger performance. Further, a factual analysis on short-term
price movements after the merger announcement and shareholding pattern changes has been
made. Moreover, analyses of adequacy of swap ratios using Contribution analysis and
Accretion/dilution analysis has been done. The findings of the study stated that the merger
has occurred due to the regulatory interventions of the authorities. It was observed that both
the banks were dissimilar in most of the key parameters and thus the acquiring firm (ICICI
Bank) has to focus more on intrinsic issue in the post-merger period to boost the performance
of the merged entity. Further, there were only slight movements in the prices of both the
banks during the merger-negotiation period and the swap ratio seemed to be fair.

Rajni Saluja, Sheetal Sharma and Dr. Roshan Lal (2012) have given insights on the
impact of merger of HDFC Bank with Centurion Bank of Punjab. The objective was to
analyse the impact of merger on the financial performance of HDFC Bank which was done
by using the model of financial analysis i.e. CAMEL Model. Secondary data was used for
this study which was collected from annual reports for the year 2007 to 2011. The study used
statistical tools like average, standard deviation, coefficient of variation etc. and concluded
that financial performance of HDFC Bank improved in post-merger period in almost all
parameters of CAMEL Model that is capital adequacy, asset quality, management capability,
earning quality and liquidity.

Komal Gupta (2015) analysed the effects of merger and acquisitions

on the financial performance of two mergers namely, ICICI bank and The Bank of Rajasthan,
and the merger of HDFC bank and Centurion Bank of Punjab. Secondary data was used in
this study and the researcher has used ex-post methodology to analyse the impact of mergers
on banks. Further various financial ratios like net profit margin, return on assets, net interest
margin, capital adequacy ratio, CASA, cost to income, total income/capital employed, return
on equity and credit deposit ratio has been used to test the research hypothesis. The findings
of the study indicated that there was a positive impact of mergers and acquisitions on the
financial performance of the selected banks.

Dr. M. Ravichandran and P. Pandeeswari (2016) have studied the merger of Centurion
bank of Punjab with HDFC Bank and have concentrated on the financial performance and
profitability of the banks after their merger. Financial Performance variables like Earnings
per Share, Total Capital ratio, Return on Average Net worth, Dividend Pay-out ratio, Tier 1
Capital ratio, Dividend Per Share, Price to Earnings ratio Book Value Per Share, Market
Price Per Share were used. Further to examine the difference in financial ratios standard
deviation and t-values were used. The researchers concluded that the study showed an
increase in the financial performance post-merger and hence merger was successful for both
banks.

Banking sector holds a pivotal role in Indian economy. Time and again there have been
several studies on merger and acquisition in banking sector but hardly there have been studies
that cover the recent trends of mergers and acquisitions in Indian banking sector. This study
humbly aims to fill this research gap.

3. RESEARCH METHODOLOGY:

3.1 RESEARCH PROBLEM:

During the post reform period India has witnessed rapid economic growth which led to
revitalising of Indian banking sector and since then banking sector has seen robust growth.
Many studies were undertaken on mergers and acquisitions in banking sector like Ahmed
Badreldin and Christian Kalhoefer (2009), Onaolapo Adekunle Abdul-Ramon and Ajala
Oladayo Ayorinde (2012), Sony Kuriakose, M S Senam Raju and G S Gireesh Kumar (2012),
Rajni Saluja, Sheetal Sharma and Dr. Roshan Lal (2012), Komal Gupta (2015), Dr. M.
Ravichandran and P. Pandeeswari (2016) etc.

Many empirical studies on merger and acquisition in banking sector were also undertaken
which explored and focused on several facets but hardly there have been studies that takes
into consideration recent trends of merger and acquisition in Indian banking sector.
Accordingly this study has been titled as -

Impact of Pre and Post Mergers in Selected Public and Private Sector Banks in India: “A
Study from Financial Perspective”

3.2 RESEARCH OBJECTIVES:

The study is proposed to be done keeping in view the following objectives:

1. To study the motives of Mergers and Acquisitions of Indian Banking Sector.

2. To analyse the pre and post-merger performance of banks who underwent M&A deal
during the period from 2008 to 2020.
3. To identify the reaction of security prices to announcement of Mergers and
Acquisitions of selected banks.

4. HYPOTHESIS OF THE STUDY:

H10: There is no significant difference in the performance of merged banks before and after
merger.

H20: There is no significant impact on security prices of banks before and after merger.
5. TIME PERIOD OF STUDY:

This study pertains to pre and post analysis of bank mergers in India that had taken place
during 2008 to 2020 which includes mergers of Centurion Bank of Punjab with HDFC Bank
in 2008, State Bank of Indore with SBI in 2010, Bank of Rajasthan with ICICI Bank in 2010,
ING Vysya Bank with Kotak Mahindra Bank in 2014, State Bank of Mysore with SBI in
2017, State Bank of Travancore with SBI in 2017, State Bank of Bikaner and Jaipur with SBI
in 2017.

