Volume 4, Issue 9 (September, 2015)

Online ISSN-2320-0073

Published by: Abhinav Publication

Abhinav International Monthly Refereed Journal of Research in

Management & Technology

AN IMPACT OF MERGERS AND ACQUISITIONS ON

PRODUCTIVITY AND PROFITABILITY OF CONSOLIDATION
BANKING SECTOR IN INDIA
Gurbaksh Singh1
Researcher, Himachal Pradesh University Shimla, India
Email: gur_bakshsingh@yahoo.co.in
Sunil Gupta2
Professor, Department of Commerce, Himachal Pradesh University,
Shimla(H.P.), India
Email: gupta7907@gmail.com
ABSTRACT
The Financial sector improves to introduce by the Indian Government during the early 1990s and the
key parameters like globalisation and post -liberalisation of the world economy, Indian banking has
begun to change itself. It is experiencing scenario to change known as consolidation of Indian
banking. In this paper interpret the financial performance of banking sector pre and post -merger their
activities consolidated by the stronger financial institutions. This paper analysis the Impact of M&
Ason productivity and profitability of consolidation in the Indian Banking sector.The current paper
examined the performance, strengthens and weakness of the sample two banks i.e.one public and one
private sector banks based on the financial ratios from the perspective of pre and post merger
grounds. The collection of data covers financial performance of selected banks from 2004-05 to 201415. The statistical tools are arithmetic mean, standard deviation, t-test and p-value etc. to use gauge
the various financial ratios before and after merger analysis.Ratios of studies are used to compare pre
and post -merger financial performance evaluation of consolidation banks, test analysis and multiple
comparisons which realisation the efficiency of the sample banks. Positioned on the analysis of ICICI
Bank concluded that Net Profit Margin, Operating Profit Margin, Return on Capital Employed,
Return on Net Worth, Interest Coverage, Deposit per Employee and Credit Deposit Ratio there is
significant difference but non-significant difference with respect to Gross Profit Margin, Dept-Equity
Ratio, Current Ratio, Quick Ratio, Earnings per Share and Business per Branch. Positioned on the
analysis of State Bank of India concluded that there is non-significant difference in respect to Gross
Profit margin, Operating Margin, Return on Capital Employed, Dept-Equity, Interest Coverage and
Current Ratio but there is significant difference with respect to Net Profit Margin, Return on Net
Worth, Quick Ratio, Credit Deposit Ratio, Earnings per Share, Deposit per Employee, Credit per
Employee, and Business per Branch. The study concluded that the banks have been positive effects
when distinguished between pre mergers and post- merger period.

