Consentia on Multidisciplinary Research



“Good management is about making good choices, so a decision not to do something should be analyzed as closely as a decision to do something”                                                                              –          Andrew Likierman[1]

The present era is known as the era of competition. Every sector tries to be the best and each unit of every sector tries to be the best. In the Banking system, the banks come under the umbrella of Merger and Amalgamation when they need to avoid competition and survive in the market. Liberalization and other upcoming policies are pushing the banking sector towards innovation and globalization. Operational flexibility of the banks needs to be improved and it helps in enhancing it.

Merger and Amalgamation appears to be the same but they have a slight difference which is explained in the paper. It is a safe and most preferred alternative to sustain and survive in the market but it results in loss of the individual identities. It is the only process which takes away an identity and gives another identity. Banking system of India has gone through many Mergers and Amalgamation and therefore have resulted in better performances and improved equilibrium.

In this paper, the author has tried to include the reasons, benefits, impacts and findings of Merger and Amalgamation process. Generally it is considered that it results in various conflict, so on this perspective, the conclusion of the paper includes the actual scenario of the belief. The present study is entirely dependent on the secondary data through various sources.


The main objective of this paper is to analyze the Merger and Amalgamation in the banking sector in the country. In this paper, various types of mergers will be discussed.  In the last decade, many banks went through this and this paper will include that.

The basic aim of this paper is to know the pros and cons of this process and also to reach to a result as to whether it is good or not. To make this paper, various references are being taken like Narsimha Committee Report and Raghuram Rajan Committee report. The research methodology is entirely doctrinal.

The major objective of the paper is to measure and record the effects of Merger and Amalgamation. Also measuring the performance of the banks and reasons of their merging.


MERGER AND ACQUISITION, the very famous and exciting term in the Banking world which means Blending or merging of two or more undertaking which is existing in the market into one new identity, it means that both will lose their separate different identities and will start functioning together for common profits. It is being liberalized since 1991 due to Liberalization policies of India. It lowered down the limitations and obligations imposed on the banks. But before the actual commencement of Merging and Amalgamation of the banks, a long procedure is to be followed by them, including legal as well as financial. The most common and obvious reasons for merging are more financial gains, reducing the liabilities, operating synergies, expansion and marketing, consolidation of product capacities, growth of the business, more links, diversification and saving of taxes. Before any bank thinks of merging and amalgamation with any other bank, it needs to research on its current position in the market and standing of the other bank as well with whom it is going to merge. With increasing Globalization, the pressure of surviving in the market has also increased on every Industry due to high competition, it therefore promotes merging and amalgamation for survival in case where single bank is not performing well. Recent examples of it are, ICICI with Anagram Finance from Lalabhai group, again ICICI with Bank of Madhura, HDFC bank with Times Bank, likewise there are many examples in other sectors as well.


Merger is a very commonly used term which means the combining of two banks to form a new identity and losing their own identity in the meanwhile process. The term used with it is Acquisition which means that overtaking a small bank by a relatively large bank and in that case no new identity is formed.  Merging in simple words means that mixing of entities and their resources for growth, advancement and enrichment for renovation of the banks.[3]

Amalgamation means the combination of banks into a single entity. It appears to be same as merger but the only difference is that in this, neither of the merging banks remains as legal entities afterwards. In this, an entirely new company is formed by combining all the resources.[4]




The centered objectives behind the merger and amalgamation may be highlighted as under:

  • To reduce the competition in the market.
  • To maintain the crowd of industries in the market.
  • To expand the market without expanding the competition.
  • To gain more by putting the resources together.
  • To reduce the amount of investment but in actual having more access.
  • To increase the no. of customers.
  • To compete in the global market.



Many parties are benefited due to Merger and Amalgamation of the banks, such as:[7]

1)      Banks

2)      Customers

3)      RBI

4)      Depositors

5)      Other related parties

The process and results of Merger and Amalgamation has reduced the burden over the banks and also lowered the unhealthy market competition among them. It has also improved the financial base of the banks and there are benefits of solutions to core banking. It helps in improving the technology and advances the functioning of the system. Increased profits, better management, larger coverage and more customers is a result of this.

Customers get faster and improved services due to this. They also get access to new and upgraded technologies. Increased no. of branches helps the customers in easy access to them and utilizing the benefits.

