EXPERIMENTAL STUDY OF MERGER & ACQUISION IN BANKING SECTOR WITH SPECIAL REFERENCE TO YEAR 2005-2015
Author: Nandini Tripathy, II year of LLM in IPR and Technology Law from Jindal Global Law School Sonipat
The Indian monetary surroundings give an advantage to banks and additionally uniquely accretes value to M&A primarily based transactions proving blessings to bidders do not like in different Bank M&A regimes in the USA. This work affords deeper perception into the linkages between Bank M&A and M&A literature with Indian Banking M&A and evaluations the evidence. M&A transactions in Indian Banks in the course of the duration 2006 -2015, we find sturdy proof for each bidder and goal profits which might be used to specify factors of evaluation in Global US and European markets. These profits replicate on economic situations advantaging large mergers, foreign bank exits from India and international policy imperatives advantaging the banking superstructure. The observation indicates foreign portfolio exits are full-size opportunity losses for Global players and might not be justified by myopic brief term responses to a new policy superstructure.
The 2014 Kotak ING merger produces a 13.47% CAR within the 0 to +15 occasion window and 23.8% within the longer variety window till buying and selling stops in the ING Groups’ India subsidiary. Large Bank mergers produce large Bidder benefits which might be neither obfuscated in occasion studies nor lost in massive cost transactions due to closing losses to the Bidder within the deal and the purported Merger gains being appropriated by target shareholders and the considered set of transactions display how Indian Bank M&A contributes to the Global Banking M&A literature.
Mergers & Acquisitions stay an attractive inorganic strategy for banks to scale up in product markets and assist the economic system from within a green and properly-regulated banking gadget. Banking M&A stays specialized from other M&A because of industry specific features of banks which includes their valuation, their way to earnings and their remedy of capital, using deposits and funds as raw fabric for income generating products. Despite combined evidence fromoccasion research and event studies remain an effective evaluation tool to cost mergers. The profits from M&A are shared among bidders and targets. The M&A approach becomes key for increase in Emerging Markets and Asia. Banking Mergers & Acquisitions are frequently criticized as a huge price ticket strategy that does not deliver gains. Frequent troubles referred to in M&A relate to publish ultimate integration and lack of synergy gains; deliberate increase in profitability now not panning out because of unseen roadblocks; intractable attempts at reduction in running fees and the harassment and problems around labour cuts.
Agency factors of M&A techniques adduce conflicts of interest between managers’ and owners’ pastimes and assist information and energy reasons. These take on thrilling dimensions in the presence of institutional shareholders. Banking valuations and merger financing however separate the observe of other M&A in Corporate Finance from Banking M&A. Global Economics dictate massive blessings of bank mergers and acquisitions around economies of scale and oligopolistic competition thattranslate to decrease charges and higher profitability. Mergers also ally the company with a better portfolio of Markets and strategic understanding that permits the firm to improve its productmarket portfolio and deliver massive gains to stakeholders. However those profits are contingent on successful submit-merger integration and deal final touch in right time.
Mergers and Acquisitions
Mergers and acquisitions activity may be defined as a kind of restructuring that they bring about some entity reorganization with the intention to provide boom or nice value. The abbreviation of merger is as: M= Mixing= Entities= Resources for, G= Growth, E =Enrichment and R= Renovation. AnAcquisitionoccurs when one corporation takes over another and absolutely establishes itself as the new owner (in which case the target enterprise nevertheless exists as an unbiased prison managed with the aid of the acquirer). Mergers and Acquisition play a vital economic role of transferring sources from zones of under-utilization to zones of higher utilization. Poorly run agencies are greater prone to being taken over by way of the powerful and managers have an incentive to ensure that their company is governed well and assets are used to provide most cost.
Banking Sector in India
Indian banking industry is ruled by using the Banking Regulation Act of India, (1949) and is closely monitored with the aid of the Reserve Bank of India (RBI). RBI manages thecash supply and overseas change and additionally serves as a financial institution for the Government of India and for the industrial banks. The largest bank, and the oldest nevertheless in existence, is the State Bank of India, which originated in the Bank of CalcuttainJune 1806, which nearly without delay have become the Bank of Bengal. This changed into one of the three presidency banks, the opposite two being the Bank of Bombay and the Bank of Madras, all three of which were hooked up beneath charters from the British East India Company. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India’s independence, became the State Bank of India in1955. For many years the presidency banks acted as quasi-important banks, as did their successors, until the Reserve Bank of India was mounted in 1935.Mergers and Acquisitions in Indian Banking Sector Mergers and acquisitions in the banking region is a common phenomenon across the arena.
