29-05-2014, 11:47 AM
Merger and Acquisitions (M&As) in the Indian Banking Sector in Post Liberalization Regime
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ABSTRACT
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.
INTRODUCTION
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.
RESEARCH GAP
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 in post
liberalization regime. 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 and focusing mainly of Indian banking sector.
Methodology
To test the research prediction, methodology of comparing the pre and post performances of
banks after Merger and Acquisitions(M&As) has been adopted, by using following financial
parameters such as Gross profit margin, Net profit margin, Operating profit margin, Return on
capital employed, Return on equity, and Debt equity ratio. Researcher has taken two cases of
Merger and Acquisitions (M&As) randomly as sample, one from public sector bank and the other
from private sector bank in order to evaluate the impact of M&As. The pre merger (3years prior)
and post merger (after 3 years) of the financial ratios are being compared. The observation of
each case in the sample is considered as an independent variable. Before merger two different
banks carried out operating business activities in the market and after the merger the bidder bank
carrying business of both the banks. Keeping in view the purpose & objectives of the study
independent t- test is being employed under this study. The year of merger was considered as a
base year and denoted as 0 and it is excluded from the evaluation. For the pre (3 years before)
merger the combined ratios of both banks are considered and for the post merger (after 3 years)
the ratios of acquiring bank were used.
ANALYSIS AND INTERPRETATIONS
In Table 2, researcher selected two cases for study, first the merger of the PNB and the
Nedungadi bank on 1 Feb, 2003 second the merger of the CBOP and the HDFC bank Ltd. on 23
May, 2008 and analyzed both the cases as considered one public and other from private sector
bank. In order to analyze the financial performance of banks after Merger and Acquisitions
(M&As). The financial and accounting ratio like Gross profit margin, Net profit margin,
Operating profit margin, Return on capital employed, Return on equity, and Debt equity ratio
have been calculated. In the first case, Table 3 indicated the profile of both banks before merger.
Table 4, shows the post performance of bidder bank after merger. Table 5, shows the combined
performance of both banks prior to merger. Similarly, in second case, Table 6 depicts the profile
of both the banks before merger, Table 7 indicates the performance of acquiring bank after
merger and Table 8 shows combined financial performance of both the banks before merger. In
both the cases all financial and accounting ratios have computed by the researcher’s.
CONCLUSION AND FUTURE DIMENSIONS
Merger and Acquisition is the useful tool for growth and expansion in the Indian banking sector.
It is helpful for survival of weak banks by merging into larger bank. This study shows the impact
of M&As in the Indian banking sector and researcher took two cases for the study as sample and
examine that merger led to a profitable situation or not. For this a comparison between pre and
post merger performance in terms of gross profit margin, net profit margin, operating profit
margin, return on capital employed, return on equity, and debt equity ratio.