SPECIAL ARTICLE

Mergers and Acquisitions of in Post-Reform India

T R Bishnoi, Sofia Devi

A major perspective of the Reserve of India’s n the Reserve ’s (RBI) First Bi-monthly banking policy is to encourage competition, consolidate Monetary Policy Statement, 2014–15, Raghuram Rajan (2014) reviewed the progress on various developmental and restructure the system for financial stability. Mergers I programmes and also set out new regulatory measures. On and acquisitions have emerged as one of the common strengthening the banking structure, the second of “fi ve methods of consolidation, restructuring and pillars,” he mentioned the High Level Advisory Committee, strengthening of banks. There are several theoretical chaired by Bimal Jalan. The committee submitted its recom- mendations in February 2014 to RBI on the licensing of new justifications to analyse the M&A activities, like change in banks. RBI has started working on the framework for on-tap management, change in control, substantial acquisition, licensing as well as differentiated bank licences. “The intent is consolidation of the firms, merger or buyout of to expand the variety and effi ciency of players in the banking subsidiaries for size and efficiency, etc. The objective system while maintaining fi nancial stability. The Reserve Bank will also be open to banking mergers, provided competi- here is to examine the performance of banks after tion and stability are not compromised” (Rajan 2014). mergers. The hypothesis that there is no significant Mergers and acquisitions (M&A) have been one of the improvement after mergers is accepted in majority of measures of consolidation, restructuring and strengthening of cases—there are a few exceptions though. Therefore, banks. M&A in the banking sector seeks to enlarge the size of banks to tap economies of scale, or prevent bank failure. Motives the strategy of M&A to consolidate banks for purposes of of bank mergers and amalgamations vary from change of efficiency seems flawed. Future banking policy must ownership to enhancing size for effi ciency gains. Thus, M&A in take note of this empirical reality and long-drawn Indian banking needs to be examined in the context of the experience of the past two decades. changing banking scenario and global economic environment. This study examines RBI’s policy of M&A of banks from the perspective of effi cient banking structure. In Section 1, we discuss, in brief, theory of M&A. In Section 2, we describe the regulatory framework of M&A in India. Section 3 carries a review of literature, followed by a Section 4 on trends in M&A. In Section 5, we analyse M&A. The next section concludes with a short summary.

1 Theory of Mergers and Acquisitions There are several theoretical arguments to analyse M&A activities. According to Marris (1964), and Manne (1965), the takeover threat is a process to discipline managers who devi- ate from profi t maximisation. Grossman and Hart (1981) argue that a takeover is a result of undervaluation of a company in the stock market. Linter (1971), Levy and Sarnat (1970), and Lewellen (1971) have looked at takeovers and mergers as ways to diversify the business risks of a fi rm by operating in differ- Our grateful thanks to the referee for expert comments and suggestions ent areas without going through the initial stages involved in for improvements in the paper. starting a new company. T R Bishnoi ([email protected]) is Hay and Morris (1991: 686) have classifi ed the motives Chair Professor, Faculty of Commerce, The MS University of Baroda, behind mergers and takeovers by fi rms into the transactions Vadodara. Sofi a Devi ([email protected]) teaches economics at and the type of markets. The transactions can be subdivided The MS University of Baroda, Vadodara. into four categories: agreed merger, contested takeovers,

50 SEPTEMBER 12, 2015 vol L no 37 EPW Economic & Political Weekly SPECIAL ARTICLE divestment and management buyouts. Viewed from the per- This section notes banks that are weak, unsound, or not properly spective of markets, mergers can be classifi ed into three cate- managed can be merged with those that are on a sound footing. gories: horizontal mergers, vertical mergers and conglomerate RBI’s policy is to encourage amalgamation to protect the mergers. A horizontal merger is between two or more compa- interest of depositors in particular and strengthen the banking nies that compete in the same business and geographical mar- structure in the area in general. RBI also encourages banking ket. A vertical merger is a combination of two or more fi rms integration through the transfer of assets and liabilities of small involved in different stages of production or distribution of and unsound, weak and small units into fewer and strong the same product, and can be either forward or backward banking units. Section 36AE of the BRA gives central govern- merger. A conglomerate merger is a combination of fi rms en- ment power—it requires a consent report from RBI—to acquire gaged in unrelated lines of business activity. The type of M&A any banking unit in the interest of the depositors, in the inter- also dictates the acquisition logic, the framework for the est of banking policy, or for the better provision of credit to any evaluation of targets, the acquisition target profi le and the particular section of the community (nationalisation of banks). post-acquisition integration. Thus, 14 big banks were nationalised in 1969 to strengthen The objectives of the fi rms that opt for mergers may be public sector undertaking (PSU) dominance. It is assumed that all attributed to: (i) change in management, (ii) change in control, these processes contribute towards an effi cient and optimal bank- (iii) substantial acquisition, (iv) consolidation of the fi rms, ing structure. Thus, the restructuring and consolidation through (v) merger or buyout of subsidiaries for size and effi ciency, etc. strategy of M&A is a continuous process to improve the working The present study analyses the performance of banks that of Indian banking and steer it towards optimal structure in terms went in for mergers during and after the fi nancial sector of size distribution, ownership and organisational diversity. reforms. The main emphasis is to see whether M&As in bank sector have contributed to overall growth, and economies of 3 Literature Survey scale and effi ciency of the banks. Various studies on the effect of bank mergers on performance have been conducted in many countries. Cost–benefi t analyses 2 Regulatory Framework in India showed bank M&A produced mixed results. Different tools and The Banking Regulation Act (BRA), 1949 provides the regulatory banking parameters were used by analysts for measuring bank framework for M&A in India’s banking sector. The act provides performance. Some studies found that mergers can potentially for two types of amalgamations: (i) voluntary, and (ii) com- lower costs and increase profi t effi ciency (Shaffer 1993; pulsory. RBI has the discretionary power to approve the volun- Akhavein et al 1997), while others concluded that mergers tary amalgamation of two banking companies under Section have not resulted in any signifi cant improvement in effi ciency 44(A) of the BRA. Compulsory amalgamations are induced or (Berger and Humphrey 1994; Rhoades 1993). A study by forced by RBI under Section 45 of the BRA, in public interest or Rhoades (1993) found that horizontal (in-market) mergers dur- in the interest of the depositors of a distressed bank, or to ing 1980–86 did not improve total cost effi ciency. secure proper management of a banking company, or in the In an earlier study, Alhadeff and Alhadeff (1955) examined interest of the banking system. In this regard, the amalgamation bank mergers of 208 United States (US)-based banks between will become effective on the date indicated in the notifi cation January 1953 and mid-1954. They analysed the causes of the issued by the government. The act does not require obtaining mergers and attempted to determine their signifi cance for the RBI approval in case of voluntary mergers or acquisitions of fi - ongoing merger movement. Bank-by-bank basis data shows nancial businesses by banking institutions. Guidelines regard- that management issues and matters pertaining to cost and ing the process of merger proposal, determination of swap profi t ratios, branch banking, growth rates, legislation, anti- ratios, disclosures, buying/selling norms of shares before and trust laws, and market structures were behind the mergers. during the process of merger are laid down by RBI for volun- The study shows that large- and middle-size banks acquired tary mergers involving banking companies, as well as between considerably small banks during the period. non-banking and banking companies. Rhoades and Yeats (1974) analysed a stratifi ed random sam- Till 1960, amalgamations of banks took place on voluntary ple of 600 US commercial banks over 1960–71. Theirs was an basis under Section 44A of the BRA as there was no other provision attempt to update the fi ndings of Alhadeff and Alhadeff (1955). for the purpose. Though there was urgent need to strengthen They wanted to see if Alhadeff and Alhadeff’s major conclu- the banking system by eliminating the small and weak banks, sion still holds, and also to determine the impact of mergers on the result of voluntary bank amalgamation was very poor and dis- growth. The fi ndings supported the hypothesis that large couraging. In view of this, RBI acquired statutory powers banks grow less than the system as a whole. The regressions through an amendment in the BRA in 1960 for reconstruction fi tted for bank consolidation yielded unambiguous results and or compulsory amalgamation of banks. Since then, amalgama- concluded that deconsolidation occurred in the banking tions were on voluntary basis with RBI approval (Section 44A of industry over 1960–71. BRA) wherever possible, and compulsion whenever necessary Peristiani (1997) investigated the effect of bank mergers on (Section 45 of BRA). Section 45 of the act lays down conditions the effi ciency and fi nancial performance of merger survivors. under which a bank can be reconstructed or amalgamated This study utilised translog fl exible functional form to esti- compulsorily by RBI, in consultation with the central government. mate the cost structure of banks and derive measures of