The number one objective in the back of this flow is to reap boom at the strategic stage in phrases of length and client base. This, in turn, will increase the credit score-creation potential of the merged bank especially. Small banks fearing aggressive acquisition by means of a huge bank every so often enter into a merger to increase their marketplace percentage and shield themselves from the feasible acquisition. Banks also choose mergers and acquisitions to achieve the blessings of economies of scale thru discount of expenses and maximization of both financial and non-monetary benefits. The procedure of merger and acquisition is no longer a new happening in case of Indian banking. Grind lays Bank merged with Standard Chartered Bank, Times Bank with HDFC Bank, Bank of Madura with ICICI Bank, Nedungadi Bank Ltd. With Punjab National Bank and Global Trust Bank merged with Oriental Bank of Commerce. As the whole Indian banking enterprise is witnessing a paradigm shift in systems, tactics, techniques, it would warrant creation of new capabilities and abilities on an on-going foundation for which an environment of non-stop learning could have to be created so as to beautify knowledge and talents.
Mergers in banking sector
The Government announced a New Economic Policy on July 24, 1991. The new policy deregulated industrial economy in a substantial manner. One of the steps taken to liberalize and globalize Indian economy were the wide-ranging Financial Sector Reforms in the Banking, Capital Markets, and Insurance Sectors, including the deregulation of interest rates, strong regulation and supervisory systems, and the introduction of foreign/private sector competition. This period has witnessed the increased participation of Indian Private Sector Banks.Is an Indian multinational, public sector banking and financial services company. It is a government-owned corporation with its headquarters in Mumbai, Maharashtra. On 1st April, 2017, State Bank of India, which is India's largest Bank merged five of its Associate Banks (State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore) and BharatiyaMahila Bank with itself. This is the first ever large scale consolidation in the Indian Banking Industry. With the merger, SBIwill enter the league of top 50 global banks with a balance sheet size of 33 trillion, 278,000 employees, 420 million customers, and more than 24,000 branches and 59,000 ATMs. SBI's market share will increase to 22 percent from 17 per cent. It has 198 offices in 37 countries; 301 correspondents in 72 countries. The first step towards unification occurred on 13 August 2008 when State Bank of Saurashtra emerged with SBI, reducing the number of associate state banks from seven to six. An attempt is therefore, made to study the impact of the merger on the performance of the bank.
Consolidation in the Banking sector is very important in terms of mergers and acquisitions for the growing Indian Banking Industry. This can be achieved through Cost Reduction and Increasing Revenue. The important part over here is that why do we need consolidation in Indian Banking and what is the Challenges Ahead. The role of the Central government is also very necessary to be analysed in the entire process as they play a crucial role in the policy formation required for the growth of Indian Banking. In the recent times, we have seen some M&A as voluntary efforts of banks. Merger of Times Bank with HDFC Bank was the first of such consolidations after financial sector reforms ushered in 1991. Merger of Bank of Madura with ICICI Bank, reverse merger of ICICI with ICICI bank, coming together of Centurion Bank and Bank of Punjab to form Centurion Bank of Punjab and the recent decision of Lord Krishna Bank to merge with Federal Bank are voluntary efforts by banks to consolidate and grow.
Is growing is size better for the Indian banks? India is still an unbanked country and by global standards, even the biggest of Indian banks are minnows in a business where size means clout and where geographical boundaries are blurring. Even by Indian standards, most of the banking sector is disadvantaged by size: the top 25 banks — of which, 18 are owned by the government — account for about 85 per cent of banking assets. An analysis of the Indian banking industry shows that due to factors like stability, return to shareholders, adhering to regulatory norms, etc make m&a as an imperative. Also, m&a gives an opportunity to these Indian banks of creating a universal bank. Also, mergers can be used as a strategic tool and also there is a possibility of strategic investments where traditional M&A are not possible. In the changing economic and business environment characterized by speed, flexibility and responsiveness to customers, has a lot to contribute to staying ahead in the competition. It is in this context that mergers and acquisitions (M &A ‘s) as a tool to gain competitive strength comes into the forefront with ‗Partnering for competitivenessbeing a recognized strategic argument for the same. Also, deregulation plays a very important role in the entire economy if its going to opened to foreign players. A careful study needs to be done before the foreign players can enter into the market and examples from different economies across the globe must be considered.
