A

Project Report

On

“IMPACT OF MERGERS AND ACQUISITION ON

INDIAN BANKING SECTOR”
Submitted to

Savitribai Phule Pune University

In Partial Fulfilment of the Requirement for Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

By

SHUBHAM JAYKUMAR MORE

FINANCE

Under the Guidance of

PROF. SAMBHAJI PAWAR

SINHGAD INSTITUTE OF MANAGEMENT

Academic year 2018-19

i
 C E R T I F I CA T E

This is to certify that the dissertation report titled “IMPACT OF MERGERS

AND ACQUISITION ON INDIAN BANKING SECTOR” which is being
submitted herewith for the award of the degree of Master of Business
Administration (MBA) course of Savitribai Phule Pune University, is the
result of the dissertation work completed by Mr. Gopinath Ghodke under our
supervision and guidance.

To the best of our knowledge and belief the work embodied in this dissertation
report has not formed earlier the basis for the award of any degree or similar
title of this or any other University or examination body.

Prof. Amit Rana Dr. Parag Kalkar

Dissertation Guide
Director

Place:
Date:

ii
 DECLARATION

I, the undersigned, hereby declare that the dissertation entitled, “Impact of mergers and
acquisition on Indian banking sector” submitted by me to the University of Pune, in partial
fulfilment of the requirement for the award of degree of Master of Business Administration
under the guidance of Prof. Amit Rana, is my original work and the conclusions drawn
therein are based on the material collected by myself.

The Report submitted is my own work and has not been duplicated from any other source.

Place:

Date:

iii
 ACKNOWLEDGEMENT

It is a matter of great satisfaction and pleasure to present this report on ‘Impact of Mergers
and Acquisition on Indian Banking Sector’. This project report could not have been
completed without the guidance of our Principal Dr. Parag Kalkar & project guide Prof.
Amit Rana Their timely help & encouragement helped me to complete this project
successfully.

iv
 INDEX

SR NO. PARTICULAR PAGE NO.

1 INTRODUCTION 7

LITERATURE REVIEW

2.1 WHAT IS MERGER?

2 2.2 WHAT IS ACQUISITION? 9
2.3 CONCEPT AND DEFINITION
2.4 MERGER AND ACQUISITIONS IN
THE INDIAN BANKING SECTOR
THEORETICAL BACKGROUND

4.1 HISTORY OF MERGER AND

ACQUISITION
4.2 REASON FOR MERGERS AND
ACQUISITION
3 15
4.3 ADVANTAGES AND
DISADVANTAGES OF MERGERS AND
ACQUISITION
4.4 TYPES OF MERGERS AND
ACQUISITION
4.5 BENEFITS OF BANK MERGERS

4 OBJECTIVE 22

5 RESEARCH METHODOLOGY 24

6 DATA INTERPRETATION 26

7 FINDINGS 33

8 CONCLUSION 35

9 BIBLIOGRAPHY 37

v
 LIST OF TABLES

SR NO. PARTICULAR PAGE NO.

LIST OF MERGER AND ACQUISITION

IN INDIAN BANKING INDUSTRY SINCE
1 NATIONALIZATION OF BANKS 13

2 SAMPLE BANKS 27

FINANCIAL PERFORMANCE OF
3 ICICIBANK
29

FINANCIAL PERFORMANCE OF STATE

4 BANK OF INDIA
31

vi
 LIST OF FIGURES

SR NO. PARTICULAR PAGE NO.

1 RATIO ANALYSIS OF ICICI BANK 30

RATIO ANALYSIS OF STATE BANK OF

2 INDIA 32

vii
CHAPTER 1: INTRODUCTION

viii
1.1 INTRODUCTION
The International Banking scenario has shown major changes in the past few years in terms
of the Mergers and Acquisitions. Due to the financial system deregulation, entry of new
players and products with advanced technology, globalization of the financial markets,
changing customer behaviour, wider services at cheaper rates, shareholder wealth demands
etc., have been on rise.