Economic & Political Weekly EPW SEPTEMBER 12, 2015 vol L no 37 51 SPECIAL ARTICLE effi ciency. Empirical fi ndings indicated that X-effi ciency was integrations. In the post-1960 period, there were large numbers fairly constant across all other sizes, except for large banks. In of compulsory mergers (particularly 30 in 1961) and integrations contrast, scale effi ciency was more variable across the different (transfer of assets/liabilities; 62 in 1964). The elimination of size groups. Therefore, it appeared that during the 1980s, weak banks helped boost economic effi ciency and fi nancial mergers were not benefi cial to banks in terms of X-effi ciency. integrity, leading to an improved banking structure. It is to be Focarelli et al (2002) analysed all the M&A—as separate noted that RBI policy is quite objective in that it allows the events—among Italian banks during 1985–96. Profi tability for development of small and large banks simultaneously, as mergers increased because of the effi cient use of capital, al- small and large banks are equally effi cient. The M&A activities though the increase in income from services is offset by the in Indian banking are directed towards consolidating the system higher staff costs. For acquisitions, the increase in profi tability to attain optimal structure for the banking units: rationalise, for the acquired banks was linked to the improvement in the decentralise, reallocate and reorganise. quality of their loan portfolio. Their fi ndings are consistent Table 1 shows the list of banks merged after the bank nationali- with the hypothesis that expanding revenues from fi nancial sation in 1969, till the fi nancial sector reforms in the early 1990s. services is a strategic objective for the mergers. Twelve cases of mergers were found during the period. From Kalhöfer and Badreldin (2010) analysed the performance of Table 1, it can be observed that consolidation of banks was car- Egyptian banks that had undergone M&A during 2002–07. The ried out by RBI before the reforms period to amalgamate unvi- study concluded that M&A did not show a clear effect on the prof- able units. All the merging banks are public sector banks. The itability of banks in the Egyptian banking sector. However, main motive is to strengthen the banking sector through com- there were minor positive effects on the credit risk position. pulsory amalgamation in order to weed out unviable banks by So studies have reached varied conclusions. While some are liquidation, or by the taking of assets of the non-functioning of the view that mergers add value to the performance of the banks by other banks. banks and fi rms, others Table 1: Banks Amalgamated since Nationalisation of Banks in India, 1969–90 show that mergers retard Sr No Date of Merger Merging Bank Merged With Motive of Merger Type of Merger 1 08/11/1969 Bank of Bihar Restructuring of Weak Bank Compulsory growth, reduce profi tability, 2 20/02/1970 National Bank of Lahore State Bank of India Restructuring of Weak Bank Compulsory and affect the credit risk 3 29/07/1985 Miraj State Bank Restructuring of Weak Bank Compulsory position of the merger 4 24/08/1985 Lakshmi Commercial Bank Restructuring of Weak Bank Compulsory banks. The current study 5 26/08/1985 Bank of Cochin State Bank of India Restructuring of Weak Bank Compulsory is an attempt to analyse the 6 19/12/1986 Hindustan Commercial Bank Restructuring of Weak Bank Compulsory mergers of banks in India 7 13/05/1988 Traders Bank Restructuring of Weak Bank Compulsory from the early 1990s, when 8 31/10/1989 Restructuring of Weak Bank Compulsory the fi nancial sector reforms 9 20/02/1990 Bank of Tamilnadu Restructuring of Weak Bank Compulsory began, till 2010. There are 10 20/02/1990 Bank of Thanjavur Restructuring of Weak Bank Compulsory very few studies on bank 11 20/02/1990 Parur Bank of India Restructuring of Weak Bank Compulsory mergers in India. Further, 12 29/08/1990 Purbanchal Bank Restructuring of Weak Bank Compulsory Source: Report on Trend and Progress of , Reserve Bank of India, various issues. the study covers all the Table 2: Mergers, Amalgamations in Indian Commercial Banks from 1991 to 2010 public sector banks that Sr No Date of Merger Merging Bank Merged With Motive of Merger Type of Merger went in for mergers since 1 04/09/1993 Punjab National Bank Restructuring of Weak Bank Compulsory 1991, and each merger 2 01/01/1996 Kashi Nath Seth Bank State Bank of India Restructuring of Weak Bank Compulsory case has been studied. 3 08/04/1997 Bari Doab Bank Oriental Bank of Commerce Restructuring of Weak Bank Compulsory 4 08/04/1997 Punjab Co-operative Bank Oriental Bank of Commerce Restructuring of Weak Bank Compulsory 5 03/06/1999 Bareilly Bank of Baroda For Economies of Scale & Scope Voluntary 4 Trends in India 6 22/12/1999 Sikkim Bank Union Bank of India Restructuring of Weak Bank Compulsory From 1960 to June 1982, 20 7 26/02/2000 HDFC Bank For Economies of Scale & Scope Voluntary voluntary amalgamations, 8 10/03/2001 ICICI Bank For Economies of Scale & Scope Voluntary 49 compulsory mergers, 18 9 30/03/2002 ICICI ICICI Bank Universal Banking Voluntary mergers with State Bank of 10 20/06/2002 Benares State Bank Bank of Baroda Restructuring of Weak Bank Compulsory India (SBI) and its associ- 11 01/02/2003 Punjab National Bank Restructuring of Weak Bank Compulsory 12 25/06/2004 South Gujarat Local Area Bank Bank of Baroda Restructuring of Weak Bank Compulsory ates, and 130 transfers of 13 14/08/2004 Global Trust Bank Oriental Bank of Commerce Restructuring of Weak Bank Compulsory assets and liabilities were 14 02/04/2005 IDBI IDBI Bank For Economies of Scale & Scope Voluntary completed. Prior to 1969, 15 01/10/2005 Bank of Punjab Centurion Bank For Economies of Scale & Scope Voluntary the Indian banking system 16 02/09/2006 Ganesh Bank of Kurundwad Restructuring of Weak Bank Compulsory was very weak and domi- 17 03/10/2006 IDBI Bank Restructuring of Weak Bank Compulsory nated by small unviable 18 31/03/2007 Indian Overseas Bank For Economies of Scale & Scope Voluntary banks owned by business 19 19/04/2007 Sangli Bank ICICI Bank For Economies of Scale & Scope Voluntary 20 29/08/2007 For Economies of Scale & Scope Voluntary houses. So, in 1960, RBI 21 23/05/2008 Centurion Bank of Punjab HDFC Bank For Economies of Scale & Scope Voluntary was empowered to bring 22 12/08/2010 The ICICI Bank For Economies of Scale & Scope Voluntary compulsory mergers and Source: Report on Trend and Progress of Banking in India, Reserve Bank of India, various issues.