The industry is currently in a transition phase. On the one hand, the PSBs, which are the mainstay of the Indian Banking system are in the process of shedding their flab in terms of excessive manpower, excessive non-Performing Assets (Npas) and excessive governmental equity, while on private sector banks are consolidating themselves through mergers and acquisitions. PSBs, which currently account for more than 78 percent of total banking industry assets are saddled with NPAs (a mind-boggling Rs 830 billion in 2000), falling revenues from traditional sources, lack of modern technology and a massive workforce while the new private sector banks are forging ahead and rewriting the traditional banking business model by way of their sheer innovation and service. The PSBs are of course currently working out challenging strategies even as 20 percent of their massive employee strength has dwindled in the wake of the successful Voluntary Retirement Schemes (VRS) schemes. The private players however cannot match the PSB‘s great reach, great size and access to low cost deposits. Therefore, one of the means for them to combat the PSBs has been through the merger and acquisition (M& A) route. Over the last two years, the industry has witnessed several such instances.
For instance, HdfcBank‘s merger with Times Bank Icici Bank‘s acquisition of ITC Classic, Anagram Finance and Bank of Madura. Centurion Bank, IndusInd Bank, Bank of Punjab, Vysya Bank are said to be on the lookout. The UTI bank- Global Trust Bank merger however opened a pandora‘s box and brought about the realization that all was not well in the functioning of many of the private sector banks. Private sector Banks have pioneered internet banking, phone banking, anywhere banking, mobile banking, debit cards, Automatic Teller Machines (ATMs) and combined various other services and integrated them into the mainstream banking arena, while the PSBs are still grappling with disgruntled employees in the aftermath of successful VRS schemes. Also, following India‘s commitment to the W To agreement in respect of the services sector, foreign banks, including both new and the existing ones, have been permitted to open up to 12 branches a year with effect from 1998-99 as against the earlier stipulation of 8 branches. Meanwhile the economic and corporate sector slowdown has led to an increasing number of banks focusing on the retail segment. Many of them are also entering the new vistas of Insurance. Banks with their phenomenal reach and a regular interface with the retail investor are the best placed to enter into the insurance sector. Banks in India have been allowed to provide feebased insurance services without risk participation, invest in an insurance company for providing infrastructure and services support and set up of a separate joint-venture insurance company with risk participation.Mergers like the one between Centurion bank and Bank of Punjab and CBOP and Lord Krishna Bank shows that it’sup to the private sector players to understand the need to grow inorganically and that too without any pressure from a third party. These types of merger and the latest one that is going to happen between CBOP and HDFC bank would ensure that Indian banks are to take on the foreign banks when they enter the market in 2009.
M&A- A Global Phenomenon
Be it industrial sector or services sector, M&As have become way forward in today ‘s world. In a free market economy, companies must keep evolving to remain competitive. Adaptability to changes in the market becomes a crucial factor for survival. M&As as a style of doing business got a fillip in the 1980s in the post oil-shock world. USA led the change with over 55000 M&As reported in the decade. This activity gained further momentum in the nineties and even more so in the new millennium. Merger between Arcelor and Mittal steel to become the largest steel manufacturer in the world is a recent development which was followed with great interest by all of us. What drives M&As? Theoretically, consolidation can be with two basic motives. One, A motive to maximize value for stakeholders and two, non-value maximizing motives. In a perfect capital market, all activities of any company will be to maximize shareholder value. Value maximization comes from cost reduction or revenue growth.
Motives behind M&A
The dominant rationale used to explain M&A activity is that acquiring firms seek improved financial performance. The following motives are considered to improve financial performance:
I. Economy of scale
This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins.
II. Economy of scope
This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products.
III. Increased revenue or market share
This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.
For example, a bank buying a stock broker could then sell its banking products to the stock broker's customers, while the broker can sign up the bank's customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products.
For example, managerial economies such as the increased opportunity of managerial specialization. Another example is purchasing economies due to increased order size and associated bulk-buying discounts.
A profitable company can buy a loss maker to use the target's loss as their advantage by reducing their tax liability. In the United States and many other countries, rules are in place to limit the ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an acquiring company.
VII. Geographical or other diversification
This is designed to smooth the earnings results of a company, which over the long term smoothens the stock price of a company, giving conservative investors more confidence in investing in the company.