Keywords: Profitability; Efficiency; Merger and Acquisitions; Financial; Ratios

INTRODUCTION
Mergers and Acquisitions have been the principal tools of corporate restructuring in India after the
implementation of economic reforms since 1991. In the last two decades owing to rapid changes that
have taken place in the business environment. Business concerns have to face increased competition
not only form banking industry within the country but also from international business giants due to
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globalisation, liberalisation, technological changes and other factors. The objectives of M & As is
wealth maximisation in terms of synergy, strategic imperatives, capital market expectation, economies
of scale, diversification, reduced earnings volatility, increased in domestic market and customer
awareness. Consolidation of business entities, through mergers & acquisitions, is a world-wide
phenomenon. The measure of consolidation of scheduled commercial banks appears as one of the most
profitable strategy. Consolidation in the Banking sector is very important in terms of mergers and
acquisitions for the growing Indian Banking industry. This paper attempts to one public sector bank
and one private sector bank on the basis of finance for the years 2004-05 to 2014-15.The study has
used productivity and profitability for calculate these banks which reflects operating performance and
liquidity of the merger banks.
Mergers and Acquisitions are the formal business transaction involving the purchase of one company
is another date bank to the late 19th century. Yet mergers and acquisitions remain among intriguing
business paradoxes of recent times (Langoford & Brown III, 2004), different researchers have defined
mergers and acquisitions differently as under:According to researchers (Ganghan, 2002). Chundai Chen & Findlay, 2003 &Jagersma, 2005)
Mergers is the comparison of two or more companies in creation of a new entity or formation of a
holding company. Acquisition is the purchase of shares or assets another company to achieve a
managerial influence not necessarily by mutual agreement.
According to Ramaiya (1977) A merger or Amalgamation results in the combination of two or
more companies in to one, where in the merging entities lose their identities by being absorbed into the
merger entity.
In post-liberalisation, the banking industry in India has grown at a fast pace. Increased economic
activity coupled with de-regulation has further strengthened the position of Indian banks. By the end of
March 2013, the total deposits held by the scheduled commercial banks stood at INR 1,20,344 crores,
a growth of 21.8 percent over 2013-14 and a compound annual growth rate (CAGR) of 14.9 percent
since 2001-02. The total loans and advances offered by commercial banks grew by 41.3 percent
between March 2013-14, recording a CAGR of 23.6 percent since 2001-02.
Consolidation in an Indian Banking Sector
Consolidation of business entities, through mergers and acquisitions, is a world-wide phenomenon.
The numerous mergers and acquisitions all over the world, including in India, in the real as well as in
the financial services sector, appear to be driven by the objective of leveraging the synergies arising
from the process of merger and acquisition. The private sector banks are subject to the provisions of
the Banking Regulation Act, 1949, the public sector banks are governed by their respective founding
statutes and by those provisions of the Banking Regulation Act which have been made specifically
applicable to them. The urban co-operative banks, on the other hand, are governed by the provisions of
the Cooperative Societies Act of the respective State or by the Multi-State Cooperative Societies Act,
as also by the provisions of the Banking Regulation Act which are specifically applicable to them. The
Development Financial Institutions (DFIs), which were founded by a statute, attract the provisions of
those statutes while the DFIs structured as limited companies, were subject to the provisions of the
Companies Act, 1956, but both the types of the DFIs are regulated and supervised by the RBI under
the provisions of the R B I Act, 1934. The Regional Rural Banks (RRBs) were created under the RRBs
Act, 1976 and are regulated by the RBI but supervised by the NABARD, while the non-banking
financial companies are subject to the provisions of the Companies Act, 1956 and are regulated and
supervised by the RBI under the provisions of the RBI Act.
History of Consolidation in the Indian Banking Sector
The consolidation in the Indian banking sector, it may be recalled that the Report of the Committee on
Banking Sector Reforms (the Second Narasimham Committee - 1998) had suggested, inter alia,
mergers among strong banks, both in the public and private sectors and even with financial institutions
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and NBFCs. Indian banking sector is no stranger to the phenomenon of mergers and acquisition across
the banks. Since 1961 till date, under the provisions of the Banking Regulation Act, 1949, there have
been as many as 77 bank amalgamations in the Indian banking system, of which 46 amalgamations
took place before nationalisation of banks in 1969 while remaining 31 occurred in the postnationalisation era. Of the 31 mergers, in 25 cases, the private sector banks were merged with a public
sector bank while in the remaining six cases both the banks were private sector banks. Since the onset
of reforms in 1990, there have been 23 bank amalgamations. It would be observed that prior to 1999,
the amalgamations of banks were primarily triggered by the weak financials of the bank being merged,
whereas in the post-1999 period, there have also been mergers between healthy banks driven by the
business and commercial considerations. The consolidation efforts in the Indian banking sector can be
broadly placed, as per the nature of the entities involved and of the mergers, into several categories
viz.:
(a) Voluntary amalgamation between private sector banks.
(b) Compulsory amalgamation of a private sector bank.
(c) Merger between public sector banks.
(d) Merger of a non-banking financial company (NBFC) with a private sector bank.
(e) Merger of a housing finance subsidiary with the parent public sector bank.
Mergers and Acquisitions have become the crucial means of bank expansion, especially for banking
firms seeking commanding heights in global financial markets. Bank mergers produced a sea change
in the banking industry structure.
A new recent trend is the increase in the interest of foreign expats to work in India. Both these
communities seek banking products in remittances and other cross border retail products. Further firms
are looking for funds overseas for various purposes ranging from capital expenditure to leveraged
M&A financing. Hence, Indian banks are setting up branches and subsidiaries overseas and foreign
banks are expanding their operations in India. These bank branches (set up abroad) further target the
local population to be profitable and hence target local acquisitions. Evidently, this results in an M&As
opportunity for foreign banks to acquire an Indian bank and also Indian banks to acquire foreign
banks. For example, ICICI Bank has made an acquisition of a bank in Europe in 2006 to establish
itself in a geographical area.To be concluded that Mergers and Acquisitions of banking sector has
takeover supports and solidity in the market driven in the post-liberalization period. Mergers and
Acquisitions in the post- mergers bidder banks acquire weak banks which understood their stand in the
market and stability in the productivity and profitability of bank strong banks.
REVIEW OF LITERATURE
The present chapter deals with the review of existing literature available on the research work. Various
studies have been conducted by researchers on the different aspects of Merger and Acquisition of
banks. The review of literature brings to the light that no attempt has been made to study the financial
performance of merged banks based on the criteria chosen for this study. There is imperative need to
perform financial growth, size, strength, profitability and safety. The present study intends to make a
modest effort to fill this gap.
Vashisht (1987) evaluated the performance of public sector banks with regard to six indicators, viz.
branch expansion, deposit, credit, priority sector advances, DRI advances, and net profit over the
period 1971-83. The researcher has used composite weighted growth index to rank the banks as
excellent, good, fair and poor. In order to improve the performance, he has suggested that developing
marketing strategies for deposit mobilisation, profit planning and SWOT analysis.
Cornett and Tehranian (1992) examined the post-acquisition performance of large bank merger
between 1982 and 1987. The results of their study indicate better performance for merged banks due to
the improvements in ability to attract loans and deposits, in employee productivity and in profitable
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asset growth. Further, the study finds a significant correlation between announcements period
abnormal return and the various performance measures indicate that the market participants were able
to identify in advance the improved performance associated with bank acquisition.
Atma (1996) covered the growth and progress of commercial banking in India. The trends in deposits
of State Bank of Hyderabad over a period of time were analysed and ratios were calculated to know
the banks financial performance. It was concluded that the progress of banking in India has been
impressive and the present structure was the outcome of the processes of expansion, reorganisation and
consolidation.
Gelli (1998) emphasized that if achieving size to compete on a global scale, even in the domestic
market, were the objective, the banks would need an immediate series of mega mergers. Finally, he
concluded that higher levels of capital backing were vital, which only mergers can achieve.
Kumar and Kishore (2003) observed that implementing stricter prudential norms should in no way
cause anxiety to depositors as to the safety of their deposits. He concluded that it was worth-nothing
the observation of the Narasimham Committee in its second report. The process of strengthening the
banking system has to be viewed as a continuing one. There was no finite end to improving the levels
of efficiency and profitability. After implementing various recommendation made by Narasimham
Committee from 1991 onwards in the form of first phase reforms and second generation reforms
(1998) in the banking and financial sector.
Chanda (2005) concluded that profitability of the public sector banks has not been affected by
deregulation in India. The Indian banking industry was second to none in the world from the viewpoint
of its profitability. The stock prices of the public sector banks were impressive. In addition, it could be
said that bank mergers might not always be a blessings for the customers. It might increase the
opportunities for monopolistic pricing. As a result, the customer would earn a lower rate of interest on