52 SEPTEMBER 12, 2015 vol L no 37 EPW Economic & Political Weekly SPECIAL ARTICLE Table 2 (p 52) shows the list of banks that went in for merg- single merger case study. These banks are Indian Overseas ers during 1991–2010. Twenty-two banks underwent mergers, Bank, SBI and Union Bank of India. HDFC Bank, IDBI Bank, of which the number of compulsory mergers was 11 and the Oriental Bank of Commerce and Punjab National Bank were remaining 11 mergers were voluntary. A special case of a studied for two merger cases. Bank of Baroda was studied for voluntary merger is that of ICICI Bank, where the motive was three mergers, and ICICI Bank for four mergers. Detailed in- reverse merger, a case of universal banking. In other words, formation of each bank’s M&A is provided in Table 2. since the fi nancial reforms, banks in India used M&A as a The fi nancial indicators used are profi tability, solvency, long-term strategy in their restructuring processes. and effi ciency. The average values of the selected fi nancial parameters for the periods T-3, T-2, and T-1 are compared Hypotheses with its average values at T+1, T+2 and T+3 for each bank. In The main objective is to examine whether the performance of the next step, a paired Student’s t-test is performed to check banks has increased after mergers. Accordingly, the following the statistical signifi cance of the two means of pre- and post- hypotheses are formulated for the current study: merger periods.

H0: There is no signifi cant change in the performance of banks The formula of the paired sample t-test is given by: N after mergers. ∑ i=1 (xo – x1)

H : There are signifi cant changes in the performance of banks N ...(1) 1 t = after mergers. σ√N where, Methodology X0= pre-merger performance of the bank(s) The performance of the banks is analysed in terms of fi nancial X1= post-merger performance of the bank(s) ratios such as profi tability ratios, solvency ratios, effi ciency N= number of parameters used in the sample and earning capacity of banks, and growth rate of total assets. σ = the standard deviation (SD) of the distribution of the These factors as well as the specifi c measures used to repre- change in performance of the merging banks. sent them are defi ned in Table 3. These indicators are used to By using Formula (1), pre-merger and post-merger perfor- identify whether mergers have any improvement or bearing mance of the individual merging bank is measured for each of on the performance of the banks. the performance indicators. Table 3: Definitions of Performance Ratios Used in Analysis of Merged Banks Ratio Definition Performance of Banks Profitability indicators Measure overall performance The results of the descriptive t-test for all the merging banks are (i) Return on assets (ROA) Ratio of profit after tax to total assets shown individually in the Appendix (Tables A1 to A9, p 56–58). (ii) Return on equity (ROE) Ratio of net profit to average shareholders’ equity Solvency indicator Measure the bank’s ability to meet its obligations The tables are sequenced in alphabetical order rather than in relative to its exposure to risk chronological order of the year of merger. (i) Capital adequacy Ratio of tier I & tier II capital to capital ratio (CAR) weighted assets Bank of Baroda Efficiency indicators Measure the bank’s ability to generate income, pay A expenses and measure the productivity of employees Table 1 reports the results of the paired t-test during pre- and (i) Spread Net interest income as a percentage of total assets post-merger period for the Bank of Baroda. There are three (ii) Operating cost/total Total operating expenses as a percentage cases of mergers pertaining to Bank of Baroda. Of these three assets (OC/TA) of total assets cases, two are compulsory mergers and one voluntary. The (iii) Profit per employee Ratio of net profit to the number of employees sole case of voluntary merger pertaining to the Bank of Baroda is Growth indicator Measure the bank’s changes in assets (i) Asset growth rate Change in book value of total asset as a percentage that of Bareilly Corporation Bank Ltd merging with it 1999. The of book value of total assets in the previous year result of the paired t-test for each merger case is depicted in Table A1. The results of the paired sample t-test in the fi rst case 5 Analytical Framework indicated that only one performance indicator, namely, Spread A comparison of the post-merger and pre-merger performance is found to be signifi cant at the 5% level. All other performance allows measuring of the impact of the mergers. The fi nancial indicators do not produce signifi cant t-values. data for each bank are collected for six years, three years before The second merger case is that of a compulsory merger the merger and three years after the merger. The fi nancial data pertaining to the Bank of Baroda and Benares State Bank for the year in which the merger occurred is omitted under the merging with it in 2002. Results of the paired t-test show that study. Only seven public sector banks and two new private sector only three performance indicators, namely, return on assets banks have been identifi ed for this study. The public sector (ROA), return on equity (ROE), and profi t per employee are banks are Bank of Baroda, IDBI Bank, Indian Overseas Bank, statistically signifi cant at the 5% level. No signifi cance is found Oriental Bank of Commerce, Punjab National Bank, SBI and in the other performance indicators. Union Bank of India. ICICI Bank and HDFC Bank are the two The third case of merger with Bank of Baroda occurred in 2004, private sector banks. The analysis is carried out based on the when South Gujarat Local Area Bank was compulsorily frequency of occurrence of mergers over the period under merged with it. The t-test result revealed that none of the per- study. Merger analysis of three banks was carried out for a formance indicators, except the ROE, was found statistically