Double marginalization occurs when both the upstream and downstream firms have monopoly power, each firm reduces output from the competitive level to the monopoly level, creating two deadweight losses. By merging the vertically integrated firm can collect one deadweight loss by setting the downstream firm's output to the competitive level. This increases profits and consumer surplus. A merger that creates a vertically integrated firm can be profitable
M&A in Banking Sector
Banking system is the bloodline of any economy and banks are trustees of public money. The depositors therefore, have more stakes in the welfare of banks than the share holders. Failure of a bank has more systemic implications than say, the failure of a manufacturing company. Laws governing regulation and supervision of banks in all countries therefore focus on protecting the interests of depositors. Naturally, fillip to bank consolidation in many countries came through regulatory and governmental actions in public interest. Large scale public funding has also taken place in a number of countries to prevent failure of banks/banking system.
United States witnessed large scale bank failures in the eighties (Savings and Loan Institutions) and the Government came to the rescue of banking system through liberal FDIC (Federal Deposit Insurance Corporation) support. An estimated USD 100 Billion was sent on the rescue. In the process the Government encouraged mergers among banks by givingincentives to the banks taking over assets and liabilities of failed banks. Subsequent M & A activity in the USA in nineties and in recent years have been motivated by market forces. Nearer home, we have the Asian experience in bank consolidation post 1997 economic meltdown. The crisis brought out the vulnerability of a weak banking system to economic shocks. Here again, the governments had come up with funding support and actively encouraged consolidation among banks. Let us look at some of the initiatives taken in this region for strengthening the banking system.
Indonesia witnessed large scale infusion of public funds into the banking system through a specialized restructuring agency. Regulatory forbearance was also present in good measure to facilitate bank recovery. As against Basel Capital adequacy norm of 8%, banks were allowed to operate with 4% as an interim measure. Only banks which had Capital adequacy ratio reduced to below - 25% were marked for immediate closure. Consolidation among banks was actively encouraged and FDI was allowed up to 99%. Net result was that the number of banks in Indonesia which stood at 239 in 1996 came down to 138 by 2003. Consolidation was most visible among private banks with the number of such banks coming down from 164 to 76 during the period. Post restructuring, the banks are now healthier, and their branch network and coverage has increased significantly in recent years. In Malaysia Bank Negara, the Central Bank implemented a well-crafted financial master plan aimed at strengthening the domestic banks, create a level playing field for foreign banks and open banking sector to global competition. The regulator used suasion to create 10 anchor banks through the consolidation of 22 banks and 39 finance companies. FDI capped at 30% is expected to be increased in the second phase of reforms scheduled to commence from 2007.
M&A in Indian Banking
Mergers and Acquisitions are not an unknown phenomenon in Indian Banking. In fact, the predecessor of State Bank of India, the Imperial Bank of India was born out of consolidation of three Presidency Banks way back in 1920. In fact there were several cases of bank failures, mergers and acquisitions which were reported in pre-independence period dating back to even early 19th Century. Proper regulation and control of banks and intervention by the regulator in the event of a crisis came into being with the passing of Banking Regulation Act in 1949.
However, forced merger and amalgamation as a tool to provide relief to ailing banks besides protecting public and depositor confidence in banking system came into being only in 1960 when Section 45 inserted in BR Act. Panic created by the Nath Bank in the fifties and Laxmi bank and Palai Central bank in 1960 had prompted this legislative move. The first half of the sixties saw 45 forced mergers under section 45. In the post nationalization period also a number of mergers and acquisitions took place, most of them under Section 45. Interestingly almost all of them were amalgamations of failed private banks with one of the Public sector banks.
In the recent times, we have seen some M&A as voluntary efforts of banks. Merger of Times Bank with HDFC Bank was the first of such consolidations after financial sector reforms ushered in 1991. Merger of Bank of Madura with ICICI Bank, reverse merger of ICICI with ICICI bank, coming together of Centurion Bank and Bank of Punjab to form Centurion Bank of Punjab and the recent decision of Lord Krishna Bank to merge with Federal Bank are voluntary efforts by banks to consolidate and grow.
Consolidation fever has not been confined to the Scheduled Commercial Banks. We have seen consolidation process gaining strength in other sectors as well. We had 196 RRBs since 1989. The last year and a half have seen their numbers dwindle to 103 with merger of RRBs sponsored by commercial banks within the same state. This move is expected to bring most of the RRBs into profit making entities capable of playing their role in the way they were expected to do when the RRB Act was passed in 1996.Well, the big question is ―When will we see M&A activity among Public Sector Banks?Public Sector Banks form nearly 75% of Indian Banking and we need to see consolidation in this sector for the Indian Banking sector to stand up and be counted in the Global Banking map.