Mergers and Acquisition is a useful tool for the growth and expansion in any Industry and
the Indian Banking Sector is no exception. It is helpful for the survival of the weak banks
by merging into the larger bank. This study shows the impact of Mergers and Acquisitions
in the Indian Banking sector and two cases have been taken for the study as sample to
examine the as to whether the merger has led to a profitable situation or not. For this
purpose, a comparison between pre and post-merger performance in terms of Operating
Profit Margin, Net Profit Margin, return on Assets, return on Equity, Earning per Share,
Debt Equity Ratio, Dividend
Pay-out Ratio and Market Share Price has been made in case of ICICI Bank and SBI. In
case 1, (ICICI Bank) Net Profit and Return on Assets have showed an improvement after
the merger but in case of the other parameters there is no significant improvement in the
performance. In case 2, (SBI), there is no significant improvement in the performance after
the merger as the merger was mainly in the interest of the public. In the initial stage, after
merging, there may not be a significant improvement due to teething problems but later
they may improve upon.

The International Banking scenario has shown major changes in the past few years in terms
of the Mergers and Acquisitions. Due to the financial system deregulation, entry of new
players and products with advanced technology, globalization of the financial markets,
changing customer behaviour, wider services at cheaper rates, shareholder wealth demands
etc., have been on rise.
In this scenario, Mergers and Acquisitions is one of the widely used strategies by the banks
to strengthen and maintain their position in the market. 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

ix
CHAPTER 2: LITERATURE REVIEW

x
2.1 WHAT IS MERGER?
A general term used to refer to the consolidation of companies. A merger is a combination
of two companies to form a new company, while an acquisition is the purchase of one
company by another in which no new company is formed.

2.2 WHAT IS ACQUISITION?

A corporate action in which a company buys most, if not all, of the target company's
ownership stakes in order to assume control of the target firm. Acquisitions are often made
as part of a company's growth strategy whereby it is more beneficial to take over an existing
firm's operations and niche compared to expanding on its own. Acquisitions are often paid
in cash, the acquiring company's stock or a combination of both.

2.3 CONCEPT AND DEFINITION

Merger is defined as combination of two or more companies into single companies where
one survives and other loses their corporate existence the survivor acquires the assets as well
as liabilities of the merged company or companies.
A merger is a combination of two companies where one corporation its completely absorbed
by another corporation the less important company loses its identity and becomes part of the
more important corporation which retains its identity. A merger extinguishes the merged
corporation and the surviving corporation assumes all the right, privileges and liabilities of
the merged corporation. A merger is not the same as the consolidation in which two
corporations lose their separate identities and unite to form a completely new corporation

xi
2.4 MERGER AND ACQUISITIONS IN THE INDIAN BANKING SECTOR
The International Banking scenario has shown major changes in the past few years in terms
of the Mergers and Acquisitions. Due to the financial system deregulation, entry of new
players and products with advanced technology, globalization of the financial markets,
changing customer behaviour, wider services at cheaper rates, shareholder wealth demands
etc., have been on rise.
In this scenario, Mergers and Acquisitions is one of the widely used strategies by the banks
to strengthen and maintain their position in the market. 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. Banks will get the benefits of economies of scale
through mergers and acquisition. For expanding the operations and cutting costs, Business
Entrepreneur and Banking Sector is using mergers and acquisitions worldwide as a strategy
for achieving larger size, increased market share, faster growth, and synergy for becoming
more competitive through economies of scale.
A Merger is a combination of two or more companies into one company or it may be in
the form of one or more companies being merged into the existing companies. On the other
hand, when one company takes over another company and clearly well-known itself as the
new owner, this is called as Acquisition. The banks must follow the legal procedure of
mergers and acquisitions which is given by the Reserve Bank of India, SEBI, Indian
Companies Act and Banking Regulation Act 1949. Mergers and acquisitions is not a short
term process; it takes time to take decisions after examining all the aspects. Indian
Corporate Sector had stringent control before liberalization but, the Government has
initiated the Reform after 1991 which resulted in the adaptation of the different growth and
expansion strategies by the Companies.

xii
2.5 Landmarks in Indian Banking Sector

• The Banking System of India was started in 1770 and the first Bank was the Indian
Bank known as the Bank of Hindustan.
• 1840: Bank of Bombay
• 1843: The Bank of Madras
• 1840: Bank of Calcutta
• 1921: All the above banks were merged and formed a new bank known as Imperial
Bank of India.
• 1955: Imperial Bank was partially nationalized and was named as State Bank of
India
• 1969: 14 banks were nationalized
• 1980: 6 more banks were nationalized
• 1993: The New Bank of India was merged with The Punjab National Bank

