A STUDY ON MERGER AND ACQUISITION OF INDIAN BANKING SECTOR-STRATEGIC AND FINANCIAL IMPLICATIONS

Submitted to Lovely Professional University

Submitted by: Maneesh Ranjan 3440070090 RQ1705A20 Abhishek Verma 3440070066 RQ1705A16 Neha Sharma 3440070013 RQ1705A06 Rahul Verma 3440070003 RQ1705A04

Supervisor: Mrs. Neha Tikoo Lecturer

DEPARTMENT OF MANAGEMENT LOVELY PROFESSIONAL UNIVERSITY PHAGWARA

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TO WHOMSOEVER IT MAY CONCERN This is to certify that the Synopsis titled A STUDY ON MERGER AND ACQUISITION OF INDIAN BANKING SECTOR-STRATEGIC AND FINANCIAL IMPLICATIONS carried out by Mr.Maneesh Ranjan, S/o Dr. Asit Ranjan has been accomplished under my guidance & supervision as a duly registered MBA student of the Lovely Professional University, Phagwara. His Synopsis represents his original work and is worthy of consideration for making a research project in the next term.

___________________________________ (Name & Signature of the Faculty Advisor) Date:

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DECLARATION

I, "Maneesh Ranjan hereby declare that the work presented herein is genuine work done originally by me and has not been published or submitted elsewhere for the requirement of a degree program. Any literature, data or works done by others and cited within this synopsis has been given due acknowledgement and listed in the reference section.

_______________________ (Students name & Signature) Date:__________________

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CONTENTS

1. CHAPTER 1 1.1 INTRODUCTION TO MERGER ACQUSITIONS 1.2 THE BRIEF OVERVIEW OF INDIAN BANKING SECTOR 1.3 BANKING SECTOR DEVELOPMENT IN INDIA 2. CHAPTER 2 2.1 REVIEW OF LITERTURE 3. CHAPTER3 3.1 BANK MERGER DETAILS 3.2 ICICI BANK MERGER WITH BOR 3.3 ICICI BANK MERGER WITH BANK OF MADURA 3.4 HDFC AND CENTURION BANK MERGER

page

6-9

page 7 page 7 page 9 page 10-13

page 14-17 page 14 page 15 page 15 page 16

3.5 ORIENTAL BANK OF COMMERCE MERGED WITH GLOBAL TRUST BANK page 16 3.6 BANK OF BARODA MERGER WITH SOUTH GUJRAT LOCAL AREA BANK page 17 4. CHAPTER 4 4.1 RESEARCH DESIGN 4.2 RESEARCH OBJECTIVES 4.3 RESEARCH HYPOTHESIS 4.4 RESEARCH METHODOLOGY 4.5 RESEARCH DATA COLLECTION 4.6 TOOL USED 5. CHAPTER 5 5.1 RESEARCH DATA ANALYSIS 5.2 ANALYSIS OF FINANCIAL PERFORMANCE 5.3 TEST AND ANALYSIS 6. CHAPTER 6 6.1 TEST STATISTICS 6.2 T- TEST ANALYSIS page 19-20 page 19 page 19 page 19 page 20 page 20 page 20 page 22-26 page 23 page 23 page 24-26 page 27-35 page 28 page 30

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7. LIMITAION OF STUDY 8. CONCLUSION 9. REFERENCES 10. BIBLIOGRAPHY 11. APPENDIX

page 35 page 42 page 44 page 46

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CHAPTER 1

INTRODUCTION TO MERGERS AND ACQUISITION

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Merger is defined as the process in which one company acquires the assets as well as the liabilities of the second company. The first one is survivor here while the the second one is the looser who loses his corporate existence. Generally, the surviving company is the buyer, which retains its identity, and the extinguished company is the seller. In India, mergers are called as amalgamations. The acquiring company also called as the amalgamated company or the merged company acquires the assets and liabilities of the target company. The shareholders of the existing company get the shares of newly amalgamated company.

WHAT IS ACQUISITION? Acquisition in general sense is acquiring the ownership in the property. In the context of business combinations, an acquisition is the purchase by one company of a controlling interest in the share capital of another existing company. When an acquisition is forced or unwilling act, then it is called take over. A merger involves a marriage of two or more banks. It is generally accepted that mergers promote synergies. The basic idea is that the combined will create more value than the individual banks operating independently. Economist refers to the phenomenon of the 2+2=5 effect brought about by synergy.

THE BRIEF OVERVIEW OF INDIAN BANKING SECTOR In India, the Reserve Bank of India is considered to be the central bank of the country. RBI regulates the operations of other banks and helps in managing the money supply of the economy. The Indian banking system consists of two types of banks which are commercial banks and Co-operative banks. Commercial banks play dominant role in the growth of Indian economy and accounts for more than 90 percent of the total assets of the banking sector. Commercial banks are classified into two categories namely Scheduled Commercial Banks and Nonscheduled Commercial Banks... Based on the pattern of ownership, scheduled commercial banks can also be classified into three broad categories.

