Impact of Mergers & Acquisitions on Selected Banks

Home , Centurion Bank of Punjab, Dena Bank, State Bank of Saurashtra

Conference Proceeding Published in International Journal of Trend in Research and Development (IJTRD), ISSN: 2394-9333, www.ijtrd.com Impact of Mergers & Acquisitions on Selected Banks

Jyothi.L Asst. Professor, Kairalee Nikethan Golden Jubilee Degree College, Indiranagar, Bangalore, India

Abstract: Banking sector plays very important role in every iii. To analysis the impact of Mergers & economy & is one of the fastest growing sectors in India. The Acquisitions on Selected Banks. competition is extreme & regardless of the challenge from the B. Research Tools global banks, domestic banks- both public & private sector. There are many indications that weak banks will merge will i. Secondary Data: Bank of Baroda’s, Vijaya Bank strong banks. Mergers & Acquisitions encourage banks to & Dena Bank past 5 financial year data gain global reach, better synergy, compete with global banks & collected, Debt Equity Ratio, Current Ratio, allow banks to acquire the Non-performing assets of weaker Asset Turnover Ratio, Net Profit Margin Ratio, banks. Through Mergers & Acquisitions, banks will get brand Net Operating Profit per share ratio, Non- names, new geographies, and correspondent product offerings performing assets. but also opportunities to cross sell to new accounts acquired by the other banks. The main objective of this paper is to assess C. Scope of the study the impact of merger & acquisition on the performance of i. The study is restricted to the impact of Bank of bank. This study is based on the secondary data collected from Baroda, Vijaya bank & Dena Bank. Magazines, Newspaper, journals etc. ii. The study is based on last four financial year data Keywords: Merger, Acquisitions, Banking sector, Growth of BOB, Vijaya Bank & Dena Bank. I. INTRODUCTION D. Limitations of the Study i. The study compares the past four-year’s financial Bank is a financial institution, which performs various data after merger. The affected banks performance functions like accepting deposits, lending loans to agricultural may improve after some years. & industrial concerns. Banking sector plays vital role in the economic development of the country. Without stable & III. MERGER’S & ACQUISITIONS effective banking system, no country can grow. India is a world’s largest emerging economic giant. For the past few A. Overview of Merger’s & Acquisitions in India [3] years, India’s Banking system has grown very rapidly. Mergers of banks began in India in the year 1960s in order to Merger is a combination of two companies to form one bond weaker banks with the stronger banks & to protect the company. Acquisitions is one company taken over by the other customer interests. After the liberalization in 1991 there was a company. The banks with bad loans & weak operating metrics major economic reforms made by the Government of India. In are to be merge with stronger banks for more efficient banks. august 25 2017, SBI fist merged State Bank of Saurashtra with Merger & Acquisition will allow banks to have lot more itself. After two years, State Bank of Indore was merge with it. resources & their lending cost will come down. The merged In 2017 SBI merge all its five associate & Bhartiya Mahila banks can competitive with large private banks in mid & large Bank. This resulted in SBI being one amongst the 50 largest corporate segments. Merger is a long process. Initially these banks in the world. The government had merged Dena Bank & mergers are likely to face many operational challenges. Vijaya Bank with Bank of Baroda in the year 2018. Recently government has announced merger of 10 public sector banks. II. LITERATURE REVIEW The four sets of banks are to be merged are Canara Bank & Sanjay Sharma & Sahil Sidana (2017) in their paper gave an Syndicate Bank; Indian Bank & Allahabad Bank; Union Bank of India, Andhra Bank & Corporation. overview of impact of SBI merger on financial condition of SBI. The SBI will get visibility at global level in the network B. Reasons of Merger & Acquisitions increase of SBI & it also able to provide cheaper funds more easily. The gross & net NPA of SBI will come down after i. Bigger Banks: By merging BOB, Vijaya Bank & Dena merger with their associate. The efficiency & effectiveness of Bank, it will become third largest bank in the country. the business will increased because of single management. [1] It can provide services to large customer base. The network of Dena Bank & Vijaya Bank will help the Devrajappa.S. this paper gave an overview of Mergers of BOB to reach micro & rural market. HDFC Bank Ltd & Centurion Bank of Punjab Ltd. the result ii. Improved recognition: The other two-bank branches suggested that after merger of the banks the financial presence will add to the network in western & southern performance of banks have increased. This study revealed after states for BOB. The BOB will take benefit from some merger there was an improvement in the return on equity, debt unique projects from other two banks. equity ratio. [2] iii. Poor Performance of Banking Sector: Due to current market situation many banks share prices has fallen III. RESEARCH DESIGN very badly because of underperformance of many A. Objective of the Study banks. iv. Bad loans & failure to recover: As far as NPA is i. To know the advantages of Mergers & concerned, BOB had 4.26%. After merging with Dena Acquisitions. ii. To know the reasons for Mergers & Acquisitions.