Indian Banking can be divided into three main phases:

Phase I (1786 – 1969): Initial phase of Banking in India where many small banks were set
up

Phase II (1969 – 1991): Nationalization, Regularization and Growth marked this period

Phase III (1991 onwards): Liberalization and its aftermath

In post liberalization regime, Government had initiated the policy of liberalization and
licenses were issued to the private banks which led to the growth of the Indian Banking
Sector.
In the recent times, Indian Banking Industry showed a tremendous growth because of an
increase in the retail credit demand, proliferation of ATMs and debit cards, decreasing
NPAs, improved macro-economic conditions, diversification, interest rate spreads and
regulatory and policy changes.

xiii
 Table 1: List of Merger and Acquisitions (M&As) in Indian Banking Industry
since
Nationalization of Banks

Sl. Name of the Transferor Bank Name of the Transferee Date of Merger
No. Bank /Amalgamation
1 Bank of Bihar Ltd. State Bank of India November 8, 1969
2 National Bank of Lahore Ltd. State Bank of India February 20, 1970
3 Miraj State Bank Ltd Union Bank of India July 29, 1985
4 Lakshmi Commercial Bank Ltd Canara bank August 24, 1985
5 Bank of Cochin Ltd. State Bank of India August 26, 1985
6 Hindustan Commercial Bank Ltd Punjab National bank December 19, 1986
7 Traders Bank Ltd Bank of Baroda May 13, 1988
8 United Industrial Bank Ltd Allahabad bank October 31, 1989
9 Bank of Tamilnadu Ltd Indian Overseas bank February 20, 1990
10 Bank of Thanjavur Ltd. Indian Bank February 20, 1990
11 Parur Central Bank Ltd Bank of India February 20, 1990
12 Purbanchal Bank Ltd. Central Bank of India August 29, 1990
13 New Bank of India Punjab National Bank September 4, 1993
14 Bank of karad Ltd Bank of India 1993-1994
15 KashiNath Seth Bank Ltd. State Bank of India January 1, 1996
16 Bari Doab Bank Ltd Oriental Bank of April 8, 1997
Commerce
17 Punjab Co-operative Bank Ltd. Oriental Bank of April 8, 1997
Commerce
18 Bareilly Corporation Bank Ltd Bank of Baroda June 3, 1999
19 Sikkim Bank Ltd Union Bank of India December 22, 1999
20 Times Bank Ltd. HDFC Bank Ltd February 26, 2000
21 Bank of Madura Ltd. ICICI Bank Ltd March 10, 2001
22 ICICI Ltd ICICI Bank Ltd May 3, 2002
23 Benares State Bank Ltd Bank of Baroda June 20, 2002
24 Nedungadi Bank Ltd. Punjab National Bank February 1, 2003
25 South Gujarat Local Area Bank Bank of Baroda June 25, 2004
Ltd.
26 Global Trust Bank Ltd. Oriental Bank of August 14, 2004
Commerce
27 IDBI Bank Ltd. IDBI Ltd April 2, 2005
28 Bank of Punjab Ltd. Centurion Bank Ltd October 1, 2005
xiv
29 Ganesh Bank of Kurundwad Ltd Federal Bank Ltd September 2, 2006
30 United Western Bank Ltd. IDBI Ltd. October 3, 2006
31 Bharat Overseas Bank Ltd. Indian Overseas Bank March 31, 2007
32 Sangli Bank Ltd. ICICI Bank Ltd April 19, 2007
33 Lord Krishna Bank Ltd. Centurion Bank of Punjab August 29, 2007
Ltd.
34 Centurion Bank of Punjab Ltd HDFC Bank Ltd. May 23, 2008
35 The Bank of Rajasthan ICICI Bank Ltd August 13, 2010
36 State Bank of Indore State bank of India August 26, 2010

xv
CHAPTER 4: THEORETICAL
BACKGROUND

xvi
4.1 History of Merger and Acquisition

The concept of merger and acquisition in India was not popular until the year 1988. During
that period a very small percentage of businesses in the country used to come together,
mostly into a friendly acquisition with a negotiated deal. The key factor contributing to
fewer companies involved in the merger is the regulatory and prohibitory provisions of
MRTP Act, 1969. According to this Act, a company or a firm has to follow a pressurized
and burdensome procedure to get approval for merger and acquisitions.