(1) Public Sector Banks which include (a) State Bank of India and its associates (b) Nationalized Banks

(2) Private Sector Banks comprise

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(a) Indian private banks and (b) Foreign Banks

(3) Regional Rural Banks

Indian Banking Sectors had started witnessing three major reforms which played a key role in reforming the present situation of the Indian Banking system these reforms were Narishmam Committee I (1991), Narishmam Committee II (1997) and Verma Committee (1999).Environment in which Indian Banking sectors were operated witnessed a remarkable change due to these reforms. The objectives of these reforms were to improve the current conditions of Indian Banking system and to make them enhance their efficiency and promote a diversified and competitive financial sytem.Thus the outcomes of these reforms were to consolidate the Indian banking sectors through merger and acquisition. Technological progress and financial deregulation have played an important role in accelerating the process of merger and acquisition in Indian banking industry. This technological advancement had led to increase productivity and performance as a result the overall profit maximization was there. Size and scale of production was increased to a distinct level. Due to these reasons Indian banks became capable of facing globalization and thus can generate capital from foreign also.

Mergers and acquisitions in Indian banking sector have initiated through the recommendations of Narasimham committee. The committee recommended that merger between banks and Development Financial Institutions (DFI's) and Non Banking Financial Corporation's (NBFCs) no to seen as a mean of bailing out weak banks. The committees also stressed, that the combined value of new bank will be greater, than the combined value of merged banks, and have a "forced multiplier effect."

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BANKING SECTOR DEVELOPMENTS IN INDIA In todays competitive scenario, if we will see we can find out that banking sector in India is currently passing through an exciting and challenging phase. The reform measures that were initiated by policy makers have brought about sweeping changes in this vital sector of the country's economy. They studied the trends in important banking indicators for the 25-year period from 1980 to 2005. It is well understood fact that the banking system is central to a nations economy. Banks perform various special functions as they not only accept and deploy large amounts of uncollateralized public funds in a fiduciary capacity, but also leverage such funds through credit creation. In India, prior to nationalization, banking was restricted mainly to the urban areas and neglected in the rural and semi-urban areas.

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CHAPTER 2

REVIEW OF LITERATURE

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The pace of bank mergers and acquisitions is increasing all over the world and it has given rise to an extensive economic research. Today, there is quite an abundance literature available on the subject of bank mergers. In literature, there has been number of studies conducted on the impact of mergers on the efficiency of banks. There is voluminous literature on mergers and acquisitions in developed economies like US but there is dearth of literature in developing economies like India and other Asian countries. The literature suggests that there is mixed empirical evidence regarding the impact of mergers and acquisitions on the efficiency and performance of banks.

Pardeep KAUR, Gian KAUR studied the cost efficiency of Indian commercial banks by using a nonparametric Data Envelopment Analysis Technique. They also studied the impact of mergers and there implications on the cost efficiency of those banks that have gone through the process of merger during post liberalization period. The findings of their study also suggest that the cost efficiency of Indian public sector banks were 73.4 % and for private sector banks were 76.3 %. Their findings also suggested that to some extent merger programmed has been successful in Indian banking sector. It was suggested that the Government and Policy makers should not promote merger between strong and distressed banks as a way to promote the interest of the depositors of distressed banks, as it will have adverse effect upon the asset quality of the stronger banks.

Dr. K.A. Goyal & Vijay Joshi They basically explained what were the benefits of merger and acquisition to the Indian banking system. They studied the merger of 17 banks in India. After analysis they found following benefits of merger to all the participants Sick banks were found to get survived after merger. Merger and acquisition had enhanced branch network geographically. Merger and acquisition had led to development of larger customer base (rural reach). Increased market share. Attainment of infrastructure was greatly increased.

Dr Rohan Rai suggested that after the removal of entry barriers and a number of banking-sector reforms have palyed an important role in making the entire banking activity to start hovering around the longawaited customer-centric approach. A large number of new economy private sector banks came into existence because of these reforms in Indian banking system . Although being small in size they had

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great enthusiasm and zeal to achieve inorganic growth to throw real challenge to monstrous public sector banks. Small is of course beautiful but being big makes one powerful.

Srinivasan R ,Gourav Chattopadhyay, Arvind Sharma suggested that like all business entities , banks want safeguard against risks as well as exploit available opportunities indicated by existing and expected trends. Deregulation has been the main driver, through three major routes - dismantling of interest rate controls, removal of barriers between banks and other financial intermediaries, and lowering of entry barriers. This article looks at some M&As that have happened post-2000 in India to understand the intent (of the targets and the acquirers), resulting synergies (both operational and financial), modalities of the deal, congruence of the process with the vision and goals of the involved banks, and the long term implications of the merger.They explained the benefits and drawbacks of some key M&A deals 2000 onwards.