RBI is benefited due to improved and better monitoring over the banks. It reduces the increased number of meetings due to less number of CEO’s and also easy implementation of its policies due to better and upgraded technology.

Depositors have better and improved options as they are a major source of money flow. They also get high dividends. Other parties are benefited because huge deals will be there and that means more connections and involvement of large part of the public.




Set up in December, 1997, The Narsimha Committee submitted its first report on 23 April, 1998. The terms of reference of this committee includes, review of the progress in the reforms in the Banking sector, making the system internationally competitive to stand in the global market and robust. The reforms of the committee are reformed according to the situations, framing recommendations in full detailed manner regarding the policies of banking system for each and every dimension.[9]

The following suggestions were also presented in its first report:[10]

  • Building the size and strength of operations by using the mergers for banks.
  • Speeding up the computerization in Public Sector Banks.
  • Strengthening the legal framework for the recovery of credit.
  • Making the standing of Indian Banks in International Market.
  • Two or three banks from India should be with International Orientation, nine to ten banks in National Banks and a number of local banks to cover the remote areas also.
  • The banks should merge with the bank of its own status or the one which is equivalent to it.
  • Confining the banks which are small for local banks or State banks or for Districts.
  • Reviewing the procedures of Recruitment and training, also the remuneration policies of the Public Sector Banks.
  • Enhanced risks can be verified or matched with the raising adequacy of capital.
  • There is no alternative option to the asset reconstruction fund.
  • Reviewing the three Acts: The Reserve Bank of India Act, The State Bank of India Act and The Nationalization Act.
  • Making the bank board’s professional.



It came up in the year 2009 when Raghuram Rajan wrote for The Economist in a guest column where he proposed a system which can regulate the cycles of unbalanced finance.

These were the following terms of the committee:[12]

  • We are required to identify certain changes in directive structure and regulatory infrastructure which can allow our financial sector to keep the risk factor aside and intact and perform better.
  • Analyzing the segments of the financial sector and also the changes so that the requirement of the real sector can be met.
  • Measuring the changes in the relative segments of the economy (Monetary and Fiscal policy).
  • Analyzing the challenges and financial needs which may crop up in the future and preparing accordingly in real sector by bringing reforms.



  • Certain areas require Deregulation.
  • Controlling the capital flow is impossible and it may create the uncertain situations and volatility in the economy.
  • For an entry in the large banks, the system needs to offer an entry point whch can be used by the entities.
  • Service certificates lended by the Priority Sectors.
  • Advanced technology may help in enhancing the performance of the small banks by reducing its operational costs.
  • Proper encouragement and incentive to the professional market.
  • Selling of the small Public Sector Units due to underperformance.
  • Putting SEBI into role in regulating the trade.
  • An innovative and friendly environment for the investors.


1)      Mergers may help in diversifying the risk management.

2)      Innovation of the new financial products as well as consolidation of the regional financial system. It is due to increase in competition in the market.

3)      To increase the capabilities of generation the economies of scale.

4)      To transfer the skills and share the resources and work efficiently to stand in the competitive market.

5)      Globalization of the whole economy has resulted in mergers and amalgamations.

6)      The introduction the advanced technology and e-banking and other instruments results in this.

7)      Liberalized policies also lead to merger and amalgamation when it becomes difficult for one bank to stand alone.

8)      It brings positivity in the system because it leads to reduction in the costs and increase in the efficiency.



1)      When banks merge, there is diversification. Then they have many options for diversifying their portfolio investment.

2)      Cost reduction due to pooling of resources and also efficiency due to cost synergies.

3)      More customers will be attracted towards the new identity as the customers of every individual bank will be now transacting with their new common identity.

4)      Increased customer’s portfolio as it helps in diversification and widens the range of facilities and scope.

5)      Geographical expansion in case where the merging is between cross border banks.

6)      Improvements in the management system as well the functioning of the bank.

7)      If the status of both the banks was not equal then merging helps the small bank to improve.