Economic & Political Weekly EPW SEPTEMBER 12, 2015 vol L no 37 53 SPECIAL ARTICLE signifi cant, even though the mean values are somewhat im- are poor in the post-merger period. And, regarding the t-test proved in the post-merger period for certain indicators. result, none of the indicators are signifi cant. In short, in all of the three cases some of the performance To sum up, in both the merger cases, the performance of indicators are statistically signifi cant, whereas others do not the bank is poor even though OC/TA ratio and profi t per show statistical signifi cance. Ratios like ROA, ROE, Spread and employee improved for the bank in the voluntary merger. profi t per employee are the indicators that show statistical signifi cance, while capital adequacy ratio (CAR), operating Indian Overseas Bank cost/total assets (OC/TA), and asset growth show no signifi - The sole voluntary merger with Oriental Bank of Commerce cance in any of the cases. occurred when Bharat Overseas Bank merged with it (Table A5). Even though it was a voluntary merger, most performance HDFC Bank indicators show the merger had poor results. The sample Two cases of mergers are analysed for HDFC. Both are paired t-test indicated that, except Spread, none of the voluntary mergers. The fi rst case is that of Times Bank merg- performance indicators were statistically signifi cant. ing with it in 2000. Table A2 shows the results of the paired t-test for both the merger cases. In the fi rst case, the result of Oriental Bank of Commerce the paired sample t-test shows that none of the indicators are Two merger cases were analysed for Oriental Bank of statistically signifi cant. Commerce; both are compulsory mergers (Table A6). Results The second case is that of Centurion Bank of Punjab merg- of the sample paired t-test for all the performance indicators in ing with it in 2008. Even though most of the indicators show the fi rst case reported that only two performance indicator improvement in the post-merger period, none of them was variables, namely, Spread and OC/TA were signifi cant at the found to be statistically signifi cant. 5% level. No statistical signifi cance is found in the remaining To sum up, in both the merger cases some improvement is fi ve performance measuring variables. observed in the mean values of some performance indicators. For the second merger case, the performance of the indica- But none of them are statistically signifi cant. tors gives similar results as the fi rst merger case. The paired t-test result indicated that none of the indicators is statisti- ICICI Bank cally signifi cant. The four merger cases pertaining to ICICI Bank were voluntary mergers (Table A3). The fi rst case was that of Bank of Madura Punjab National Bank in 2001. The paired sample t-test shows that none of the indi- Two merger cases were studied for Punjab National Bank. cators is statistically signifi cant. Both the cases are compulsory mergers (Table A7). No statisti- The second case was in 2002 when ICICI merged with ICICI cal signifi cance is found in any of the indicators in the Bank. Since this merger took place within a year, no radical fi rst case. changes were found in the comparison of mean values for the two The performance of the bank in the second merger case is periods. The sample paired t-test shows that the performance somewhat different. In the second merger case, two parame- indicators ROA and ROE are statistically signifi cant at the 5% level. ters, namely, OC/TA and profi t per employee are found to be No signifi cance was found in any of the other indicators. signifi cant at the 5% level. And, the rest of the parameters did The third case was in 2007 when Sangli Bank merged with ICICI not have any signifi cant t-values. Bank. Contradictory results were found in this case as against the results of earlier merger. None of the indicators, except CAR and State Bank of India Spread, was found statistically signifi cant at the 5% level. One merger case was analysed for the SBI. In 1996 Kashi The fourth case was the merger of Bank of Rajasthan with ICICI Nath Seth Bank was compulsorily merged with SBI (Table A8). Bank in 2010. Since data is limited to 2012, analysis was carried The paired sample t-test for all the performance parameters out only for two years in each period. Except the ROA, none of the was found not signifi cant in either of the parameters used for performance indicators were found statistically signifi cant. the performance analysis. In all the four merger cases, the results are different. Union Bank of India IDBI Bank One merger case was analysed for Union Bank of India, the Two cases of mergers were studied for IDBI Bank, one in 2005 compulsory merger of Sikkim Bank (Table A9) with it in 1999. and another in 2006 (Table A4). The merger in 2005 was a None of the parameters was found signifi cant for any of the voluntary merger of IDBI with the bank. The merger in 2006 performance indicator variables. was a compulsory merger of United Western Bank with IDBI. Results of the paired t-test show that only ROA is statistically Reasons for Statistically Insignificant Ratios signifi cant. No signifi cance is found in the rest of the perfor- mance indicators. Profi tability Ratios: From the individual table for each Similar results are observed in the second merger. The merged bank, it can be observed that the profi tability mean values of all the performance indicators, except CAR, measures, ROA and ROE, did improve after some of the