deposit in a more concentrated banking market. Even then in the age of globalisation, foreign banks
were securing entry to the borderless economy of India on the strength of their giant size and
diversified banking activities.
Dash, Ashutosh (2005) studied the recent changes in the Indian economic scenario, mergers and
acquisitions examine the economic consequences of mergers with the view to resolving the conflict.
He found that the modem mergers were primarily motivated by the firms with above industry average
performance and this trend continues to persist overtime. However, thesis was no support of influence
of mergers on operating profitability, whatever the strategy may be, finally, he concluded that the
popular belief of merger as a means of corporate plus and declares it to be a myth.
Mohan (2006) lamented that the Indian market was over banked, but under serviced. As a result,
Indian Banks clearly lack global scale. From the point of view of financial system, consolidation of
banks was imperative. The objective would be strengthening of banks, economies of scale, global
competitiveness, and cheaper financial series and retaining of employees for merging skill sets.
However, mergers and acquisitions in the domestic banking sector should be driven by market-related
parameters such as size and scale, geographic and distribution synergies and skills and capacity.
Mantravadi and Reddy (2007) studied the impact of mergers on the operating performance of
acquiring public limited companies in India by examining few pre and post merger financial ratios
during the period 1991-2003. It was observed that the mergers between the same groups of companies,
there has been deterioration in performance and Return on Investment, implying that such mergers
were only motivated by a potential for increasing the asset base through consolidation of different
businesses rather than driving efficiency improvements.
Seetharaman, Lee and Raju (2007) studied that effect on the role and consequences of the bank
mergers, post - merger performance of the local banks and the foreign banks. The consolidate the
financial and corporate sector were objectives as relieving institution of their non-performing loans,
strengthening and recapitalizing banking institutions, facilitating corporate debt restructuring and
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enhance efficiency within the system. In general, this studied was aimed to investigate the impact of
the merger to banking industry as well as the impact of the liberalization of the financial market in the
Malaysia. To determine impact of mergers on bank profitability ratio such as Return on Assets, Return
on Equity, Return on Capital Employed, and pre-tax margin had been used in their research study
papers which improved the productivity and profitability of banking system. To be concluded that the
liberalization of foreign bank entry was aimed at increased competition, improved efficiency in the
domestic sector. The bottom line considered banking efficiency, profitability was good relation with
customer, satisfaction, quality and price winning their loyalty and trust.
Uppal, R.K. (2008) in his brief article analysed that the performance of major banks in terms of
productivity and profitability in the pre and post e-banking period. The paper concludes that
performance of all the banks under study is much better in post e-banking period and further foreign
banks are at the top positions, whereas the performance of the public sector banks is comparatively
very poor. The paper suggests some measures to tackle the challenges faced by banks particularly
public sectors banks. Its defined the Labour Productivity, Branch Productivity and also Profitability
Ratio of public sector banks and private sector banks. The paper concludes that transformation is
taking place almost in all categories of the banks and suggests how public sector banks can convert the
emerging challenging into opportunities?
Singh and Mogla (2010) in their research paper examined the profitability of acquiring firms in the pre
- and - post merger periods. The sample consists of 153 listed merged companies. Five alternative
measures of profitability were employed to study the impact of merged on the profitability of acquiring
firms. The results reveals that profitability declined in 55 % of companies and only 29% of companies
could improve their profitability. DuPont Analysis reveals that profitability declined due to poor asset
utilization. It suggests that managers should give due attention to proper utilization of newly acquired
assets. An acquisition of neither healthy nor loss-incurring units continued to the profitability of
acquires.
Khan (2011) explained that the purpose of this paper was to explore various motivations of mergers
and acquisitions in the Indian banking sector. It was helped to get the benefits of greater market share
and cost efficiency. The studied investigate the detail of merger and acquisitions (M&As) with greater
focus on the Indian banking sector in post liberalization period. It also compares pre and post-merger
financial performance of merged banks with use of financial parameters such as Gross Profit Margin,
Net Profit Margin, Operating Profit Margin, Return on Capital Employed, Return on Equity and DebtEquity Ratio through literature review it comes to know that most of the work done high lightened the
impact of Mergers and Acquisitions on different aspects of the companies. The data of mergers and
acquisitions since economic liberalisation were collected for a set of various financial parameters. In
his journal papers examined that the changes occurring in the acquiring firm on the basis of financial
ground and t-test method evaluates testing the statistical significance and ratios analysis for
performance of pre and post merger regime period. The study evaluates research based upon one
public and one private sector banks and objectives analysis based upon testing the significance
hypothesis pre and post-merger banks. The results of the study indicates that the banks have been
positively affected and increased the performance of banks after the mergers and acquisitions (M&As).
To be concluded that merger banks can obtain efficiency and gain through merger and acquisitions and
passes the benefits to the equity share holders in the form of dividend and generate higher net profits
margins in the banks.
Sai and Sultana (2013) explained that banking sector is one of the most important instruments of the
national development, occupies a unique place in a nations economy. Economic development of the
country is evident through the soundness of the banking system. Deregulation in the financial market,
market liberalization, economic reforms have witnessed astounding changes in banking industry
leading to incredible competitiveness and technological sophistication leading to a new era of in
banking. The current paper evaluates the performance of the selected two banks based on the financial
ratios from the perspective of pre and post - merger. To analyse the impact of merger paired t-test was
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applied to the various financial ratios for before and after merger data. Based on the analysis of Indian
overseas bank data, it can be concluded that Net Profit Margin, Operating Profit Margin, Return on
Capital Employed, Return on Equity and Debt- Equity Ratio there was significant difference but no
significant difference with respect to Gross profit margin. Based on the analysis of HDFC bank data it
can be concluded that Net profit margin, Operating profit margin, Return on capital employed, Return
on equity and Debt- Equity ratio there was no significant difference in these ratios before after mergers
compare there was significant difference with respect to Gross profit margin.
Soni and Jain(2013) depicts the compares pre and post-merger of banks with use of financial
ratiosGross Profit Margin, Net Profit Margin, Operating Profit Margin, Return on Capital Employed,
Return on Equity and Debt Equity Ratio. This study shows the changes represent in the acquired firms
based on financial parameters. The tools used t-test for testing the statistical significance and effect of
Merger and Acquisitions on the performance of banks. To be concluded that the banks have been
positively affected by the event of Merger and Acquisition.
Monika (2014) in her paper review that mergers and acquisitions expressed value mixed motives and
use behavioural theories to evaluate the rationalism behind decisions. That proposal would investigate
the context, process and consequences of mergers of Indian Banks. The purpose of that paper was to
assess the overall financial performance and value implications of recent mergers and acquisitions in
Indian Banking system. Since mergers and acquisitions have emerged as a natural process of business
restructuring throughout the world and financial restructuring through mergers and acquisitions evokes
a great deal of public interest and perhaps represent the most dynamic facet of corporate strategy.
In the above literature survey we examined in between 1960-1900s based upon the pre-reform period
of banking system but after 2000 the consolidation of banks changing the economic performance and
financial positions of banks & having pre and post-merger performance of banking systems as per
universal basis.
NEED OF THE STUDY
The need of the study to compare pre and post merger performance of the selected banks after the
1990 and collected the data and information which is collecting from RBI i.e. Report on trends &
progress of bulletin banking India. In the earlier consolidation of banks impact on productivity &
profitability to evaluate their performance in the pre and post mergers under the regime of banking
sector reforms. It has affected the productivity, profitability & efficiency of the banks to a large extent.
The impact of mergers change in profitability i.e. ROCE (Return on Capital Employed), RONW
(Return on Net Worth), PM (Profit Margin) & other financial ratio is compared using the performance
of pre-merger & post-mergers for the need of the study to analyse the consolidation of banks.
SCOPE OF THE STUDY
The study will cover the entire Indian and Universal Banking scene. While consolidation via merger
route is one option, scaling up operations through branch expansion, size and growth becomes all
important both organic and inorganic. The sphere of observations is to be involved the merger banks
after 2004-05 to 2014-15.
OBJECTIVES OF THE STUDY
1. To study the impact on the Productivity and Profitability of the Sampled Banks in India.
2. To examine the strength and weakness of the merged banks in India and find out the
Improvements faced by the beneficiaries
HYPOTHESIS
Mergers and Acquisition improves the financial performance of the banks and hypothesis formulated
for the study:
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H0= There is no significance difference between the pre-merger and post- merger performance
of ICICI Bank and State Bank of India.