A. Vasudevan suggested that there is little empirical literature on the impact of mergers in banking in India, but what there is supports the view that banks significantly improve their profit and operational efficiencies following consolidation, that has happened both for reasons of financial strength and efficiency. A. Vasudevan surveys the merger scene in the banking sector.

K. Ravichandran, Fauzias Mat-Nor, Rasidah Mohd-Said suggested that the banking sector of India is considered as a booming sector and the soundness of the banking system has been vital for the development of the countrys economy. The financial performance suggests that the banks are becoming more focused on their retail activities (intermediation) and the main reasons for their merger is to scale up their operations. A comprehensive study is undertaken to investigate the performance of those banks three years before the merger took place and three years after the completion of the said merger. Also the profitability of the firm is significantly affected giving a negative impact on the returns.They showed that they have adopted CRAMEL (Capital Adequacy, Resources Raising Ability, Asset Quality, Management Quality, Earnings Quality, Liquidity) model to assess efficiency and performance of the Indian banking institutions.

Jay Mehta, Ram Kumar Kakani suggested the motives of merger and acquisition of Indian banking sector.India is moving slowly from large number of small banks to small number of large

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banks.They also compared the International merger and acquisition with Indian scene.They studied the significant role of the state and the central bank in protecting customers interests vis--vis creating players of International size. It is observed that the banking industry is moving from traditional savingscum-lending functions to other services as well such as Bank-assurance and securities trading. They provided the holistic approach to compare the rationale behind M&A in India and the international arena.

Dr.Murthy Pamarty Merger and acquisition of Indian banking has occupied an important place amongst the personnel and policy-makers of banking system in recent years, as a sequel to economic reforms to bring in equilibrium sand stability in the banking industry. The financial and strategic management aspect of merger is to be analyzed from several angles and the study evaluated financial implications before and after mergers in the banking industry. Banking is the most important component of the Indian financial system. Merger taking place in India are in line with the trend of consolidation that has characterized the financial services industry and, in particular, the banking industry. Hence the desire to grow quickly through mergers rather than through the slow and tortuous path of normal expansion in business. Their study evaluated financial implications before and after mergers in the banking industry. The first part of their study evaluates the implications of Mergers and Acquisitions from the financial point of view. The second part of their study investigates the adjustments of stock prices to the announcement of mergers/ acquisitions.They explained that there are vairiety of reason to induce merger proposals. Some of them are Synergy, Tax considerations, Economies of scale in operations, Diversification.

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CHAPTER 3

BANK MERGER DETAILS

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ICICI BANK MERGER WITH BOR

IDFC(INDIA RESEARCH)INSTITUTIONAL SECURITIES -ICICI bank has entered into an agreement with the shareholders of BoR to share the swap ratio of 25:118(25 shares of ICICI bank for 118 shares of BoR), subject to necessary regulatory approvals. Tayal group had larger stake in BoR approximately 28% but according to SEBI Tayal hold 55% stake in the bank.Because of this BoR has run into regulatory trouble as SEBI had banned promoters and other entities of the Tayal family from dealing in securities market on account of in correct disclosure of the promoters holdings in the banks.A fine of 2.5mn was also levied on bank for allegedly violating various other norms pertaining to transactions and misrepresentation of various documents. ICICI bank has announced swap ratio of 1:4.72 for certain shareholders of the bank. It is expected that the merger would be value creative for ICICI bank in the medium term.With respect to the balance sheet BoR is significantly smaller than ICICI bank so there is very less impact on asset profile of ICICI bank. On the contrary to it BoR branch network of 463 branch stands at 25% of ICICI banks current network. Access to this large branch network would readily benefit ICICI bank. There was an immense scope for productivity improvement with limited investments.

ICICI BANK MERGER WITH BANK OF MADURA

KARVY RESEARCH- The proposed merger of ICICI bank with bank of Madura is a remarkable one. The pre market capitalization of ICICI bank was roughly Rs2500 crore while bank of Madura was roughly Rs 100 crore . Bank of Madura has poor asset portfolio. The scheme af amalgamation will increase the equity bank of ICICI bank to Rs 220.36cr. ICICI bank had issued 235.4lakh share of Rs 10 each to the shareholder of BOM.The merged entity will have an increase of net base over of Rs160bn and deposit base of Rs 131bn.The mergerd entity will have 360 branches and a similar number of ATMsacross the country and also enable the ICICI to serve a large customer bone of 1. 2 million customers of BOM through a wider network.

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BOM is strong in south Indian states and ICICI is very strong in Central and North Indian states and this would give a complacent advantage to both the banks.