54 SEPTEMBER 12, 2015 vol L no 37 EPW Economic & Political Weekly SPECIAL ARTICLE mergers. However, mean values of these ratios did not improve merging banks. The fi rst indicator, ROA, is found statistically for all banks. The squeeze on profi tability has been driven signifi cant in one merger with the Bank of Baroda and two from the expenditure side, like the increase in interest costs of mergers with ICICI Bank. The second indicator, ROE, was found deposits, growing functional diversifi cation of banks, rapid to be statistically signifi cant in two cases pertaining to Bank of growth in the wages and salary of staff, and accelerated Baroda and one case pertaining to ICICI Bank. Among the CAR, promotions, etc. An increase in profi tability ratios of some profi t per employee and asset growth indicators, statistical banks is substantial enough to offset the fall in ROA and ROE of signifi cance was recorded for three cases: ICICI Bank, Bank of other banks. Baroda and Punjab National Bank. In case of the indicator Spread, statistical signifi cance ratios were observed for Bank Solvency Ratio: All the merged banks fulfi lled the regulatory of Baroda, ICICI Bank, Indian Overseas Bank and Oriental CAR requirement of the 9% level. This signifi ed that the Bank of Commerce. Only two banks, Oriental Bank of merged banks successfully managed to meet the increased re- Commerce and Punjab National Bank, show statistical signifi - quirement under the new regulatory framework. In other cance with respect to OC/TA ratio. words, banks could absorb the unexpected losses easily and As is evident from Table 4, each indicator has different sta- manage their reduced cost of funding, which ultimately im- tistical signifi cance for each of the merging banks. Spread proved their profi tability. However, the average CAR for some shows the maximum number of statistical signifi cance banks declined in the post-merger period and these banks covering four out of the nine merging banks. Other indicators needed recapitalisation with fresh funds in order to cope with have a limited signifi cance. The other statistically signifi cant the new environment of mergers. indicators are ROA and ROE, in case of Bank of Baroda and The insignifi cant coeffi cients of the profi tability parameters ICICI Bank, respectively. Although M&A may be theoretically and solvency ratios had an impact on the growth performance important, but impact on profi tability, capital, and growth in terms of the asset growth rates of the fi rms. For example, rate is not signifi cant. Generally the strategies focus on the growth rate of the total assets declined after mergers for long-term gains, and not short-term objectives. Hence, the null H one of the merging banks (Punjab National Bank). hypothesis ( 0) that there is no signifi cant improvement after mergers is accepted in majority of the merger cases, with few Other Ratios: Non-performing assets (NPA) have been exceptions as reported in Table 4. the major track in varying importance for each bank’s Further when results are classifi ed for compulsory merger performance. Besides, slow adoption of technology across cases and voluntary merger cases separately, there is no banking functions and branches has delayed the approval of difference as more or less equal number of signifi cant bigger benefi ts. Business restructuring and manpower re- ratios are seen for both categories. This indicates that in the structuring imposed the additional cost in some of the banks Indian banking sector merging banks seem to be of very covered here. small size relative to the size of the bank merged with so as to make the impact insignifi cant, irrespective of the type of 6 Summary and Conclusions merger, compulsory or voluntary. Even when we look at Table 4 provides bank-wise statistically signifi cant ratio performance of a bank in the control period (normal years of each performance indicator, pre- and post-merger from without M&A transactions), results of this study remain 1991 to 2010. unchanged.1 In all the nine merging banks, with a total of 18 cases of In conclusion the strategy of M&A to consolidate the banks mergers, each of the indicators shows different statistical citing effi ciency as the reason is doubtful. Future banking signifi cance in different merger cases. Table 4 shows the policy must take note of this empirical reality and the long- summary statistics of statistically signifi cant ratios for the drawn experience of the years since the fi nancial reforms.

Table 4: Summary of Descriptive Statistics—Statistically Significant Ratios Only Acquiring Bank ROA ROE CAR Spread OC/TA Profit Per Employee Asset Growth Compulsory Merger Cases BOB (case2) significant significant X X X significant X BOB (case3) X significant X X X X X OBC (case1) X X X significant significant X X PNB (case2) X X X X significant significant X Voluntary Merger Cases BOB (case1) X X X significant X X X ICICI (case2) significant significant X X X X X ICICI (case3) X X significant significant X X X ICICI (case4) significant X X X X X X IDBI (case1) Significant X X X X X X IOB X X X significant X X X Source: Appendix, Tables A1 to A9.

Economic & Political Weekly EPW SEPTEMBER 12, 2015 vol L no 37 55 SPECIAL ARTICLE note Grossman, S J and O D Hart (1981): “The Alloca- Manne, H G (1965): “Mergers and the Market for tional Role of Takeover Bids in Situations of Corporate Control,” Journal of Political Econo- 1 Estimates of the control period are available my, Vol 73, No 2, pp 110–20. with the authors. Asymmetric Information,” The Journal of Finance, Vol 36, No 2, pp 253–70. Marris, R (1964): The Economic Theory of Manage- REFERENCES Hay, D A and D J Morris (1991): Industrial Econom- rial Capitalism, London: Macmillan. ics and Organization: Theory and Evidence, Ox- Peristiani, S (1997): “Do Mergers Improve the X-ef- Akhavein, J D, Allen N Berger and David B Humphrey ford: Oxford University Press. fi ciency of US Banks? Evidence from the (1997): “The Effects of Megamergers on Effi - Kalhöfer, C and A Badreldin (2010): “The Effect of 1980s,” Journal of Money, Credit and Banking, ciency and Prices: Evidence from a Bank Profi t Vol 29, No 3, pp 326–37. Function,” Finance and Economics Discussion Mergers and Acquisitions on Bank Perfor- Rajan, Raghuram (2014): “First Bi-monthly Monetary Series, Paper No 1997–9, Federal Reserve Board, mance in Egypt,” Journal of Economic Policy Policy Statement, 2014–15,” press release, 1 April, Washington DC. and Research, Vol 6, No 1, pp 74–85. Reserve Bank of India, https://rbi.org.in/scripts/ Alhadeff, C P and D A Alhadeff (1955): “Recent Levy, H and M Sarnat (1970): “International Diver- BS_PressReleaseDisplay.aspx?prid=30911. Bank Mergers,” The Quarterly Journal of Eco- sifi cation of Investment Portfolios,” American nomics, Vol 69, No 4, pp 503–32. Rhoades, S A and A J Yeats (1974): “Growth, Con- Economic Review, Vol 60, No 4, 668–75. solidation and Mergers in Banking,” The Jour- Berger, Allen N and David Humphrey (1994): Lewellen, W (1971): “A Pure Financial Rationale for “Bank Scale Economies, Mergers, Concentra- nal of Finance, Vol 29, No 5, pp 1397–405. tion, and Effi ciency: The US Experience,” the Conglomerate Merger,” Journal of Finance, Rhoades, Stephen A (1993): “Effi ciency Effects of Hori- Working Paper No 94–25, Wharton Financial Vol 26, No 2, pp 521–37. zontal (in-market) Bank Mergers,” Journal of Institutions Center, Philadelphia. Linter, J (1971): “Expectations, Mergers and Banking and Finance, Vol 17, Nos 2–3, pp 411–22. Focarelli, D, F Panetta and C Salleo (2002): “Why Equilibrium in Purely Competitive Securities Shaffer, S (1993): “A Test of Competition in Cana- Do Banks Merge?,” Journal of Money, Credit Markets,” American Economic Review, Vol 61, dian Banking,” Journal of Money, Credit and and Banking, Vol 34, No 4, pp 1047–66. No 2, pp 101–11. Banking, Vol 25, No 1, pp 49–61.