National conference on Economic Slowdown: Measures to Revive the Paranoid (ESMRP-19) Organised by Department of Commerce and Management, Kairalee Niketan Golden Jubilee Degree College, 25th September 2019 51 | P a g e Conference Proceeding Published in International Journal of Trend in Research and Development (IJTRD), ISSN: 2394-9333, www.ijtrd.com Bank, which as much higher NPAs, the new NPA of 2016 0.05 0.05 0.08 combined entity will be 4.80%.[4] 2017 0.04 0.06 0.08 C. Benefits of Merger & Acquisition 2018 0.05 0.10 0.09 Source: www.moneycontrol.com i. After merger & acquisition, the merged entity can compete with the private sector banks & global banks. Analysis & Interpretation: Current ratio measures the ii. The customers of each Bank will benefit by way of solvency of the firm in the short term. The higher current ratio larger number of branch & ATM network & have wide shows that the bank is able to pay its short-term obligations access to credit card facilities. It will provide wide within a year. From the above table Bank of Baroda, Vijaya range of products & services to their customers. Bank & Dena Bank are relatively has stable current ratio after iii. The 120+ million customers will experience superior the acquisition deal. banking services & benefit from wider product range C. Asset Turnover Ratio of service, which includes cash management solution, supply chain financing, wealth management. Bank of Vijaya Dena Year iv. The merger will also provide benefits to corporate Baroda Bank Bank customers of the Dena Bank because they were facing 2015 0.06 0.09 0.09 restrictions on borrowings from the bank. (Limitations 2016 0.07 0.09 0.08 imposed by RBI under Prompt Corrective Action). 2017 0.06 0.08 0.08 v. Bank of Baroda will take benefit from some unique 2018 0.06 0.08 0.07 projects from other two-banks (Plantation financing Source: www.moneycontrol.com from Vijaya Bank). D. Overview of Selected Banks Analysis & Interpretation: It compares the turnover with the assets that business has used to generate that turnover. From Bank of Baroda: the Maharaja Sayajirao Gaekwad III the above table Bank of Baroda, Vijaya Bank & Dena Bank founded the Bank of Baroda on 20 July 1908. BOB is an have stable turnover ratio. Indian state-owned international bank headquarter in Vadodara & corporate office is in Mumbai. It is the second largest bank D. Net Profit Margin Ratio after SBI. The bank has 107 branches/offices in 24 countries, Bank of Vijaya 38 branches of its 8 subsidiaries. The government of India Year Dena Bank Baroda Bank awarded the bank with the first prize in the Indira Gandhi Rajbhasha Shield. [5] 2015 7.91 3.58 2.46 2016 -12.24 3.15 -8.78 Vijaya bank: a group of farmers led by A.B. Shetty on 23 2017 3.27 6.06 -8.48 October 1931 established Bank in Mangalore. It was one of the 2018 -5.57 5.77 -21.53 nationalized public sector bank in India with the head office in Source: www.moneycontrol.com Bangalore, Karnataka. The bank has been opening Basic Savings Bank Account under Pradhan Mantri Jan Dhan Yojana E. Analysis & Interpretation & providing all account holders with rupay debit card. [6] Net Profit Margin ration is the percentage of Profit Company Dena Bank: Devkaran Nanjee founded it on 26 May 1938, produces from its total revenue. From the above table all under the name Devkaran Nanjee Banking Company. It merged entity shows decline in the net profit margin ratio. So adopted its new name as Dena Bank & incorporated as a public the merger activity of Bank of Baroda, Vijaya Bank & Dena company in December 1939. It was an Indian Public sector Bank will effect on their leftover earnings. bank & headquarter in Mumbai with 1874 branches. The bank F. Net operating Profit Per Share Ratio was founded in the year 1938 & nationalized it in 1969. [7]. Bank of Vijaya Year Dena Bank IV. Findings & Analysis Baroda Bank A. Debt Equity Ratio 2015 194.27 142.86 191.81 2016 191.22 129.57 159.62 Bank of Vijaya Year Dena Bank 2017 183.15 123.94 129.35 Baroda Bank 2018 164.60 96.54 39.54 2015 16.39 22.56 16.04 Source: www.moneycontrol.com 2016 15.11 20.78 17.32 2017 15.69 19.68 17.26 Analysis & Interpretation: Net operating Profit share ratio 2018 15.07 16.73 11.92 indicates how well the company can generate profit to its Source: www.moneycontrol.com shareholders. From the observation table reveals that there has been decline in the Net operating profit per share after Analysis & Interpretation: Debt Equity Ratio measure the acquisition deal. Because many investor thought merger of relationship between the capital contributed by shareholders & these banks might face integration issues & NPA post-merger. creditors. From the above table, Bank of Baroda, Vijaya bank & Dena Bank has decline in the debt equity ratio. It shows that G. Non-performing Asset banks are using internal sources of funds. Bank of Vijaya Year Dena Bank B. Current Ratio Baroda Bank Bank of Vijaya Dena 2015 1372.22 1659.81 19046.46 Year Baroda Bank Bank 2016 3322.32 4276.82 18080 2015 0.02 0.03 0.03 2017 7735.12 1660.00 23483