HDFC AND CENTURION BANK MERGER

HDFC and centurion bank of Punjab merged at share swap ratio of 1:29 this means 1 share of HDFC for 29 shares of centurion bank of Punjab. The combimed entity would have nation wide network of 1,148 branches a strong deposit base of around Rs 1,200 million and net advances of around Rs 850 billion. The balanced sheet size of combined entity would be over Rs 1,500 billion. HDFC bank and centurion bank of Punjab have agreed to the biggest merger in Indian bank history valued at about $2.4 billion. It is likely the beginning of wave of M&A deals in the financial service industries.

ORIENTAL BANK OF COMMERCE MERGED WITH GLOBAL TRUST BANK

SILICON INDIA NEWS- Global Trust Bank has ltd has been amalgamated with the Oriental Bank Of Commerce. The merger took place on 14th of August 2004.After the amalgamation the depositors as well as other customers of Global Trust Bank Ltd function as the customers of Oriental Bank Of Commerce . Global trust Bank faced a severe crisis during three years before its amalgamation due to involvement in Ketan Parekh Scam.A sudden decision of RBI and Government of India to place GTB under moratorium caught more than 8.5 lakh customers of the bank unware and shoked.The moratorium is aimed at freezing the assets and liabilities of bank inorder to protect the banks health from further deterioration. Taking into account the interest of the millions of depositors of GTB as well as the banks strengths and weaknesses, the RBI prepared following draft scheme of amalgamation of GTB with OBC. With this amalgamation OBC acquired additional 104 branches, 275 ATMs, and workforce of over 1400 employees. GTBs shareholder would not get OBCs shares.Other benefits were tax benefits. The face value of GTB shares has decreased from Rs 10 to Rs 1.Willing to pay a 6:1 swap value. On the other hand GTB depositors enjoyed a lot of benefits. The interest of shareholders of GTB were safeguarded.

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BANK OF BARODA MERGER WITH SOUTH GUJRAT LOCAL AREA BANK

Business Standard -SGLAB established on October 10, 2000 has seven branches and 76 employees. The bank failed to maintain Cash reserve ratio(CRR) and statutory liquid ratio(SLR) requirements and had losses of Rs 3.69 crore.One of tye promoters of bank was also accused of Rs 44 crore Suryapur Cooperative bank scam. This made the situation of the bank even more worse. Thus inorder to protect the interest of the local area banks depositors it was decided by the cabinet to merger it with Bank of Baroda.All assets and liabilities of SGLAB would be transferred to the Bank of Baroda as per the merger formula.The employees of SGLAB will also be absorbed in Bank of Baroda.

NEED OF STUDY It is observed in literature that most of the work done on mergers and acquisition is based on financial & accounting aspect like performance of banking institutions. The fastest way to mergers, acquisitions, takeover etc, is the combination of firms. Indian government consistently has put forward planned efforts to achieve higher economic growth. Mergers generate gains by improving resource allocation rather than by reducing tax payments of increasing the market power of the combined firm. While Income Tax Act 1961carries some incentives to the merged firms, Indian Companies 1956 provides the procedure for amalgamation. Merger taking place in India are in line with the trend of consolidation that has characterized the financial services industry and, in particular, the banking industry.

SCOPE OF STUDY Efforts have been made to measure the impact of banks merger and acquisition. A sample of banks who have undergone the process of merger and acquisition in last ten years have been taken.The implications of merger and acquisition on the financial performace of the entities is studied here.The second part of the study basically deals with the factors that have influenced the merger and acquisition of banks. CHAPTER 4 RESEARCH DESIGN

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RESEARCH OBJECTIVES:

1. To study the impact of Merger and Acquisition on the performance of selected banks between pre and post-merger periods. 2. To study the factors influencing M&A of banks in Indian banking scenario.

RESEARCH HYPOTHESIS: Null Hypothesis: There is no significant improvement on the performance of acquiring banks after the M&A . Alternative Hypothesis: M&A in the post reform period have improved the performance of acquiring banks Research Instruments: Spss used for analyzing and empirical testing of hypothesis

RESERCH METHODOLOGY :

Research methodology is basically for analyzing the primary and secondary data using research instruments. Research methodology is a way to systematically solve the problem. It may be understood has a science of studying how research is done scientifically. In it we study the various steps that all generally adopted by a researcher in studying his research problem along with the logic behind them. The scope of research methodology is wider than that of research method.

RESEARCH DESIGN: Sample Size: There are approximately 5 major banks that have underwent mergers during the study period from 2000 onwards. . 1. ICICI Bank Ltd. Acquires Bank of Madura (March '01) 2. Bank of Baroda Acquires South Gujarat Local Area Bank Ltd (June '04)

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3. Oriental Bank of Commerce Acquires Global Trust Bank Ltd (August '04) 4. HDFC bank acquires Centurian bank of Punjab ( may08) 5. ICICI Bank Acquires Bank of Rajasthan ( May'10) Research Data Collection: Secondary Data Collection.