H1= There is significance difference between the pre-merger and post- merger performance of
ICICI Bank and State Bank of India.

RESEARCH DESIGN
Sample, Data Sources and Period of the Study
The current study choose one from Public Sector and one from Private Sector Bank to assess the
impact of mergers and acquisitions on the financial performance of selected banks. The financial data
has been compiled for the financial year 2004-05 to 2014-15 on an annual basis.The study is based on
secondary data which made from the Reserve Bank of India, Annual Reports of Banks, Report on
trends and progress of bulletin banking in India, Statistical tables relating to banks, RBI Bulletin,
Journal, Articles, Centre for Monitoring Indian Economy (CMIE) and Money Control etc. for the
study.
ANALYSIS OF STUDY
The statistical tools and techniques such as ratios and percentages are used for the analysis of data is
used for the presentation of the data. To test the hypothesis, t-test, standard deviation, and mean is
evaluated in the data of sample banks. The performance of the banks before and after the mergers and
acquisitions has been compared.
METHODOLOGY
The present study is an attempt to examine the performance of mergers and acquisitions of banking
sector in India. The research is an attempt to evaluate the methodology used for the present study. The
present study is an attempt to examine the performance of private and public banks using in terms of
productivity and profitability of merged entities. The methodology is based on the entire research work
found in the different scenario.
Productivity
Productivity is defined as the efficiency with which output is produced by a given level of input.
Productivity generally measure by ratio of output to input. An increase in the ratio indicates increase in
productivity conversely an adverse in the out/input indicates decline in the productivity.
Profit per Employee
This measures the efficiency of all employees of a bank in generating profit for the banks. It is
calculated by dividing the total profit earned by the bank, by the total number of employees. Profit
means net profit as per the profit and loss account of the banks. Net Profit is the difference between
income and expenditure. A higher level of profit per employee is a clear indication of good health of
the banks.
Business per Employee
This measures the efficiency of all the employees of bank in generating business for the bank. It is
calculated by dividing the total business by the total number of employees. Business means the sum of
total deposits and total advances of the banks in an annual year.
Branch Productivity Ratios

Deposit per Branch

Credit per Branch

Business per Branch.