M&A in the Indian Banking Sector as an Opportunity
There are two prime reasons to believe that M&A in the Indian Banking Sector is an opportunity.
1. Creation of a Financial Super Market or a Universal Bank
A recent trend is to promote the concept of a financial super market chain, making available all types of credit and non-fund facilities under one roof under one umbrella organization (or through specialized subsidiaries). An example of such a financial supermarket would be the reverse merger of ICICI and ICICI Bank. ICICI Bank today stands as India‘s second largest bank offering its clients both in India and overseas a product range as varied us retail banking products to exotic investment banking and treasury solutions. Similarly, IDBI and IDBI Bank treaded the same route. Though one has to state that consolidated accounting and supervisory techniques would have to evolve, and appropriate fire walls built to address the risks underlying such large organizations and banking conglomerates.
2. Technological Expertise
New entrants in the banking sector are armed with technological expertise while older players are well equipped with experience in practices. Mergers would thus help both parties gain an expertise in areas in which they lack. In India, the retail banking market biased towards the urban markets is growing at a Compounded Annual Growth Rate (CAGR) of almost 18-20% while the rural market is yet to be fully tapped. Keeping in focus the population profile, technology would be a major enabler for banking in the future. A number ofstate-owned banks in India are adopting sophisticated core banking solutions and these are just the largerones. For smaller banks to adopt technology platforms the expenditure may not be sustainable and hence this may be one more reason for M&A. Growing integration of economies and the markets around the world is making global banking a reality. The surge in globalization of finance has also gained momentum with the technological advancements which have effectively overcome the national borders in the financial services business. Widespread use of internet banking, mobile banking, and other modern technologies (such as SWIFT) has widened frontiers of global banking, and it is now possible to market financial products and services on a global basis. In the coming years globalization would spread further on account of the likely opening up of financial services under WTO. India is one of the signatories of Financial Services Agreement (FSA) of 1997. This gives India ‘s financial sector including banks an opportunity to expand their business on a quid pro quo basis. An easy way for this is thus to go through adequate reconstruction to acquire the necessary technology and get an early mover advantage in globalizing the Indian Banks.
Adoption of M&A as a key Strategic tool
There are strategic needs for and benefits of M&A which needs to be looked at before consolidating.
Gaining market share as a complement / supplement to organic growth
Rapid expansion or access to new markets / products
Acquisition of partners ‘capabilities and customers i.e. if you can’t beat them then buy them.
Getting a jump on competition
Competition law & Policy Merger & Acquisition — Indian Perspective basic objectives of Competition Act, 2002
To prevent practices having adverse effect on competition.
To promote and sustain competition in markets.
To protect the interest of consumers
To ensure freedom of trade carried on by other participants in markets.
Merger and acquisition dimesions- Critical issues
Bar to initiate inquiry after expiry of one year from effect of a ―combination.
Likely logistical limitations of the Commission to be able to take cognizance of every violate ―combination.
Overlapping of powers with that of High Courts and Securities & Exchange Board of India (SEBI) as regarded merger/acquisition.
Across-border ―combination‖ specifically involving Multinational Corporations
Time bound disposal as provided does not seen realistic in view of likely workload
No residuary provision available to the Commission to inquire into a combination not falling within laid down criteria but giving rise to appreciable adverse effect on competition in the relevant market.
No provision empowering the Commission to seek co-operation and co-ordination directly from their counter parts abroad.
Trained/Skilled professional manpower
Infrastructure support system
Access to update data-base, information, international developments etc.
Examples of few Mergers and Acquisitions in banking agencies
1.Merger of ICICI Bank with Bank of Madura in 2001
ICICI one of the largest financial institution was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian Industry. In 1990’s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services both directly and through a number of subsidiaries and affiliates like ICICI Bank. In 2001, theICICI merged with the Bank of Madura to expand its customer base and branch network.
2.Merger of Centurion Bank with Bank of Punjab in 2005
Bank of Punjab (BOP) and Centurion Bank (CB) have been merged to form Centurion Bank of Punjab (CBP). RBI has approved merger of Centurion Bank and Bank of Punjab effective from October 1, 2005. The merger is at a swap ratio 9:4 and the combined bank is called Centurion Bank of Punjab.
3.Merger of IDBI bank and United Western Bank ltd. In 2006
The Reserve Bank of India told IDBI acquire the distressed United Western Bank, which the central bank had put under moratorium by the RBI on September2, 2006. Since IDBI is adequately capitalized, it will not have to pump money into United Western Bank, which has a net worth of Rs 70 crore (Rs 700 million). However, IDBI had pay United Western Bank shareholders Rs 150.55 crore (Rs 1.5 billion) at Rs 28 a share, which works out to a 31 per cent premium over United Western Bank's closing price of Rs 21.45 on the Bombay Stock Exchange.