The year 1988 witnessed one of the oldest business acquisitions or company mergers in
India. It is the well-known ineffective unfriendly takeover bid by Swaraj Paul to overpower
DCM Ltd. and Escorts Ltd. Further to that many other Non-Residents Indians had put in
their efforts to take control over various companies through their stock exchange portfolio.

Volume is tremendously increasing with an estimated deal of worth more than $ 100
billion in the year 2007. This is known to be two times more than that of 2006 and four
times more than that of the deal in 2006. Further to that, the percentage is continuously
increasing with high end success in business operations.

As for mow the scenario has completely changed with increasing competition and
globalization of business. It is believed that at present India has now emerged as one of the
top countries entering into merger and acquisitions.

xvii
4.2 Reason for Mergers and Acquisition

1. Synergy: The most used word in M&A is synergy, which is the idea that by combining
business activities, performance will increase and costs will decrease. Essentially, a business
will attempt to merge with another business that has complementary strengths and
weaknesses.

2. Diversification / Sharpening Business Focus: These two conflicting goals have been used
to describe thousands of M&A transactions. A company that merges to diversify may
acquire another company in a seemingly unrelated industry in order to reduce the impact of
a particular industry's performance on its profitability. Companies seeking to sharpen focus
often merge with companies that have deeper market penetration in a key area of operations.

3. Growth: Mergers can give the acquiring company an opportunity to grow market
share without having to really earn it by doing the work themselves - instead, they buy a
competitor's business for a price. Usually, these are called horizontal mergers. For example,
a beer company may choose to buy out a smaller competing brewery, enabling the smaller
company to make more beer and sell more to its brand-loyal customers.

4. Increase Supply-Chain Pricing Power: By buying out one of its suppliers or one of the
distributors, a business can eliminate a level of costs. If a company buys out one of its
suppliers, it is able to save on the margins that the supplier was previously adding to its costs;
this is known as a vertical merger. If a company buys out a distributor, it may be able to ship
its products at a lower cost.

5. Eliminate Competition: Many M&A deals allow the acquirer to eliminate future
competition and gain a larger market share in its product's market. The downside of this is
that a large premium is usually required to convince the target company's shareholders to
accept the offer. It is not uncommon for the acquiring company's shareholders to sell their
shares and push the price lower in response to the company paying too much for the target
company.

4.3 Advantages and Disadvantages of Mergers and Acquisition

xviii
The advantage and disadvantages of merger and acquisition are depending of the new
companies’ short term and long term strategies and efforts. That is because of the factors
likes’ market environment, Variations in business culture, acquirement costs and changes to
financial power surrounding the business captured. So following are some advantages and
disadvantages of merger and acquisition (M&A) are:

Advantages: Following are some advantages

1 .The most common reason for firms to enter into merger and acquisition is to merge their
power and control over the markets.

2. Another advantage is Synergy that is the magic power that allow for increased value
efficiencies of the new entity and it takes the shape of returns enrichment and cost savings.

3. Economies of scale is formed by sharing the resources and services. Union of 2 firm’s
leads in overall cost reduction giving a competitive advantage, that is feasible as a result of
raised buying power and longer production runs.

4. Decrease of risk using innovative techniques of managing financial risk.

5. To become competitive, firms have to be compelled to be peak of technological

developments and their dealing applications. By M&A of a small business with unique
technologies, a large company will retain or grow a competitive edge.

6. The biggest advantage is tax benefits. Financial advantages might instigate mergers and
corporations will fully build use of tax- shields, increase monetary leverage and utilize
alternative tax benefits

Disadvantages: Following are the some difficulties encountered with a merger

xix
1. Loss of experienced workers aside from workers in leadership positions. This kind of
loss inevitably involves loss of business understand and on the other hand that will be
worrying to exchange or will exclusively get replaced at nice value.