SOURCES OF DATA The required data on financial performance before and after merger will be collected for the three year period and they will be obtained from CMIE-PROWESS,business beacon, www.bseindia.com, www.capitaline.com, www.moneycontrol.com, www.valueresearchonline.com and www.rediffmoney.com. The data has also been collected from books, journals, magazines.

TOOLS USED Like Event Studies, where we compare stock prices of the firms a certain days before and after the mergers. Second way is T-test: Paired two samples for mean which we are going to use in this paper. We are selecting this test because so far we have studied this test and the data that will be required for this test is available with me. What it does: The Paired Samples T Test compares the means of two variables. It computes the difference between the two variables for each case, and tests to see if the average difference is significantly different from zero. Where to find it: Under the Analyze menu, choose Compare Means, then choose Paired Samples T Test. Click on both variables you wish to compare, then move the pair of selected variables into the Paired Variables box. Hypothesis: Null: There is no significant difference between the means of the two variables. Alternate: There is a significant difference between the means of the two variables.

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Inorder to study the performance of the target and aquirer companies profitability ratios such as gross profit margin,Net profit margin,operating profit margin, return on capital employed(ROCE),return on equity(ROE),debt equity ratio, and operating synergies and financial synergies are used.

In order to study the liquidity performance of acquirer and target companies, ratios such as Current Ratio, Quick Ratio are used

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CHAPTER 5 RESEARCH DATA ANALYSIS

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ANALYSIS OF DATA

ANALYSIS OF FINANCIAL PERFORMANCE Empirical tests were carried out on the collected financial data with the help of ratio analysis, t-test. The pre-merger average performance of the acquirer and target companies were compared with the post merger performance of the combined firm. The present study attempts to measure and analyze the pre and post merger performance of acquirer and target companies by using profitability ratio in order to ascertain whether mergers resulted in shareholders wealth or not.

TEST AND ANALYSIS Test for EPS Earnings per share is a very important indicator which shows the rate of return for ordinary shareholders. In case of mergers, it is even more important to find out as to see if the merger has actually contributed in increasing shareholders wealth. The formula for EPS is: EPS= (Net income-Preference dividends)/ Average outstanding shares

Name Of Bank ICICI Bank(2001) Bank Of Baroda Bank Of OBC HDFC ICICI Bank(2010) MEAN STDEV VARIANCE

Avg EPS before Merger

Avg EPS afte Merger

17.6 22.275 20.19 43.29

23.045 25.955 22.975 58.245

35.565 27.784 11.09855587 123.1779425

44.73 34.99 15.84563899 251.084275

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T test value = -0.8329

Test for Current Ratio A bank is deemed to be sound if it is in a position to carry on its daily transactions smoothly and meet all its obligations both long-term as well as short term without any strain. The current ratio is the most commonly used ratio for measuring liquidity position of manufacturing sectors. It expresses the shows that the

relationship between current assets and current liabilities. A higher current ratio manufacturing company is able to pay its debts maturing within a year. Current ratio= Current assets/ Current liabilities

Avg Current Ratio post Avg Current Ratio pre merger ICICI Bank(2001) Bank Of Baroda Bank Of OBC HDFC ICICI Bank(2010) MEAN STDEV VARIANCE 0.03 0.055 0.03 0.04 0.12 0.055 0.037749172 0.001425 merger 0.115 0.045 0.05 0.035 0.11 0.071 0.038307963 0.0014675

T test value = -0.666666667

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Test for Capital Adequacy Ratio Capital adequacy ratio is the ratio that shows the amount of capital a bank has to cover all its risk that is risky assets. According to RBI, Indian banks are required to keep 9% capital adequacy.

Capital adequacy ratio= Capital/Risk adjusted assets

Avg CAR post Avg CAR pre merger ICICI Bank(2001) Bank Of Baroda Bank Of OBC HDFC ICICI Bank(2010) Mean Stdev Variance 14.75 14.699 2.9511574 8.70933 19.54 14.268 3.712772886 13.7846825 19.64 11.985 14.04 13.08 11.27 13.13 10.835 16.565 merger

T test Value = 0.203206035

Test for Net Profit Margin Net profit ratio establishes a relationship between net profit (after tax) and income. It indicates overall efficiency of the banking sector. If the profit is not sufficient, the firm will not be able to achieve satisfactory returns on investment. This ratio also indicates the firms capacity to face adverse

economic conditions such as competition, low demand etc. Obviously, higher the ratio, better the profitability.