Merger Year Target Bank Acquirer Motive
2000 Times bank Ltd. HDFC Bank Ltd. Voluntary merger
2001 Bank of Madura ICICI Bank Voluntary merger
2002 ICICI Bank ICICI Bank Universal banking objective-merger of financial institution with bank
2002 Banaras State bank Ltd. Bank of Baroda Forced merger reconstruction of weak bank
2003 Nedungadi Bank Ltd. Punjab National bank Forced merger reconstruction of weak bank
2004 IDBI Bank Ltd. Industrial development bank of India Universal banking objective-merger of financial institution with bank
2004 South Gujarat local area bank Bank of Baroda Forced merger reconstruction of weak bank
2004 Global trust bank Oriental bank of commerce Forced merger reconstruction of weak bank
2005 Centurion bank Bank of Punjab Voluntary Merger
2006 Ganesh bank of Kurandwad Federal bank Forced merger reconstruction of weak bank
2006 United western bank Industrial development bank of India Forced merger reconstruction of weak bank
2006 Lord Krishna bank Centurion bank of Punjab Expansion of size voluntary merger
2006 Sangli bank ICICI bank Voluntary merger
2007 Bharat overseas bank Indian overseas bank Regulatory intervention




There is a probability that these banks may merger and come up with new identities in the coming two years:

1)      HDFC bank Ltd.

2)      Kotak Mahindra Bank Ltd.

3)      IndusInd Bank Ltd.

Kotak Mahindra Bank Ltd. has already sold its 4.5% stake for $296 million in the bank to Sumitomo Mitsui Financial Group Inc. The vice-chairman already said that he is looking for “sniffing around” for acquisitions.[21]

ICICI Bank Ltd is having its eyes on the Bank of Rajasthan Ltd for its branches. It has already merged with various banks earlier.[22]

Yes Bank is in news for buying the local retail and operations of Royal Bank of Scotland Group.




The total assets of Indian banks, which are regulated by the supreme authority, Reserve Bank of India (RBI) and the Ministry of Finance (MoF), were pegged at Rs. 82,99,220 crore (US$ 1564.8 billion) during FY 122


  • Merger and Amalgamation has no effects on the total assets or return on capital employed but they do result in improved return on investments.
  • There are a few banks in India who are involved in this process, rest functions individually.
  • There is a significant and noticeable impact on the net profits and also on shareholders’ capital.


Merger and Amalgamation helps the banks and the economy to function more efficiently because it helps in the increase of the resources and thus the profits. It is done to reduce the competition and for survival in the market but it is good only when the economy does not gets affected due to competition issues. They have their own benefits as well as disadvantages accordingly. Merger and Amalgamation increases the efficiency of the banks but it leads to loss of their own identities. It also helps in strengthening the base of the new unit and also helps in saving of taxes. Domestic mergers are beneficial in case of competition in the market and Cross-Border mergers are beneficial for increasing the revenue and profits and attracting the customers. Thus pre-determined priorities need to be established to achieve the targets. Banks should merge with their competitive banks only to maintain the same status and share the management. It also helps in expanding of the reach and also geographical operation. But from the point of view of the society, too many mergers should not be there because it reduces the options. CCI’s regulation of Merger and Amalgamation therefore intends to keep an eye on the banks that they should not merge for the only motive of gaining profits at the cost of the customers through illegal or unauthorized practices.

[1] Dean, London Business School (Harvard Business Review, October 2009)

[2], last visited on 15 October, 2013

[3], October 5, 2013, 5:50pm

[4], October 5, 2013, 6pm

[5], October 7, 2013, 2:20pm

[6] Growing a Business,, October 20, 2013, 7pm

[7], October 13, 2013, 9pm

[8], October 15, 2013, 10pm

[9] Narsimha Committee Report-, October 15, 2013, 10:30pm

[10], 10 October, 2013, 10:15pm

[11], October 15, 2013, 11pm

[12] October 2, 2013,, October 15, 2013, 11:10pm

[13]Raghurajan Committee Report – www., October 16, 2013, 1am

[14], October 13, 2013, 6pm

[15], October 17, 2013, 5pm

[16], October 13, 2013, 7:30pm

[17], October 20, 2013,  8:20pm

[18], October 20, 2013, 9pm

[19], October 7, 2013, 6:15pm

[20], October 10, 2013, 7pm

[21], October 20, 2013, 9:30pm

[22], October 20, 2013, 9:45pm

[23] Jagriti Kumari, Mergers and Acquisition in Banking, www.mergersbanking.pdf


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