2. As a result of M&A, employees of the small merging firm may require exhaustive re-
skilling.

3. Company will face major difficulties thanks to frictions and internal competition that
may occur among the staff of the united companies. There is conjointly risk of getting
surplus employees in some departments.

4. Merging two firms that are doing similar activities may mean duplication and over
capability within the company that may need retrenchments.

5. Increase in costs might result if the right management of modification and also the
implementation of the merger and acquisition dealing are delayed.

6. The uncertainty with respect to the approval of the merger by proper assurances.

7. In many events, the return of the share of the company that caused buyouts of other
company was less than the return of the sector as a whole.

8. The merger and acquisition (M&A) reduces flexibility. If a rival makes revolution and
may currently market vital resources those are of superior quality, shift is tough. The
change expense is majorly the distinction between the particular merger worth and also
the merchandising value of the firm that can be of larger distinction.

4.4 Types of Mergers and Acquisition

xx
 There are many types of mergers and acquisitions that redefine the business world
with new strategic alliances and improved corporate philosophies. From the business
structure perspective, some of the most common and significant types of mergers and
acquisitions are listed below:

Horizontal Merger
This kind of merger exists between two companies who compete in the same industry
segment. The two companies combine their operations and gains strength in terms of
improved performance, increased capital, and enhanced profits. This kind substantially
reduces the number of competitors in the segment and gives a higher edge over competition.

Vertical Merger
Vertical merger is a kind in which two or more companies in the same industry but
in different fields combine together in business. In this form, the companies in merger decide
to combine all the operations and productions under one shelter. It is like encompassing all
the requirements and products of a single industry segment.

Co-Generic Merger
Co-generic merger is a kind in which two or more companies in association are some
way or the other related to the production processes, business markets, or basic required
technologies. It includes the extension of the product line or acquiring components that are
all the way required in the daily operations. This kind offers great opportunities to businesses
as it opens a hue gateway to diversify around a common set of resources and strategic
requirements.

Conglomerate Merger
Conglomerate merger is a kind of venture in which two or more companies
belonging to different industrial sectors combine their operations. All the merged
companies are no way related to their kind of business and product line rather their
operations overlap that of each other. This is just a unification of businesses from different
verticals under one flagship enterprise or firm.

4.5 BENEFITS OF BANK MERGERS

Scale
xxi
A bank merger helps your institution scale up quickly and gain a large number of new
customers instantly. Not only does an acquisition give your bank more capital to work with
when it comes to lending and investments, but it also provides a broader geographic
footprint in which to operate. That way, you achieve your growth goals quicker.
Efficiency
Acquisitions also scale your bank more efficiently, not just in terms of your efficiency
ratio, but also in terms of your banking operations. Every bank has an infrastructure in
place for compliance, risk management, accounting, operations and IT – and now that two
banks have become one, you’re able to more efficiently consolidate and administer those
operational infrastructures. Financially, a larger bank has a lower aggregated risk profile
since a larger number of similar-risk, complimentary loans decrease overall institutional
risk.
Business gaps filled
Bank mergers and acquisitions empower your business to fill product or technology gaps.
Acquiring a smaller bank that offers a unique revenue model or financial product is
sometimes easier than building that business unit from scratch. And, from a technology
perspective, being acquired by a larger bank might allow your institution to upgrade its
technology platform significantly.
Talent and team upgrade
While not a factor on the balance sheet, every bank benefits from a merger or acquisition
because of the increase in talent at leadership’s disposal. An acquisition presents the
possibility of bolstering your sales team or strengthening your team of top managers, and
this human element should not be ignored or downplayed.

xxii
 CHAPTER 3: OBJECTIVES OF THE STUDY

3.1 Objectives

1. To study the impact of Mergers and Acquisitions in Indian Banking sector.

2. To evaluate the bank performance after mergers and acquisition.

xxiii
xxiv
 CHAPTER 4: RESEARCHMETHODOLOGY

What Is Research?

Research is a systematic inquiry to describe, explain, predict and control the observed
phenomenon. Research involves inductive and deductive methods. Inductive methods
analyse the observed phenomenon and identify the general principles, structures, processes
underlying the phenomenon observed; deductive methods verify the hypothesized principles

xxv
through observations. The purposes are different: one is to develop explanations and other
is to test the validity of the explanations.