Avg Net Profit post Avg Net Profit pre merg merg

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ICICI Bank(2001) Bank Of Baroda Bank Of OBC HDFC ICICI Bank(2010) Mean Stdev Variance 10.125 10.685 1.684677269 2.8381375 15.91 12.977 3.000459548 9.0027575 10.05 9.175 10.505 13.57 9.665 10.265 15.99 13.055

T test value = -1.489472316

Test for ROE The amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

ROE is expressed as a percentage and calculated as:

Return on Equity = Net Income/Shareholder's Equity Avg ROE pre Name Of Bank ICICI Bank(2001) Bank Of Baroda Bank Of OBC HDFC ICICI 14.45 17.005 22.37 23.57 8.26 12.07 11.56 29.975 14.51 9.35 merg Avg ROE post merg

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Bank(2010) Mean Stdev Variance 17.131 6.221055377 38.70153 15.493 8.300850559 68.90412

T test Value = 0.353093339

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CHAPTER 6 TEST STATISTICS

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T TEST DESCRIPTION OF T-TEST

Paired Samples Statistics Std. Mean Pair 1 pre merger icici post merger icici Pair 2 pre merger obc post merger obc Pair 3 pre merger Hdfc post merger HDFC Pair 4 Pre merger BOB post merger BOB Pair 5 Pre merger Icici Post merger Icici 15.8208 19.0750 14.4267 17.8817 20.2183 23.0383 12.8192 13.0083 10.5083 11.7767 N 6 6 6 6 6 6 6 6 6 6 Deviation 12.90561 15.20230 8.29672 9.92061 14.26324 20.71862 7.70454 8.50782 6.14777 7.14099 Std. Error Mean 5.26869 6.20631 3.38712 4.05007 5.82294 8.45834 3.14537 3.47330 2.50982 2.91530

Paired Samples Correlations N Pair 1 pre merger icici & post merger icici Pair 2 pre merger obc & post merger obc Pair 3 pre merger Hdfc & post merger HDFC 6 Correlation .973 Sig. .001

.860

.028

.930

.007

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Paired Samples Test Paired Differences 95% Confidence Interval Std. Mean Deviation Pair pre merger icici - post 1 merger icici 3.25417 3.45500 2.82000 -.18917 1.26833 3.99599 Std. Error Mean 1.63136 of the Difference Lower -7.44770 Upper .93937 t 1.995 1.669 Sig. (2df tailed) 5 .103

Pair pre merger obc - post 2 merger obc

5.07076

2.07013

-8.77643

1.86643

.156

Pair pre merger Hdfc 3 post merger HDFC

9.12482

3.72519

-12.39591

6.75591 -.757 5

.483

Pair Pre merger BOB 4 post merger BOB

3.02987

1.23694

-3.36882

2.99049 -.153 5

.884

Pair Pre merger Icici 5 Post merger Icici

4.98192

2.03386

-6.49653

3.95987 -.624 5

.560

Pair 4 Pre merger BOB & post merger BOB Pair 5 Pre merger Icici & Post merger Icici

.935

.006

.729

.101

As correlation values are positive and less than 1 so these variables are related to each other and influencing mutually.

ANALYSIS ICICI BANK null hypothesis: there is no significance effect after merger. alternative hypothesis: there is significant effect after merger and aqusition - 30

as t calculated value is -1.996 tabulated value is +/- 1.96 so calculated value is more than tabulated value RESULT: null hypothesis is got rejected and altenative hypothesis is accepted CONCLUSION: there is significant effect on icici bank after merger.

OBC BANK as calculated value is less(-1.66) than tabulated value (+/-) so null hypothesis is rejected. RESULT: there is no significant effect on bank after merger but it is approaching to significant level but there is not a significance difference.

HDFC BANK AND BOB BANK as calculated value(-.757) is less than table value and in bob calculated value (-.624) is again less than tabulated value so null hypothesis is accepted. Result: there is no significant effect on hdfc and bob bank after merger and acquisition.

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Total Variance Explained Initial Eigenvalues Comp onent 1 2 3 4 5 6 Total 7.385 1.956 .436 .211 .012 6.825E16 7 2.096E16 8 3.838E17 9 -1.296E16 10 -2.524E16 % of Variance 73.849 19.556 4.363 2.114 .118 6.825E-15 Cumulative % 73.849 93.405 97.768 99.882 100.000 100.000 Total 7.385 1.956 Extraction Sums of Squared Loadings % of Variance 73.849 19.556 Cumulative % 73.849 93.405

2.096E-15

100.000

3.838E-16

100.000

-1.296E-15

100.000

-2.524E-15

100.000

Extraction Method: Principal Component Analysis.

As in variance table initially values are same then these values are going to change as variations are existing so factors are adequate for factor analysis. Communalities

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Initial pre merger icici post merger icici pre merger obc post merger obc pre merger Hdfc post merger HDFC Pre merger BOB post merger BOB Pre merger Icici Post merger Icici 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000

Extraction .985 .972 .974 .910 .942 .991 .935 .967 .793 .872

Extraction Method: Principal Component Analysis.

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EIGEN VALUES Eigen values are seen on this plot showing values close to 1 and responding most appropriate and major contribution to research. Component Matrixa Component 1 pre merger icici post merger icici pre merger obc post merger obc .869 .826 .941 .949 2 -.479 -.538 .296 -.093

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pre merger Hdfc post merger HDFC Pre merger BOB post merger BOB Pre merger Icici Post merger Icici

.951 .855 .878 .689 .643 .932

-.195 -.510 .406 .702 .617 .059

Extraction Method: Principal Component Analysis.the values in this table having value close to .7 and .8 make a comman factor as correct data deduction is done .

a. 2 components extracted.