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Ratios
The profitability, leverage and liquidity ratios are listed as follows:

Gross Profit Margin = Gross Profit/Sales 100

Net Profit Margin = Net Profit/Sales 100

Operating Profit Margin = Operating Profit/Sales 100

Return on Capital Employed (ROCE) =Net Profit/Total Assets 100

Return on Equity (ROE) =Net Profit/Equity Share Holders Funds 100

Debt Equity Ratio = Total Debt/ Share Holder Equity

Return on Net Worth = Profit after Tax/Net Worth

Interest Coverage Ratio = Profit before Interest and Taxes/Total Interest Expenses

Current Ratio= Current Assets/Current Liabilities

Quick Ratio= Quick Assets/Quick Liabilities

Credit per Employee = Total Advances/Total Number of Employee

Deposit per Employee = Total Deposits/Total Number of Employee

Business per Branch = Total Business Branch/Total Number of Branches

Earnings Per Share = Profit After Tax-Preference Dividend/Number of Equity Shares

The financial analyses of the data, above ratios are found with including the year of merger in selected
bank.
Analysis
In this study two cases of selection is presented for the analysis. First, the merger of the ICICI Bank
(Transferee) and Bank of Rajasthan (Transferor) as on August 132010 and another merger of the State
Bank of India (Transferee) and State Bank of Saurashtra (Transferor) as on July 31 2008. ICICI Bank
is taken form Private sector bank and State Bank of India is taken from Public sector Bank. To analyse
the financial performance of the Banks Before and After Merger used the Ratios of Productivity and
Profitability narrates Gross Profit Margin, Net Profit Margin, Operating Profit Margin, Return on
Capital Employed, Return on Equity, Debt Equity Ratio, Return on Net Worth, Interest Coverage
Ratio, Current Ratio, Quick Ratio, Credit per Employee, Deposit per Employee, Business per Branch,
and Earnings Per Sharehave been calculated. Table 1, 3 and 5 for ICICI Bank and Table 2,4 and 6for
State Bank of India are presented respectively.
Table 1. Financial Ratio Analysis of ICICI Bank before and After Merger

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Table 1. Financial Ratio Analysis of ICICI Bank before and After Merger (contd.)

Source: Compiled for the Financial Statements retrieved from Banks, CMIE PROWESS Data,
http://www.moneycontrol.com/stocksmarketsindia
Table 2. Financial Ratio Analysis of State Bank of India Before and After Merger

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Table 2. Financial Ratio Analysis of State Bank of India Before and After Merger (contd.)

Source: Compiled for the Financial Statements retrieved from Banks, CMIEPROWESS Data,
http://www.moneycontrol.com/stocksmarketsindia
Table 3. Financial Parameters of ICICI Bank Pre and Post Merger
Group
Pre
Gross Profit Margin
Post
Pre
Net Profit Margin
Post
Pre
Operating Profit Margin
Post
Pre
Return on Capital Employed
Post
Pre
Return on Net Worth
Post
Pre
Dept-Equity Ratio
Post
Pre
Interest Coverage Ratio
Post
Return on Equity
Pre
Post
Ratios

N
5
4
5
4
5
4
5
4
5
4
5
4
5
3
5
3

Mean Std. Deviation

91.64659
1.458743
93.15626
4.583891
11.80400
2.395032
17.28500
1.115482
56.90580
4.609662
75.84905
16.118295
1.06177
.137452
1.56308
.176574
9.36600
2.254203
12.75750
1.590354
7.11953
2.433926
6.60052
.049815
13.28504
.530813
15.47728
.643356
9.44800
1.689488
13.17000
2.005916

t-value p-value
-.704 .504ns
-4.185

.004**

-2.541

.039*

-4.808

.002**

-2.532

.039*

.420

.687ns

-5.259

.002**

-2.830

.030*

Source: 1* and 5** level of significance

Testing the Significance Difference between Pre and Post-Merger Financial Ratios of
ICICI Bank
Table 3 reveals the average values of mean of pre and post-merger of Gross Profit Margin (91.64659
per cent and 93.15626percent), mean value of Net Profit Margin (11.80400percentand 17.28500 per
cent), mean value of Operating Profit Margin (56.90580 per cent and 75.84905 per cent),mean value of
Return on Capital Employed (1.06177percentand 1.56308percent), mean value of Return on Net
Worth(9.36600 and 12.75750), mean value of Interest Coverage Ratio (13.28504and 15.47728), mean
value of Return on Equity (9.44800percent and 13.17000percent)respectively. This performs that the
financial parameters increased in the post- merger period.The post-merger is raise to be more
correlated before merger. Though, the mean ratio of Dept-Equity Ratio of post-merger is6.60052 per
cent declined as compared to pre-merger is7.11953 of ICICI Bank. Since the p-values of Gross Profit
Margin is .504 with t-ratio -.704, and Dept- Equity ratio is .687 with t-ratio .420 which is more than 5
percent level of significance hypothesis is accepted and can be concluded that there is non-significant
difference in ratios before after merger of ICICI bank. Meanwhile, p-values of net profit margin of
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ICICI bank is .004 with t-ratio -4.185, Operating Profit Margin is .039 with t-ratio -2.541, Return on
Capital Employed is .002 with t-ratio -4.808, Return on Net Worth is .039 with t-ratio -2.532, and
Interests Coverage Ratio is .002 with t-ratio -5.259, and Return on Equity is 0.30 with t-ratio -2.830
which is less than 5 percent level of significance, hypothesis is rejected and can be concluded that
there is significant difference in ratios before after merger of ICICI bank.
Table 4. Financial Parameters of State Bank of India Bank Pre and Post - Merger
Ratios
Gross Profit Margin
Net Profit Margin
Operating Profit Margin
Return on Capital Employed
Return on Net Worth
Dept-Equity Ratio
Interest Coverage Ratio
Return on Equity