It is a process used to collect information and data for the purpose of making business
decisions. The methodology may include publications research, interview, surveys and other
research techniques, and could include both present and historical information.

Data Collection

Primary Data

xxvi
 Primary data can be collected through experiment and through survey, If the
researcher performs an examination in truth in his hypothesis. In the case of survey, however,
the researcher can adopt one or more of the following ways to collect the data:

 By Observation
 Through Personal Interview
 Through telephonic interview
 By mailing the questionnaires
 The schedules

Secondary Data

Secondary data is collected from sources which have already been created for the
purpose of the first time use and future use. Secondary data can be obtained from internal
and external sources. There are several methods of collecting the data.

 Private documents or personal documents such as life history, files, diaries, etc.
 Journals, magazines, newspapers, books, annual reports
 Census survey reports
 Use of mechanical devices

xxvii
 CHAPTER 5: DATA ANALYSIS AND
INTERPRETATION

5.1 DATA ANALYSIS AND INTERPRETATION

Since Nationalization, various Banks have been either merged or acquired and the same
along with the dates of Merger/Amalgamation is provided in the Table 1.

xxviii
 Table 2: Sample Banks
Sr. No. Acquirer Bank Merged Bank Date of Merger
1 ICICI Bank Bank of Rajasthan Aug 13, 2010
2 State Bank of India (SBI) State Bank of Aug 26, 2010
Indore

In table 2, the selection of two cases by the researcher for the study is presented. First, the
merger of the ICICI Bank and Bank of Rajasthan on Aug 13, 2010, and the second, the
merger of the State Bank of Indore with the State Bank of India on August 26, 2010 are
selected and analysed. ICICI Bank is from the Private Sector and SBI is from the Public
Sector.

To analyse the financial performance of the Banks before and after merger, a few ratios like
Operating Profit Ratios, Net Profit Margin, return on Assets, return on Equity, Debt Equity
Ratio, Dividend Pay-out Ratio, Earning per Share and Market Price of Share have been
calculated and the same are presented in Table 3 and Table 4 for ICICI Bank and the SBI
respectively.

Ratios

Operating Profit Margin = Operating Profit/Sales × 100

Net Profit Margin = Net Profit/Sales × 100

Return on Assets =Net Profit/Total Assets × 100

Return on Equity (ROE) =Net Profit/Equity Share Holder’s Funds × 100

Debt Equity Ratio (Pure Ratio) = Total Debt/ Share Holder Equity
Dividend Pay-out Ratio = Dividend / Net Income X 100

Table 3
Financial Performance of ICICI Bank

xxix
 Post-
Pre-Merger
Merger

2007 -08 2008-09 2009-10 Avg. 2011-12 2012-13 2013-14 Avg.

Operating
Profit
Ratio
20.10 23.06 29.15 24.10 25.30 27.26 30.38 27.65

Net Profit
Ratio
10.50 9.71 12.06 10.76 15.75 17.19 17.97 16.97

Return on
Assets
1.10 1.00 1.10 1.07 1.44 1.66 1.64 1.58

Return on
Equity
11.10 7.70 7.90 8.90 11.09 12.94 7.03 10.35

Earnings
per
Share
39.39 33.76 36.14 36.43 56.11 72.20 84.90 71.07
Debt
Equity
Ratio
5.27 4.42 3.91 4.53 4.23 4.39 4.31 4.31

Dividend
Pay-out
Ratio
33.12 36.60 37.31 35.68 32.82 27.71 30.00 30.18

Share Price
(NSE/BSE)
770 333 953 685 887 1045 1245 1059

xxx
 FIGURE 1

Table 3 shows the analysis of the financial performance of ICICI Bank before and after
the merger of Bank of Rajasthan with ICICI. The evaluation is made on the basis of the
financial ratios. It is found that there is a difference in the performance after the merger.
There is an increase in the average Operating Profit Margin (24.10 % to 27.65%), Net
Profit Margin (10.76% vs. 16.97%), Return on Assets (1.07 % to 1.58%), Return on
Equity (8.9 % to 10.35%) and Earnings per Share were (36.43% to 71.07%) in the post-
merger period. It is only in the case of Debt Equity Ratio and Dividend Pay-out Ratios,
there is a decline in the post-merger period. Market Price of the Share has continuously
increased during the post-merger period and the Average Share Price has risen from Rs.
685 to Rs. 1,245 reflecting upon a favourable impact of Merger.

xxxi
 Table 4
Financial Performance of STATE BANK OF INDIA

Pre Merger Post merger

200708 200809 200910 Avg. 201112 201213 201314 Avg.