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FACTORS RESPONSIBLE FOR MERGER & ACQUISITION IN INDIA

The factors responsible for making the merger and acquisition deals favorable in India are:

Dynamic government policies Corporate investments in industry Economic stability ready to experiment attitude of Indian industrialists

Sectors like pharmaceuticals, IT, ITES, telecommunications, steel, construction, etc, have proved their worth in the international scenario and the rising participation of Indian firms in signing M&A deals has further triggered the acquisition activities in India.

In spite of the massive downturn in 2009, the future of M&A deals in India looks promising. Indian telecom major Bharti Airtel is all set to merge with its South African counterpart MTN, with a deal worth USD 23 billion. According to the agreement Bharti Airtel would obtain 49% of stake in MTN and the South African telecom major would acquire 36% of stake in Bharti Airtel. projected growth over 5 years in banking sector strong projected economic growth banks advances to grow at a cagr of 20%, to become 2.4 times the current size by 2015 estimates do not factor in requirements on account of financial inclusion thrust indian banks lack size with only 1 featuring in the top 100 and 3 in top 200 globally two different approaches 1. usa large number of banks for large coverage 2. uk smaller number of banks (153 incorporated in uk, 328 deposit taking) 3. population/ branch very high

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ESTIMATED CAPITAL REQUIREMENT IN 2015 Rs.(000 crs) PSU banks Private banks Foreign banks Total 300-350 125-150 42-46 467-546 USD bn 65-76 27-32 9-10 101-118

KEY FACTORS M&As essential for creation of Mega banks M&As among mid and smaller sized banks will drive efficiency and growth Mega banks will be able to support industry in global expansion Regulatory framework should allow for inorganic growth especially among private and foreign banks

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EXOGENOUS FACTORS AFFECTING MERGERS:

Accounting The availability of pooling accounting for mergers has been a significant factor in the 1990s merger activity

Antitrust Government policy can promote, retard or prohibit mergers and is a major factor affecting mergers.

Arbitrage Arbitrageurs, together with hedge funds and activist institutional investors, are a major factor in merger activity.

Currencies. Fluctuations in currencies have an impact on cross-border mergers and current conditions in the foreign exchange markets have contributed to the slowdown in merger activity.

Deregulation. The worldwide movement to market capitalism and privatization of state controlled companies has led to a significant increase in the number of candidates for merger.

AUTOGENOUS FACTORS AFFECTING MERGERS:

Obtaining market power. Starting with the 19th Century railroad and oil mergers, a prime motivation for merger has been to gain and increase market power.

Sharing the costs and benefits of eliminating excess capacity The sharp reductions in the defense budget in the early 1990s resulted in defense contractors consolidating in order to have sufficient volume to absorb fixed costs and leave a margin of profit.

The advantage or necessity of having a more complete product line in order to be competitive. This is particularly the case for companies such as suppliers to large retail chains that prefer to deal with a limited number of vendors in order to control costs of purchasing and carrying inventory.

Response to the global market.

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The usual and generally least risky means of increasing global market penetration is through acquisition of, or joint venture with, a local partner.

Response to deregulation.

Banking, insurance, money management, healthcare,telecommunications, transportation and utilities are industries that have experienced mid-1990s mergers as a result of deregulation

Response to industry consolidation.

When a series of consolidations takes place in an industry, there is pressure on companies to not be left out and to either be a consolidator or choose the best partner. Current examples of industries experiencing significant consolidation are banking, forest products, food, advertising and oil and gas.

Pressure by institutional shareholders to increase shareholder value. Institutional investors and other shareholder activists have had considerable success in urging (and sometimes forcing) companies to restructure or seek a merger.

LIMITATION OF STUDY

1 The study is totally based on banking sector and no comparison with other sectors is made here. 2 The study is limited to three years before merger and three years after merger only