Group N
Mean Std. Deviation
Pre
5 84.03835
2.715647
Post
5 85.95999
1.460481
Pre
5 11.31400
.728444
Post
5 9.04400
1.632002
Pre
5 52.08567
5.304309
Post
5 52.08567
5.472130
Pre
5
.90164
.059567
Post
5
.77145
.152397
Pre
5 15.86600
2.190589
Post
5 12.52600
2.198609
Pre
5 14.36650
1.553604
Post
5 14.22435
1.135362
Pre
5 15.11675
1.046719
Post
5 14.68668
.638119
Pre
5 16.53600
1.640649
Post
5 13.85600
2.191194

t-value p-value
-1.394 .212ns
2.840

.022*

-1.808 .108ns
1.779

.113ns

2.406

.043*

.165

.873ns

.784

.460ns

2.189

.060ns

Source: 1* and 5** level of significance

Testing the Significance Difference between Pre and Post-Merger Financial Ratios of
State Bank of India
Table 4 reveals the average values of mean of pre and post-merger of Gross Profit Margin(84.03835
per cent and 85.95999 per cent), and mean value of Operating Profit Margin (52.08567 percent and
52.08567 percent) found that there is increased in the post-merger. Meanwhile, mean value of Net
Profit Margin (11.31400percent and9.04400 per cent), mean value of Return on Capital Employed
(.90164percent and.77145 per cent), mean value of Return on Net Worth (15.86600 and 12.52600),
mean value of Dept-Equity Ratio (14.36650 and 14.22435), mean value of Interest Coverage Ratio
(15.11675 and 14.68668), mean value of Return on Equity ratio (16.53600 per cent and 13.85600 per
cent) is declined in the post-merger period respectively. This performs that the financial parameters
decreased in the post- merger. The impact of post-merger was to be more correlated before merger.
Since the p-values of Gross Profit Margin is.212 with t-ratio -1.394, Operating Profit Margin is .108
with t-ratio -1.808, Return on Capital Employed is .113 with t-ratio 1.779, Dept- Equity ratio is .873
with t-ratio .165, and Interest Coverage ratio is .460 with t-ratio .784which is more than 5 percent level
of significance hypothesis is accepted and can be concluded that there is non-significant difference in
ratios before after merger of State Bank of India. Meanwhile, p-values of net profit margin .022 with tratio 2.840, and Return on Net Worth is .043 with t-ratio 2.406which is less than 5 percent level of
significance, hypothesis is rejected and can be concluded that there is significant difference in ratios
before after merger of State Bank of India.

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Table 5. Financial Parameters of ICICI Bank Pre and Post - Merger
Ratios
Current Ratio
Quick Ratio
Earnings Per Share
Deposit Per Employee
Credit Per Employee
Business Per Branch

Group N
Mean Std. Deviation
Pre
5
.10800
.028636
Post
4
.09000
.024495
Pre
5 9.79200
5.029783
Post
4 11.25500
1.880594
Pre
5 37.31000
4.373928
Post
4 58.12250
28.460018
Pre
5 6.08239
1.278938
Post
4 4.52075
.162541
Pre
5 5.60020
1.071473
Post
4 4.60590
.168368
Pre
5 322.25842 158.391639
Post
4 184.17668
3.926609

t-value p-value
.996 .352ns
-.600

.573ns

-1.449 .240ns
2.393

.048*

1.813

.113ns

1.949

.123ns

Source: Compiled for the Financial Statements of Banks, SPSS Software CMIE PROWESS Software,
http://www.moneycontrol.com/stocksmarketsindia,1* and 5** level of significance
Testing the Significance Difference between Pre and Post-Merger financial Ratio Of
ICICI Bank
Table 5 reveals the average values of mean of pre and post-merger of Quick Ratio(9.79200 and
11.25500), mean value of Earnings per Share(37.31000 and 58.12250) which was increased in the post
merger period respectively. Though, the mean value of Current ratio(.10800 and .09000), mean value
of Deposit per Employee(6.08239 and 4.5207),mean value of Credit per Employee(5.60020 and
4.60590), and Business per Employee (322.25842 and 184.17668) ratios is not affected in the postmerger period respectively. The impact of post-merger is to be more correlated before after merger.
Since the p-values of Current Ratio is .352 with t-ratio .996, Quick Ratio is .573 with t-ratio -.600,
Earning per Share is .240 with t-ratio -1.449, Credit per Employee is .113 with t-ratio 1.813, and
Business per Branch is.123 with t-ratio 1.949 which is more than 5 percent level of significance, hence
hypothesis is accepted and can be concluded that there is non-significant difference in ratios before
after merger of ICICI bank. There about, p-values of Deposit per Employee is .048 with t-ratio
2.393which is less than 5 percent level of significance, hypothesis is rejected and concluded that there
is significant difference in ratios before after merger of ICICI Bank.
Table 6. Financial Parameters of State Bank of India Pre and Post - Merger
Ratios
Current Ratio
Quick Ratio
Earnings Per Share
Deposit Per Employee
Credit Per Employee
Business Per Branch

Group N
Mean Std. Deviation
Pre
5
.05000
.012247
Post
5
.04000
.007071
Pre
5 5.74000
.658901
Post
5 11.13000
2.269901
Pre
5 100.40800 26.141687
Post
5 157.39600 34.216749
Pre
5 2.53000
.763250
Post
5 4.91800
.913712
Pre
5 1.81600
.684054
Post
5 4.12000
.930376
Pre
5 83.75743
19.462686
Post
5 136.60435 19.610104