6. METHOD OF DATA COLLECTION:

For the study, the data will be collected from books, journals, magazines, published articles,
papers, websites of RBI, prowess database of Centre for Monitoring Indian Economy (CMIE)
and other search engines, annual reports of the banks, etc. Hence all the above data are
secondary in nature. Hence the study is mainly done through secondary data.

7. TOOLS OF DATA ANALYSIS:

The researcher intends to use various statistical tools like correlation, regression, t-test,
ANOVA test. Further for analysing data collected from secondary research the researcher
desires to use SPSS.

8. LIMITATIONS OF THE STUDY:

1. This study has been conducted in the banking sector and therefore the findings cannot
be compared and generalized for other industrial sectors.
2. As the data collected are secondary in nature all the limitations of secondary data may
also be acknowledged.
3. The study involves study of banks for three years pre and three year post-merger only.
4. Variables such as business environment, macro-economic factors, technology
integration challenges and human resource issues that affect the operations of banks
and that which could affect the outcome of a merger are not taken into consideration.

9. SIGNIFICANCE OF THE STUDY:

This study is an empirical contribution to the expanding literature on mergers and

acquisitions in Indian Banking Sector. Moreover, as the research examines the financial
performance of the study units it will be useful to various stakeholders.
10. CHAPTER OUTLINE:

The study will be divided into seven chapters as under:

Chapter one includes introduction and overview of the banking sector.

Chapter two sketches the theoretical framework of mergers and acquisitions, Indian Banking
Sector and mergers and acquisitions in Indian Banking Sector.

Chapter three will give insight on profile of the banks.

Chapter four will give indebt knowledge of the review of literature.

Chapter five focuses on the research methodology.

Chapter six will derive the findings of the study.

Chapter seven shall summate the whole study and necessary suggestions shall be made by the
researcher based on the conclusions.

Finally, a Bibliography on the subject of research will be provided.

11. BIBLIOGRAPHY:

11.1 BOOKS AND REFERENCES:

1. M Jayadev and Rudra Sen Sarma (2012) Mergers in Indian Banking: An Analysis
https://www.researchgate.net/publication/253677252_Mergers_in_Indian_Banking_A
n_Analysis
2. Ms. Mani Arora & Mr. Anil Kumar (2012) A Study on Mergers and Acquisitions – Its
impact on Management and Employees, RJEBS: Volume: 01, Number: 05, March-
2012 www.theinternationaljournal.org
3. Komal Gupta (2015) MERGERS AND ACQUISITIONS IN THE INDIAN
BANKING SECTOR: A STUDY OF SELECTED BANKS, International Journal of
Advanced Research in Management and Social Sciences Vol. 4 | No. 3 | March 2015
www.garph.co.uk
4. K.Kalaichelvan (2011), EFFICACY OF MERGER AND ACQUISITION IN
INDIAN BANKING INDUSTRY (A study with reference to select Merged Banks in
India)
5. Sony Kuriakose, M S Senam Raju and G S Gireesh Kumar (2012) ICICI Bank- Bank
of Rajasthan Merger: An analysis of strategic Features and Valuation International
Journal of Marketing, Financial Services and Management Research, July-September
2012 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2114332
6. Badreldin, Ahmed and Kalhoefer, Christian (2009), “The Effect of Mergers and
Acquisitions on Bank Performance in Egypt”, Working Paper Series no. 18, Retrieved
from http://mgt.guc.edu.eg/wpapers/018badreldin_kalhoefer2009.pdf
 7. Ramon, A.A., Onaolapo and Ajala, O. Ayorinde (2012), "Effects of Merger and
Acquisition on the Performance of Selected Commercial Banks in Nigeria”,
International Journal of Business and Social Research, 2(7) 148-157, Retrieved from
https://thejournalofbusiness.org/index.php/site/article/viewFile/127/126
8. Dr.M.Ravichandran and P.Pandeeswari (2016) A Study on Impact of Merger on
Financial Performance of Selected Banks, IJIRST –International Journal for
Innovative Research in Science & Technology| Volume 2 | Issue 11 |page 76-79 April
2016 ISSN (online): 2349-6010 www.ijirst.org

11.2 WEBSITES:

http://www.essay.uk.com/essays/finance/the-indian-banking-system/

http://www.sbank.in/2013/02/role-of-banks-in-indian-economy.html

http://www.sbank.in/2013/02/role-of-banks-in-indian-economy.html