Operating Profit
Ratio 22.74 23.43 21.31 22.49 26.12 22.90 19.09 22.70

Net Profit Ratio 11.67 11.93 10.66 11.42 9.68 10.39 6.98 9.02

Return on Assets 1.01 1.04 0.88 0.98 0.88 0.91 0.63 0.81
Return on Equity 17.82 15.07 14.04 15.64 14.36 15.94 10.97 13.76

Earnings Per Share 126.62 143.77 144.37 138.25 184.31 210.06 153.02 182.46

Debt Equity Ratio 10.96 12.81 12.19 11.99 12.43 12.16 12.30 12.30

Dividend Payout
Ratio 20.18 20.19 20.78 20.38 20.06 20.12 20.09 20.09

Share Price
(NSE/BSE) 1600 1067 2078 1582 2096 2073 1918 2029

Table 4 shows the analysis of the financial performance of SBI before and after the merger
of State Bank of Indore with SBI. It is found that there is not much difference in the mean
of the Operating Profit Margin (22.49 % to 22.70%). There is a decline in the Net Profit
Margin (11.42% to 9.02%), Return of Assets (0.98 % to 0.81%), and Return on Equity
(15.64 % to

xxxii
13.76%). Earnings per Share have increased by 44.21 percent in the post merger period.
There is no significant change in the Debt Equity Ratio and Dividend Payout Ratio. Market
Price of the Share showed a continuous decline in the post merger period. Minister of State
for Finance NamoNarainMeena said while replying to the debate on the State Bank of India
(Subsidiary Banks) Amendment Bill, 2010 in RajyaSabha that Government has merged the
State Bank of Indore with the State Bank of India (SBI) in the public interest.

FIGURE 2

The result states that the performance of the State Bank of India (SBI) has not improved
after it acquired the State Bank of Indore. There is no significant difference in the
performance of SBI before and after the merger with State Bank of Indore and the
merger was mainly in the interest of the public and not to gain materially.

xxxiii
CHAPTER 6: OBSERVATIONS AND FINDINGS

Observations and Findings

xxxiv
1. In case of ICICI bank operating profit ratio, has been increased up to 27.65% from
24.10% after mergers.

2. Net profit ratio has been increases by 6%.

3. Factors like Return on assets, returns on equity and Earning per share has been
increased due to mergers.

4. Debt equity Ratio and Dividend Pay-out Ratio has been decreased after merger.

5. There is drastic change in the price of ICICI bank share price after merger.

xxxv
 CHAPTER 7: CONCLUSION

Conclusion

xxxvi
Mergers and Acquisition is a useful tool for the growth and expansion in any Industry and
the Indian Banking Sector is no exception. It is helpful for the survival of the weak banks by
merging into the larger bank. This study shows the impact of Mergers and Acquisitions in
the Indian Banking sector and two cases have been taken for the study as sample to examine
the as to whether the merger has led to a profitable situation or not. For this purpose, a
comparison between pre and post-merger performance in terms of Operating Profit Margin,
Net Profit Margin, return on Assets, return on Equity, earning per Share, Debt Equity Ratio,
Dividend Pay-out Ratio and Market Share Price has been made in case of ICICI Bank and
SBI. In case 1, (ICICI Bank) Net Profit and Return on Assets have showed an improvement
after the merger but in case of the other parameters there is no significant improvement in
the performance. In case 2, (SBI), there is no significant improvement in the performance
after the merger as the merger was mainly in the interest of the public. In the initial stage,
after merging, there may not be a significant improvement due to teething problems but later
they may improve upon.

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 CHAPTER 9: BIBLOGRAPHY

BIBLOGRAPHY
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1. www.finance-magazine.com

2. www.Investopedia.com

3. www.sebi.gov.in/sebiweb/regulations

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