t-value p-value
1.581 .153ns
-5.099 .005**
-2.959

.018*

-4.485 .002**
-4.461 .002**
-4.277 .003**

Source: Compiled for the Financial Statements of Banks, SPSS Software CMIE PROWESS Software,
http://www.moneycontrol.com/stocksmarketsindia,1* and 5** level of significance
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Testing the Significance Difference between Pre and Post-Merger Financial Ratio of
State Bank of India
Table 6 reveals the average values of mean of pre and post-merger of Quick Ratio(5.74000 and
11.13000), mean value Earnings per Share(100.40800 and 157.39600), mean value of Deposit per
Employee(2.53000 and 4.91800), mean value of Credit per Employee(1.81600 and 4.12000),mean
value of Business per Employee(83.75743 and 136.60435) Ratios is increased. This performs that the
financial parameters increased in the post- merger. The post-merger was raise to be more compared
before merger. Though, the mean value of Current Ratio of post-merger was declined .04000 as
compared to pre-merger was .05000of State Bank of India.Since the p-values of current ratio is .153
with t-ratio 1.581 which is more than 5 percent level of significance, hence hypothesis is accepted and
can be concluded that there is non-significant difference in ratios Before After merger of State Bank of
India. While, p -values of Quick ratio is .005 with t-ratio -5.099, Earning per Share of State Bank of
India is .018 with t-ratio -2.959, Deposit per Employees .002 with t-ratio -4.485, Credit per Employee
is .002 with t-ratio -4.461, and Business per Branch is .003 with t-ratio -4.277 which is less than 5
percent level of significance, hypothesis is rejected and concluded that there is significant difference in
ratios before after merger of State Bank of India.
The above analysis concluded that some ratios effect negative relations but most of the ratios effected
positive relations increased in financial performance of pre and post-merger selected banks are
significant.
FINDINGS
The findings of this study are expected to be of great use affect profitability in a significant way. Thus,
more emphasis can be laid on those factors, which are positively associated with profitability, and an
effort can be made to constrain the factors which affect profitability in a positive or negative way in
the financial performance of banks before and after merger. The other aspects like taxation vision,
accounting research and valuation of market risks, Human Resources and legal and strategic aspects
etc. relates to mergers and acquisitions are avoided.
CONCLUSION
The banking industry is one of the prominent indicators of the health of an economy. 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. To be
concluded that Mergers and Acquisitions of banking sector has vital role and global phenomenon in
the world wide. The impact of mergers changes in profitability i.e. Return on Capital Employed,
Return on Net Worth, Operating Profit Margin and other financial ratio is compared using the
performance of pre-merger and post-mergers for the need of the study to analyse the consolidation of
banks. The significance for this research has come from the gap identified in literature review. The
motive behind such deals was to capitalize the potential synergy in the after such event period. The
study examined the productivity and profitability above fourteen ratios which compare between the pre
and post-merger of selected public and private sector bank. The statistical tools analysis the financial
pyramid of banks before and after merger and suggested that the financial performance of banks has
increased. Based on the analysis of data of ICICI Bank, can be concluded that there is increased in the
Gross Profit Margin, Net Profit Margin, Operating Profit Margin, Return on Capital Employed, Return
on Net Worth, Interest Coverage Ratio, Return on Equity, Quick Ratio, and Earnings per Share but
declined in the Dept-Equity ratio, Current Ratio, Deposit per Employee, Credit per Employee, and
Business Per Employee in post-merger period. There is non-significant in respect of Gross Profit
Margin, Dept-Equity Ratio, Current Ratio, Quick Ratio, Earnings per Share, Credit per Employee, and
Business per Branch as compared to Net Profit Margin, Operating Profit Margin, Return on Capital
Employed, Return on Net Worth, Interest Coverage Ratio, Credit Deposit Ratio, and Deposit per
Employee there is significant before after merger ratios analysis of ICICI Bank. Based on the analysis
of data of State Bank of India, there is increased in Gross Profit Margin, Operating Profit Margin,
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Quick Ratio, Earnings per Share, Deposit per Employee, Credit per Employee, and Business per
Branch and another way there is declined in Net Profit Margin, Return on Capital Employed, Return
on Net Worth, Dept-Equity Ratio, Interest Coverage Ratio, Return on Equity, and Current Ratio in the
post-merger period. There is significant difference with respect to Net Profit Margin, Return on Net
Worth, Return on Equity, Quick Ratio, Credit Deposit Ratio, Earnings per Share, Deposit per
Employee, Credit per Employee, and Business per Branch but there is non-significant difference with
respect to Gross Profit Margin, Operating Profit Margin, Return on Capital Employed, Dept-Equity
Ratio, and Interest Coverage Ratio deposits before after merger analysis of ratios of State Bank of
India. To be concluded that the before and after merger the financial performance of the banks has
increased which margin to the gain of selected public and private sector bank in Indian Banking
Sector.
REFERENCES
1. Ashutosh, Dash (2005), The post merger performance Puzzle: An evaluation of long term
profitability of Indian firms , The ICFAI Journal of Accounting Research, January 2015, pp.no. 622.
2. Atma, Prasantha (1996), Performance of Public Sector Commercial Banks A Case Study of
State Bank of Hyderabad, PhD Thesis, Osmania University, Hyderabad, pp.no. 1-308.
3. BhatnagarBaxiAbhinn&SinhaNitu (2012), Strategic Move of ICICI Bank: A Case of ICICI Bank
& Bank of Rajasthan, International Journal of Multidisciplinary Research Vol.II, No. V. pp.no. 915.
4. Chanda, Kumar Dalip (2005), Bank Mergers in India: A critical Analysis, IASSI Quarterly, Vol.
XXIII, No. IV, pp.no. 107-123.
5. Cornett, Marcia. Millon, and Tehranian, Hassan (19925), Changes in corporate performance
associated with bank acquisition, Journal of Financial Economics, Vol.XXXI, pp.no. 211.234.
6. Khan, AzeemAhmad (2011), Merger and Acquisitions (M & As) in the Indian banking sector in
post liberalization regime, International journal of contemporary business studies, Vol.II, No. XI,
November, pp.no. 31-45.
7. Kumar, Ashwani and Kishore, Deep (2003), An Assessment of Banking Sector Reforms in India,
Indian Journal of Public Enterprise, June, pp.no. 87-101.
8. Monika (2014), Mergers and Acquisitions in Indian Banking Sector- A Comparative Study on
Pre-post-Merger, International Journal of Economic and Management Strategy, Vol.IV, No.I,
pp.no. 1-14.
9. Mohan, K. (2006), Mergers and Acquisitions for Consolidation in Indian Banking Industry: The
Success Mantra, Management Trends, October March, Vol. III, No. I, pp.no. 30-40.
10. Mantravadi, Pramod and Reddy A Vidhyadhar (2007), Mergers And Operating Performance:
Indian Experience , The ICFAI Journal Of Mergers And Acquisitions, Vol. IV No. IV, pp.no. 5266.
11. Sai, Naga Radha V and Sultana TabassumSyed (2013), Financial Performance Analysis in
Banking Sector A Pre and Post-Merger Perspective, Abhinav, International Monthly Refereed
Journal of Research in Management and Technology, Vol. II, April, pp.no. 56-66.
12. Seetharaman, A, Lee, N.G.Shir and Raju, Sudha (2007), The Impact of the merger of Malaysian
Bank, Finance India Indian Institute of Finance, Vol. XXII.No. IV, December, pp.no. 1309-36.
13. Singh, Fulbag and Mogla, Monika(2010), Profitability Analysis of acquiring companies, The
IUP Journal Of Applied Finance, Vol.XVI No. 5, July, pp.no. 72-83.