4.Merger of HDFC and Centurion bank of Punjab in 2007
HDFC Bank approved the acquisition of Centurion Bank of Punjab for Rs 9,510 crore ($2.4 billion) in one of the largest mergers in the financial sector in India in February 2008. Centurion Bank of Punjab shareholders got one share of HDFC Bank for every 29shares held by them. Post-acquisition, HDFC Bank became the second-largest private sector bank in India. The acquisition was also India's 7th largest ever.
5.Merger of HSBC, Canara bank and Oriental Bank of Commerce in 2009
Canara HSBC Oriental Bank of Commerce Life Insurance Co Ltd has informed that it has got the license to operate in India. Three banking majors have joined hands to offer services in Insurance sector. Two majors in Public Sector banks, Canara Bank and OBC, have joined hands with global banking and investment services major HSBC to offer innovative insurance products to Indian consumers.
Findings and Conclusions
The conclusion shows that the merger and acquisition is becoming more important in day to day life from the point of view of the loss running business and for those entrepreneurs who wants to expand their business by selling a unit or buy purchasing a unit or the entire empire. Some Companies depend on the risk and return and give tips to their companies to make flexibility in the market. And it is highly recommended to take in view the following policies before a merger and acquisition. he banking industry is one of the rapidly growing industries in India. The growth rate of this sector is remarkable, and it has become the most preferred banking destinations for InternationalInvestors. After economic reforms, 1991, there have been paradigm shift in Indian banking sectors. A relatively new dimension in Indian banking industry has accelerated through Mergers and Acquisitions. It is observed in the study that; the finance and banking industries contributes highest number of M&As deals during the study period 2008 and the trends of consolidation in Indian Banking Industry is so for restricted to merger of small and weak banks with large and public sector banks. To this backdrop, the present study examined the ‘Impact of Mergers on Performance of selected commercial banks in India’.
The impact of mergers on performance of the banks has been evaluated from three prospective: -
Physical Performance of merged banks
Financial Performance of Merged Banks
Share price performance.
Analysis of physical performance of merged banks emphasizes that, there is a significant improvement in Deposits, Advances, Businesses and Number of Employees of all selected banks. Therefore, this result indicates that Mergers can help commercial banks to achieve physical performance. While the analysis of financial performance of merged banks yields mixed results, the results indicates that, a significant improvement in Assets Quality, Management Efficiency, Earnings quality and liquidity of the selected banks and Capital Adequacy of Public sector banks did not indicate improvements, this may be the policy matters of public sectors banks but on an average the overall financial performance of merged banks increased after the merger. So, Merger could be considered as a useful strategy in order to achieve financial performance of commercial banks by achieving economies of scale, competitiveness, and increased efficiency and Market share. Further the analysis of share price performance of merged banks shown that, there is no consistent pattern of Abnormal Returns of selected merged banks, Market positively reacted only in caseICICI Bank and Federal Bank. Therefore, from this result it can be said that, Merger is not a preferable tool to achieve shareholders wealth of banks in short term. It is also suggested to Government of India and RBI to liberalize their policies in connection with Mergers and Acquisitions to increase number of deals between the banks. To conclude, Merger is a useful strategy, through this Banks can expand their operations, serve larger customer base, increases profitabilityliquidity and efficiency but the overall growth and financial illness of the bank can’t be solved from mergers.
Mergers and Acquisitions played a very important role in Banking Sector. The small and medium size banks are working under threat from the economic environment which is full of problems for them, viz, inadequacy of resources, outdated technology, on-systemized management pattern, faltering marketing efforts, weak financial structure, technique obsolescence and lack of product innovations. Their reorganization through merger could offer re-establishment of those in viable banks of optimum size with global presence. Merger and acquisition in Indian banking so far has been to provide the safeguard and hedging weak bank against their failure. The merger cult in India has yet to catch fire with merchant bankers and financial consultants acquiring skills in grinding the banks to absorb unviable banks and put them again on successful operations. All the merged entities after mergers andacquisitions are continuously growing rather than before the merger. There is increase in no. of branches and ATMs as well as in deposit amount, their net profit and worth.
 Aurora S. Rajinder, Shetty Kavita, Kale R. Sharad “Mergers and Acquisitions” Oxford University Press