Table A1: Descriptive Statistics of Paired t-Test for Bank of Baroda Table A2: Descriptive Statistics of Paired t-Test for HDFC Bank Financial Ratios Period Mean Standard t-Value Probability Remark Financial Ratios Period Mean Standard t-Value Probability Remark Deviation Deviation Merger Case 1: Bareilly Corporation Bank with Bank of Baroda in 1999 Merger Case 1: Times Bank with HDFC Bank in 2000 ROA Pre-merger 0.85 0.139 0.478 0.680 Not Significant Post-merger 0.77 0.302 ROA Pre-merger 1.99 0.212 4.076 0.055 Not Significant ROE Pre-merger 15.51 1.827 0.518 0.656 Not Significant Post-merger 1.48 0.035 Post-merger 14.11 5.324 CAR Pre-merger 12.38 0.804 0.225 0.843 Not Significant ROE Pre-merger 21.35 1.938 0.833 0.492 Not Significant Post-merger 12.26 0.815 Post-merger 19.97 1.291 Spread Pre-merger 3.04 0.153 6.091* 0.026 Significant Post-merger 2.82 0.214 CAR Pre-merger 12.66 1.106 1.880 0.200 Not Significant OC/TA Pre-merger 2.34 0.03 0.381 0.740 Not Significant Post-merger 2.30 0.209 Post-merger 12.24 1.491 Profit per Pre-merger 0.84 0.204 -1.550 0.261 Not Significant Spread Pre-merger 3.21 0.545 0.785 0.514 Not Significant employee Post-merger 1.30 0.670 Growth rate Pre-merger 17.87 5.551 4.397 0.142 Not Significant Post-merger 2.84 0.281 of assets Post-merger 9.88 2.981 OC/TA Pre-merger 1.91 0.397 0.188 0.868 Not Significant Merger Case 2: Benares State Bank with Bank of Baroda in 2002 ROA Pre-merger 0.70 0.220 -9.330* 0.011 Significant Post-merger 1.86 0.084 Post-merger 1.00 0.229 Profit per Pre-merger 9.71 0.217 - 0.272 0.811 Not Significant ROE Pre-merger 13.29 4.344 -23.099* 0.002 Significant employee Post-merger 17.24 4.103 Post-merger 9.74 0.350 CAR Pre-merger 12.73 0.603 -0.428 0.710 Not Significant Growth rate Pre-merger 110.84 80.787 1.501 0.374 Not Significant Post-merger 13.06 0.739 of assets Spread Pre-merger 2.97 0.110 0.000 1.000 Not Significant Post-merger 33.48 7.891 Post-merger 2.97 0.204 Merger Case 2: Centurion Bank of Punjab with HDFC Bank in 2008 OC/TA Pre-merger 2.36 0.165 2.135 0.166 Not Significant ROA Pre-merger 1.34 0.032 - 3.213 0.085 Not Significant Post-merger 2.12 0.035 Profit per Pre-merger 0.86 0.244 -11.26* 0.008 Significant Post-merger 1.63 0.127 employee Post-merger 2.02 0.370 ROE Pre-merger 18.31 0.993 0.994 0.425 Not Significant Growth rate Pre-merger 10.13 2.936 -0.586 0.663 Not Significant of assets Post-merger 11.30 0.099 Post-merger 17.24 1.272 Merger Case 3: South Gujarat Local Area Bank with Bank of Baroda in 2004 CAR Pre-merger 12.70 1.144 - 4.022 0.057 Not Significant ROA Pre-merger 1.02 0.197 2.196 0.159 Not Significant Post-merger 0.8 0.085 Post-merger 16.73 0.636 ROE Pre-merger 18.11 2.631 4.730* 0.042 Significant Spread Pre-merger 3.73 0.243 - 2.222 0.156 Not Significant Post-merger 13.10 1.282 CAR Pre-merger 12.63 1.295 -0.157 0.889 Not Significant Post-merger 4.12 0.111 Post-merger 12.80 0.933 OC/TA Pre-merger 2.60 0.265 0.017 0.988 Not Significant Spread Pre-merger 2.81 0.191 1.090 0.390 Not Significant Post-merger 2.49 0.310 Post-merger 2.60 0.067 OC/TA Pre-merger 2.16 0.04 2.785 0.108 Not Significant Profit per Pre-merger 6.16 1.210 - 0.749 0.532 Not Significant Post-merger 1.84 0.240 employee Profit per Pre-merger 1.77 0.326 -2.969 0.097 Not Significant Post-merger 7.15 1.077 employee Post-merger 2.93 0.922 Growth rate Pre-merger 35.05 15.45 0.955 0.515 Not Significant Growth rate Pre-merger 9.57 2.549 -7.436 0.085 Not Significant of assets of assets Post-merger 25.85 0.547 Post-merger 23.26 2.02 *Significant at the 5% level.

