Ms. Deeksha sharma Assistant professor in commerce
Khandelwal Vaish Girls Institute of Technology, Jaipur, Rajasthan
Abstract
Banking industry has played a significant role in money creation in economy. In Indian banking industry Merger and acquisition of bank has emerged as commendable Trend and for expending scale of operation and market share of bank. This paper has written to review literature on merger and acquisition of Bank in India. This proposed study has contemplated to know favourable and unfavourable effects after merger and acquisition of bank. The Reason of merger and acquisitions of bank has been studied. And concluded that positive effects have been seen on merged bank. Secondary data has been gathered from related journal, websites and e-newspaper.
Keywords- Merger and acquisition, effects after merger, reason behind merger decision.
Introduction
The evolution of bank is from old Italian word “banca” or from a French word “banque”. The meaning of these “a bench or a money exchange table”. Normally bank is known as financial institution which accept deposit to provide loan. But today bank work as an agent, as underwriter, as advisor, as investor also. Indian banking is regulated by Banking regulation act 1949.
The first bank “Bank of Venice” (1157) was erected in Italy. Bank of Hindustan is India’s first bank commenced in 1770. Earlier people did not believe in banking system and bank were not get succeed. East India company established three presidency banks- Bank of Bengal(1809), Bank of Bombay(1840), Bank of Madras (1843). After the banking crisis 1913 government had made decision of merger of presidency banks. And the India’s first merged had been established with the name
of Imperial bank of India in 1921 which is known as State Bank of India today. Merger and acquisition of banks play a significant role in upgrade economy of scale, Synergy, profitability and productivity of bank.
Merger of banks is a combination of two or more Bank. It means when a bank combine with other bank and purchase its assets and ownership and create new one bank or start with existence of acquirer bank(buyer) bank. it is relevant of acquisition. And acquisition is also known as takeover. There are some difference between Merger & Acquisition is that acquisition means take control of majority target bank’s ownership . Most of the time stronger bank takeover of weaker bank. But here consolidation is designated as merger and acquisition.
Literature Review
Various research paper have been studied about the effect of merger and acquisition of bank in India and compared pre and post Merger position of selected banks and quested advantage and disadvantages of merger and acquisition of banks. Here are some following related review.
Devarajapp S.(2012) analysed financial performance of HDFC Bank Limited and Centurion Bank of Punjab with the help of financial parameters and compared pre merger and post merger performance of banks on the basis of last 3 year data and the result of this analysis was that mean value of gross profit had increased and the mean value of equity had increased but there is no change in net profit, return on capital, and operating profit. And concluded that merger effect is helpful for surviving of week Bank by merging into larger banks.
Dr K.A. Goyal & Vijay Joshi (2012) studied case of ICICI Bank Limited to be aware with the growth of ICICI Bank Limited. This Bank amalgamated with Nine Finance entities like SCICL, ITC Classic Finance Ltd., Anagram Finance, Bank of Madura, Bank of Sangali, ICICI Personal Finance Service Ltd & ICICI Capital Service Ltd., Standard of Chartered Grindlays Bank’s two branches, and Bank of Rajasthan Ltd.. According to them merger and acquisition considered in three phases pre merger phase, acquisition phase and post merger phase. And concluded that that there were many issues and challenges for ICICI Bank Limited but it accepted that challenges and became India’s largest Private sector bank.
Dr K.A. Goyal & Vijay Joshi (2012) have found in their study there are some rising issue in merger and acquisition in banking sector. Rising issues like employees
reception, brand size, customer perception, communication, Change management strategies, Human Resource Management. They observed the need of merger and acquisition of bank in India. And quested motives behind the merger and acquisition of bank through the study of 17 merged banks that motives and rational are market leadership, Rapid growth, synergy, reduce stress, Economies of scale, enhance revenue. They concluded that small bank has to face many issues and the merger and acquisition is helpful tool for them.
It is founded from Gurubaksh Singh & Sunil Gupta’s (2015) paper title “An impact of merger and acquisition on profitability of consolidation banking sector in India”. analysed the performance of public and private sector bank with the data of last five year and evaluated pre and post merger positions of bank through financial parameters like Arithmetic mean, standardization, t-test comma p-value . They found that merger and acquisition have positively impacted on merged Bank.
Dr. Sangita Ghosh(2016) researched on merger between Global Trust Bank and Oriental Bank of Commerce. She analysed liquidity factor, efficiency factor, profitability factor and performance factor of Oriental bank of commerce. And found that after merging bank profitability and efficiency of acquirer bank has improved but there was no change in liquidity position of oriental bank of commerce.
Prof.Ritesh Patel(2014) examined finance and stock return of selected banks to know the effect after merger and concluded that merger and acquisition has positively impacted on Indian banks and told that some public sector banks is more advantageous rather than private sector bank.
Parveen Kumari (2014) revealed in her paper merger and acquisition of bank as strategic approach and told that the aim of the merger and acquisition of bank is increase credit creation and make progressive. According to gathered post merger data she concluded that Number of branches & ATM, Net Profit, Deposit, Net Worth have increased.
Prof. Ritesh Patel & Dr. Dharmesh Shah (2016) compared the financial performance of before and after merger of banks through Economic Value added approach and through others financial parameters like mean score of net profit margin, return on net worth, return on assets, return on long term fund, interest earned and total assets. And told that its not necessary that EVA approach is common for all other bank. They concluded that financial performance of bank may be improved after merger. But if past financial data are examined before merger, it can make merger fruitful.
Methodology
Secondary data have gathered from various Research paper, websites, e-newspaper which are related to merger and acquisition of Indian banking sector.
Objective of the study
- To study post merger effects on merged
- To aware about reason behind merger and acquisition of
- To know advantage and disadvantage of merger and
Reason
One of the biggest Reason behind merger and acquisition of bank is get into bad loan over the year and increment in NPA. Several provision has made in law to deal with it and the merger and acquisition of bank is one of them which is very popular and effective measure to come out from debt and other issues.
Positive effects
- It will help in attain growth and enhance market’s
- For the purpose of credit more fund will be available to merged
- There will be homogeneity in banking services and
- With this trend banking industry will be recognized at international
- Economies scale of operations will improved as well as increase
- Risk factor will be minimized. .
- It will get benefit of
- Weak banks will be saved from
Negative Effects
The negative effect is that merged bank could face many issues and challenges with respect to integration of staff, rencontre due to different culture, issues related to Human resource strategies.
Conclusion
Banking Industry of India is rapidly Growing industry with innovative digital trend and Merger and acquisition is applied strategic mode in Indian banking to compete globally. It is evident from reviewing related literatures that combined banks have to face many issues and challenges. before taking steps of merger if acquirer bank examine financial aspects on the basis of past data of transferee bank that it would be profitable or not. It will help to make merger favourable. In form of opportunity, Indian bank Market’s share has increased. The key purpose of the study is to know Exact effect of merger and it is found that merger and acquisition has favourable effect but In some cases positive changes have seen, and in other cases there is no change but Negative effect have been seen rarely.
References
· Ishwarya J (2019) “A study on merger and acquisition of bank and a case study on SBI and its associates” ISSN: 2394-9333
- Ashu Vyas Maharishi (2019) “Merger and Acquisition of Banking sector of India” Vol.9, issue 6, ISSN: 2249-2496
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