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CONCLUSION 1. After doing analysis of selected major banks that have undergone through merger & acquisition process during the time period from 2000-2010,we found that 2. Out of five banks.. The m&a between ICICI pvt. Ltd. And Bank of madura holds significant improvement in performance in the post merger period. 3. In case of OBC bank the value of t- test is approaching to significant level but there is no significant level seen. 4. In case of HDFC and BOB (bank of baroda) the test statstics are showing the pre and post merger values are not get affected so there is not much significant difference between pre and post merger period as null hypothesis is getting accepted. 5. And thereby looking onto individual ratio analysis we have found that: EPS values6. The EPS has raised sharply from pre merger period to post merger period with mean average of 5 banks from 27.78% to 34.99%. It means that shareholders has received benefits in the post merger period and increasing shareholders wealth. CURRENT RATIO7. A higher current ratio shows that the manufacturing company is able to pay its debts maturing within a year, but there is not a significant change as the values has slightly increased from 0.055 to .071. CAR (Capital Adequecacy Ratio) The capital adequecacy ratio has slightly decrease from 14.69 to 14.26 in the post merger period. NET WORTH 8. While the networth has increased for the banks which ensures a net profit ratio relationship between net profit (after tax) and income. It indicates overall efficiency of the banking sector. The value gained significant improvement from 10.26 to 12.97. ROE 9. IT Tells about amount of net income returned as a percentage of shareholders equity but as of here Roe for the banks have decreased from 17.1 to 15.4 though it has been raised in case of bank of OBC and ICICI bank.

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Therefore it has been obsereved that in all the t-test value we see that the significance value is approaching significance, but it is not a significant difference. There is no difference between pre- and post-test scores. So there is no conclusive evidence that shows the our study on MERGER AND ACQUISITION OF INDIAN BANKING SECTOR-STRATEGIC AND FINANCIAL IMPLICATIONS in the post reform period have improved the significant performance of acquiring banks. Overall the banks have not gained significantly out of the merger and the pre merger and the post merger performance has been maintained at the similar level

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REFERENCES

Research Articles and Journals

[1] Dario Focarelli, Fabio Panetta and Carmelo Salleo, (Nov., 2002), Why Do Banks Merge?, Journal of Money, Credit and Banking, Vol. 34, No. 4, pp. 1047-1066 http://www.jstor.org/pss/3270727

[2] Kaur, Gian, Par deep, 2010 , Bank mergers cost efficiency gains among commercial banks in India. Indian Journal of Economics and Business , Volume: 9, Source Issue: 1 http://www.freepatentsonline.com/article/Indian-Journal-EconomicsBusiness/225073259.html

[3] Bhaskar A Uday,Ratnam C.S,Bhal,2006, Role of communication and hr integration: a study of a bank merger http://www.ilera-online.org/15thworldcongress/files/papers/Track_1/Poster/CS1W_13_BHASKAR.pdf

[4] Goyal, Joshi Vijay,2003, Mergers in banking industry of india: some emerging issues, Asian Journal Of Business And Management Sciences, Vol. 1 No. 2 [157-165] http://www.ajbms.org/articlepdf/ajbms_2011_1231.pdf

[4] Kaur Pardeep,Kaur Gian, 2010, Impact of Mergers on the Cost Efficiency of Indian Commercial Banks, Eurasian Journal of Business and Economics,vol3 (5),pp 27-50 http://ejbe.org/EJBE2010Vol03No05p27KAUR-KAUR.pdf

[5] Rai rohan,2011, corporate excellence through mergers and acquisitions: a Study of icici bank bank of madura merger, asian journal of technology & management research,, vol. 01 issue: 01 http://ajtmr.com/papers/vol1issue1/CORPORATE-EXCELLENCE-THROUGH-MERGERS-ANDACQUISITIONS.pdf

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[6] Paladi, Srujan,2005, mergers and acquisitions in insurance industry http://www.actuariesindia.org/GCA/9thGCA/MERGERS%20AND%20ACQUISITIONS%20IN%20IN SURANCE%20INDUSTRY.pdf

[7] Ravichandran K., Said Rasidah, 2010, Market Based Mergers in Indian Banking Institutions, International Research Journal of Finance and Economics, Issue 37 http://www.eurojournals.com/irjfe_37_03.pdf [8] Srinivasan R. ChattopadhyayGourav, Sharma Arvind,2011,M & A in Indian banking sector Strategic and Financial implications,An IIMB management review http://tejas-iimb.org/articles/01.php

[9] Vasudevan A.,2004, Bank M&A: Stability and synergy, Financial Daily from THE HINDU group of publications http://www.thehindubusinessline.in/2004/11/11/stories/2004111100071000.htm

BIBLIOGRAPHY http://www.icicibank.com/aboutus/zip/archive/ar1a.pdf

http://www.icicibank.com/aboutus/zip/PartIV.pdf

http://www.icicibank.com/aboutus/zip/archive/Ic25-62.pdf

http://xa.yimg.com/kq/groups/6548896/1197441468/name/ICICI%26%2343%3BBank%20BoR%20Mer ger%20IDFCSSKI%20May2010.pdf

http://www.karvy.com/articles/icicibom.htm

http://www.siliconindia.com/shownews/Global_Trust_Bank_to_be_merged_with_Oriental_Bank-nid24984-cid-3.html

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http://www.slideshare.net/rajeshmore88/merger-of-oriental-bank-global-trust-bank

http://www.business-standard.com/india/news/nod-for-sglab-mergerbankbaroda/153327

http://business.mapsofindia.com/finance/mergers-acquisitions/mergers-and-acquisitions.html

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