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Table A3: Descriptive Statistics of Paired t-Test for ICICI Bank Table A4: Descriptive Statistics of Paired t-Test for IDBI Bank Financial Ratios Period Mean Standard t-Value Probability Remark Financial Ratios Period Mean Standard t-Value Probability Remark Deviation Deviation Merger Case 1: Bank of Madura with ICICI Bank in 2001 Merger Case 1: IDBI with IDBI Bank in 2005 ROA Pre-merger 0.87 0.045 - 2.982 0.096 Not Significant Post-merger 1.34 0.232 ROA Pre-merger 0.90 0.12 4.446* 0.047 Significant ROE Pre-merger 16.53 4.823 - 0.703 0.555 Not Significant Post-merger 0.65 0.023 Post-merger 19.06 1.783 ROE Pre-merger 18.04 11.478 1.332 0.314 Not Significant CAR Pre-merger 14.09 4.813 0.960 0.438 Not Significant Post-merger 8.84 0.495 Post-merger 11.08 0.710 Spread Pre-merger 1.76 0.261 1.638 0.243 Not Significant CAR Pre-merger 11.82 3.225 - 0.251 0.825 Not Significant Post-merger 1.54 0.186 Post-merger 12.42 1.153 OC/TA Pre-merger 1.39 0.274 - 3.690 0.066 Not Significant Spread Pre-merger 1.77 1.337 1.310 0.320 Not Significant Post-merger 1.97 0.085 Post-merger 0.65 0.161 Profit per Pre-merger 8.46 1.758 - 2.468 0.132 Not Significant employee Post-merger 11.33 0.577 OC/TA Pre-merger 1.90 0.747 3.108 0.090 Not Significant Growth rate Pre-merger 68.20 6.675 3.270 0.189 Not Significant Post-merger 0.80 0.173 of assets Post-merger 25.56 11.766 Profit per Pre-merger 6.65 1.664 - 2.258 0.152 Not Significant Merger Case 2: ICICI with ICICI Bank in 2002 employee Post-merger 8.57 0.248 ROA Pre-merger 0.79 0.104 - 6.414* 0.023 Significant Post-merger 1.40 0.164 Growth rate Pre-merger 294.87 326.509 1.167 0.4509 Not Significant ROE Pre-merger 11.36 4.235 - 11.237* 0.008 Significant of assets Post-merger 28.89 4.278 Post-merger 18.04 3.376 Merger Case 2: United Western Bank with IDBI Bank in 2006 CAR Pre-merger 14.22 4.697 0.686 0.564 Not Significant ROA Pre-merger 0.83 0.175 3.381 0.077 Not Significant Post-merger 11.83 1.496 Spread Pre-merger 1.39 0.752 - 0.606 0.606 Not Significant Post-merger 0.61 0.071 Post-merger 1.65 0.053 ROE Pre-merger 13.85 11.765 0.603 0.608 Not Significant OC/TA Pre-merger 1.19 0.553 - 2.823 0.106 Not Significant Post-merger 9.49 1.007 Post-merger 1.93 0.139 CAR Pre-merger 13.56 2.780 1.106 0.384 Not Significant Profit per Pre-merger 7.87 2.560 - 2.411 0.137 Not Significant employee Post-merger 11.00 1.00 Post-merger 11.61 0.322 Growth rate Pre-merger 245.49 257.397 1.170 0.450 Not Significant Spread Pre-merger 1.07 1.286 0.286 0.802 Not Significant of assets Post-merger 41.91 11.355 Post-merger 0.81 0.310 Merger Case 3: Sangli Bank with ICICI Bank in 2007 OC/TA Pre-merger 1.23 0.692 1.166 0.364 Not Significant ROA Pre-merger 1.32 0.261 0.649 0.583 Not Significant Post-merger 1.15 0.186 Post-merger 0.73 0.058 ROE Pre-merger 15.45 3.007 3.163 0.087 Not Significant Profit per Pre-merger 9.17 2.922 0.343 0.764 Not Significant employee Post-merger 8.46 1.041 Post-merger 8.57 0.248 CAR Pre-merger 12.27 0.934 -4.960* 0.038 Significant Growth rate Pre-merger 267.30 365.495 0.898 0.534 Not Significant Post-merger 18.16 2.279 of assets Spread Pre-merger 1.67 0.025 -9.341* 0.011 Significant Post-merger 33.70 2.523 Post-merger 2.24 0.083 *Significant at the 5% level. OC/TA Pre-merger 1.97 0.835 3.296 0.081 Not Significant Table A5: Descriptive Statistics of Paired t-Test for Indian Overseas Bank Post-merger 1.70 0.139 Financial Ratios Period Mean Standard t-Value Probability Remark Profit per Pre-merger 10.00 1.00 0 1 Not Significant Deviation employee Post-merger 10.00 1.00 Merger Case 1: Bharat Overseas Bank with Indian Overseas Bank in 2007 Growth rate Pre-merger 43.52 9.078 2.757 0.221 Not Significant ROA Pre-merger 1.32 0.04 2.492 0.130 Not Significant of assets Post-merger 3.80 11.299 Merger Case 4: Bank of Rajasthan with ICICI Bank in 2010 Post-merger 0.80 0.330 ROA Pre-merger 1.06 0.106 -21.8* 0.029 Significant ROE Pre-merger 27.78 0.486 3.616 0.069 Not Significant Post-merger 1.60 1.141 Post-merger 14.81 6.476 ROE Pre-merger 7.87 0.134 -5.012 0.063 Not Significant Post-merger 12.15 1.344 CAR Pre-merger 13.50 0.614 - 0.795 0.510 Not Significant CAR Pre-merger 17.47 2.744 -0.634 0.640 Not Significant Post-merger 14.18 0.854 Post-merger 18.63 0.156 Spread Pre-merger 3.72 0.085 10.275* 0.009 Significant Spread Pre-merger 2.20 0.007 -0.95 0.516 Not Significant Post-merger 2.39 0.276 Post-merger 2.60 0.108 OC/TA Pre-merger 1.74 0.177 0.563 0.674 Not Significant OC/TA Pre-merger 2.03 0.307 2.744 0.111 Not Significant Post-merger 1.65 0.049 Post-merger 1.64 0.223 Profit per Pre-merger 10.00 1.414 -1.087 0.473 Not Significant employee Post-merger 11.25 0.212 Profit per Pre-merger 3.31 0.694 - 0.720 0.546 Not Significant employee Growth rate Pre-merger - 4.66 – – – – Post-merger 3.99 1.292 of assets Post-merger 9.76 – Growth rate Pre-merger 27.70 15.39 1.693 0.340 Not Significant *Significant at the 5% level. of assets No calculation for growth of total assets since data is not available for 2013–14, only mean Post-merger 22.33 19.87 is worked out. *Significant at the 5% level.