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14. Uppal, R.K (2008), Information Technology Changing Performance of Banking Industry
Emerging Challenges and New Potentials, Gyan Management, Vol. II, No. I, January June,
pp.no. 76-99
15. Vashisht, A. K. (1987), Performance Appraisal of Commercial Banks in India, A Ph.D. Thesis
submitted to the Department of Commerce and Business Management, Himachal Pradesh
University, Shimla.

ANNEXURE
List of Merger and Acquisitions in Indian Banking Sector of Scheduled Commercial Banks
Name of The Transferor bank
Bank of Bihar Ltd.
National Bank of Lahore Ltd.
Eastern Bank Ltd.
Krishna Ram Baldeo Bank Ltd.
Belgaum Bank Ltd.
Lakshmi Commercial Bank Ltd.
Bank of Chochin Ltd.
Miraz State Bank ltd.
Hindustan Commercial Bank Ltd.
Traders Bank Ltd.
United Industrial Bank Ltd.
Bank of Tamilnadu Ltd.
Bank of Thanjavur Ltd.
Parur Central Bank Ltd.
Purbanchal Bank Ltd.
BCCI (Mumbai)
New Bank of India
Bank of Karad
KashiNath Seth Bank Ltd.
Bari Doab Bank Ltd.
Punjab Co-operative Bank Ltd.
20th Century Finance
Bareilly Corporation Bank Ltd.
Sikkim Bank Ltd.
Times Bank Ltd.
Bank of Madura Ltd.
Sakura Bank
Morgan Gurantee Trust
Rajasthan Bank Ltd.
ICICI Ltd.
Benaras State Bank Ltd.
Nedungadi Bank Ltd.
South Gujarat Local Area Bank Ltd.
Global Trust Bank Ltd.
IDBI Bank Ltd.
Bank of Punjab Ltd.
The Ganesh Bank of Kurunwad Ltd.
United Western Bank Ltd.
VOL. 4, ISSUE 9 (September 2015)

Name of the Transferee

Bank
State Bank of India
State Bank of India
Chartered Bank
State Bank of India
Union bank of India
Canara Bank
State Bank of India
Union Bank of India
Punjab National Bank
Bank of Baroda
Allahabad Bank
Indian Overseas Bank
Indian Bank
Bank of India
Central Bank of India
State Bank of India
Punjab National Bank
Bank of India
State Bank of India
Oriental Bank of Commerce
Oriental Bank of Commerce
Centurion Bank Ltd.
Bank of Baroda
Union Bank of India
HDFC Bank Ltd.
ICICI Bank Ltd.
Sumitomo Bank
Chase Manhallan Bank
Vijay Bank
ICICI Bank
Bank of Baroda
Punjab National Bank
Bank of Baroda
Oriental Bank of Commerce
IDBI Ltd.
Centurion Bank
The Federal Bank Ltd.
IDBI Ltd.
47

Date & Year of

Amalgamation
November 8, 1969
February 20, 1970
1971
1974
1975
24.08.1985
26.08.1985
29.7.1985
19.121986
13.5.1988
31.10.1989
20.02.1990
20.02.1990
20.02.1990
29.08.1990
1993
04.09.1993
1995
01.01.1996
08.04.1997
08.04.1997
01.01.1998
03.06.1999
22.12.1999
26.02.2000
10.03.2001
01.04.2001
10.11.2001
2001
03.05.2002
20.06.2002
01.02.2003
25.06.2004
14.08.2004
02.04.2005
01.10.2005
02.09.2006
03.10.2006
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Bharat Overseas Bank
The Sangli Bank Ltd.
Lord Krishna Bank Ltd.
Centurion Bank of Punjab Ltd
(Voluntary)
State Bank of Saurashtra
The Bank of Rajasthan
State Bank of Indore
IngVysya Bank

Indian Overseas Bank

ICICI Bank Ltd.(Voluntary)
CBOP Ltd. (Voluntary)
HDFC Bank

31.03.2007
19.04.2007
29.08.2007
23.05.2008

State Bank of India

ICICI Bank Ltd.
State Bank of India
Kotak Mahindra Bank

31-07-2008
13.08.2010
26.08.2010
21.09.2014

Source: RBI Bulletin

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