Economic & Political Weekly EPW SEPTEMBER 12, 2015 vol L no 37 57 SPECIAL ARTICLE

Table A6: Descriptive Statistics of Paired t-test for Oriental Bank Table A7: Descriptive Statistics of Paired t-test for Punjab National Bank of Commerce Financial Ratios Period Mean Standard t-Value Probability Remark Financial Ratios Period Mean Standard t-Value Probability Remark Deviation Deviation Merger Case 1: New Bank of India with Punjab National Bank in 1993 Merger Case 1: Punjab Co-operative Bank with Oriental Bank of Commerce in 1997 ROA Pre-merger 0.40 0.20 0.395 0.366 Not Significant ROA Pre-merger 1.53 0.133 2.918 0.100 Not Significant Post-merger 1.03 0.208 Post-merger 0.24 0.52 ROE Pre-merger 20.94 11.61 1.025 0.207 Not Significant ROE Pre-merger 22.23 1.695 2.709 0.114 Not Significant Post-merger 18.16 3.956 Post-merger 6.48 13.55 CAR Pre-merger 17.26 0.382 8.835 0.071 Not Significant Spread Pre-merger 3.14 0.40 0.163 0.448 Not Significant Post-merger 12.45 0.389 Post-merger 3.06 0.30 Spread Pre-merger 3.83 0.049 11.072* 0.008 Significant OC/TA Pre-merger 2.46 0.03 -3.813 0.081 Not Significant Post-merger 2.97 0.110 Post-merger 3.07 0.20 OC/TA Pre-merger 2.27 0.189 4.993* 0.038 Significant Profit per Pre-merger 0.06 – – – – Post-merger 1.88 0.125 employee Post-merger 0.12 – Profit per Pre-merger 1.19 0.234 - 3.055 0.093 Not Significant Growth rate Pre-merger 5.98 5.04 -1.64 0.174 Not Significant employee Post-merger 1.67 0.208 of assets Post-merger 10.49 1.15 Growth rate Pre-merger 18.80 12.679 - 1.400 0.395 Not Significant Merger Case 2: Nedungadi Bank with Punjab National Bank in 2003 of assets Post-merger 20.48 14.378 ROA Pre-merger 0.83 0.134 - 2.341 0.144 Not Significant Merger Case 2: Global Trust Bank with Oriental Bank of Commerce in 2004 Post-merger 1.10 0.070 ROA Pre-merger 1.33 0.351 0.409 0.722 Not Significant ROE Pre-merger 20.16 2.579 0.802 0.506 Not Significant Post-merger 1.21 0.185 Post-merger 17.79 3.164 ROE Pre-merger 24.47 4.220 3.250 0.083 Not Significant CAR Pre-merger 10.99 0.924 - 1.564 0.258 Not Significant Post-merger 10.03 3.510 Post-merger 13.01 1.545 CAR Pre-merger 13.17 1.897 0.692 0.561 Not Significant Spread Pre-merger 3.33 0.256 0.814 0.501 Not Significant Post-merger 12.36 0.212 Post-merger 3.26 0.123 Spread Pre-merger 3.38 0.312 2.636 0.119 Not Significant OC/TA Pre-merger 2.60 0.303 23.568* 0.002 Significant Post-merger 2.29 0.435 Post-merger 2.24 0.309 OC/TA Pre-merger 1.64 0.07 1.998 0.184 Not Significant Profit per Pre-merger 1.07 0.326 - 13.309* 0.006 Significant Post-merger 1.39 0.228 employee Post-merger 2.53 0.136 Profit per Pre-merger 3.63 1.365 - 3.015 0.095 Not Significant Growth rate Pre-merger 16.53 2.428 0.924 0.525 Not Significant employee Post-merger 5.61 0.235 of assets Post-merger 13.44 2.305 Growth rate Pre-merger 13.00 10.823 - 1.224 0.436 Not Significant of assets Post-merger 24.06 1.958 Table A9: Descriptive Statistics of Paired t-test for Union Bank of India *Significant at the 5% level. Financial Ratios Period Mean Standard t-Value Probability Remark Deviation Table A8: Descriptive Statistics of Paired t-Test for State Bank of India Merger Case 1: Sikkim Bank with Union Bank of India in 1999 Financial Ratios Period Mean Standard t-Value Probability Remark Deviation ROA Pre-merger 0.81 0.263 0.247 0.828 Not Significant Merger Case 1: Kashi Nath Seth Bank with State Bank of India in 1996 Post-merger 0.73 0.340 ROA Pre-merger 0.473 0.194 - 1.021 0.415 Not Significant ROE Pre-merger 14.34 3.915 - 0.270 0.813 Not Significant Post-merger 0.750 0.290 Post-merger 16.06 7.502 ROE Pre-merger 14.007 3.878 - 0.500 0.666 Not Significant CAR Pre-merger 10.49 0.386 - 1.393 0.293 Not Significant Post-merger 16.547 5.635 Post-merger 11.45 0.841 Spread Pre-merger 3.045 0.379 0.772 0.521 Not Significant Spread Pre-merger 3.08 0.383 0.339 0.769 Not Significant Post-merger 2.793 0.191 Post-merger 3.02 0.101 OC/TA Pre-merger 2.8967 0.232 1.720 0.228 Not Significant OC/TA Pre-merger 2.63 0.131 3.292 0.081 Not Significant Post-merger 2.5633 0.133 Post-merger 2.26 0.323 Profit per Pre-merger 0.263 0.127 - 2.678 0.116 Not Significant Profit per Pre-merger 0.67 0.251 - 1.672 0.343 Not Significant employee Post-merger 0.697 0.236 employee Post-merger 1.69 0.658 Growth rate Pre-merger 13.902 6.391 - 0.883 0.539 Not Significant Growth rate Pre-merger 12.69 1.455 - 0.472 0.719 Not Significant of assets Post-merger 20.683 4.466 of assets Post-merger 13.04 2.517

Culture, Feminism, Globalisation – Tejaswini Niranjana Review Navigating a Field of Opposition: A Rereading of Debates on ‘Caste and Gender’ – Nitya Vasudevan In the Eye of International Feminism: Cold Sex Wars in Taiwan – Naifei Ding of Risking Feminism?: Voices from the Classroom – Shilpa Phadke Women’s From the Streets to the Web: Looking at Feminist Activism on Social Media – Sujatha Subramanian On Fire in Weibo: Feminist Online Activism in China – Holly Lixian Hou Studies The Selfie and the Slut: Bodies, Technology and Public Shame – Nishant Shah For copies write to: Circulation Manager, April 25, 2015 Economic and Political Weekly, 320-321, A to Z Industrial Estate, Ganpatrao Kadam Marg, Lower Parel, 400 013. email: [email protected]

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