Aayush Maheshwari - CONTENT

BANKING MERGERS AND ACQUSITIONS
EXECUTIVE SUMMARY
The ‘Bigger is better’ syndrome is nowhere more apparent than in the pinnacles of
the global banking industry. The financial services industry, particularly the banking
industry, has undergone significant transformation all over the world since the early
1980s under the impact of technological advances, deregulation and globalization.
An important aspect of this process has been consolidation as a large number of
banks have been merged, amalgamated or restructured.
Mergers and Acquisitions encourage banks to gain global reach and better synergy
and allow banks to acquire the stressed assets of weaker banks. A complete
combination of two separate corporations involving in a business is referred as
business merger. Acquisitions on the other hand are take-over. In this case one
company actually buys another company. Through Mergers and Acquisitions banks
not only get established brand names, new geographies, complementary product
offerings but also opportunities to cross sell to new accounts acquired. The process
of Mergers and Acquisitions is not a new to the Indian Banking. The main objective
of this paper is to assess the impact of Mergers and Acquisitions in Indian Banking
Industry, their position before and after Mergers & Acquisitions and finding out the
reasons behind these Mergers & Acquisitions. For the study secondary data is used
which has been taken from articles from magazines, newspapers, books and
Websites.
Through this project, I would like to study the significance of awareness about bank
mergers and acquisitions and society’s confidence in the Indian banking system.
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INTRODUCTION
CHP 1- INDIAN BANKING SYSTEM

This project is about the mergers and acquisitions in banking industry. A merger
occurs when two companies combine to form a single company. A merger is very
similar to an acquisition or takeover, except that in the case of a merger existing
stockholders of both companies involved retain a shared interest in the new
corporation. By contrast, in an acquisition one company purchases a bulk of a
second company’s stock, creating an uneven balance of ownership in the new
combined company.
Banking in India in the modern sense originated in the last decades of the 18th
century. Among the first banks were the Bank of Hindustan, which was established
in 1770 and liquidated in 1829-32; and the General Bank of India, established 1786
but failed in 1791.
The largest bank, and the oldest still in existence, is the State Bank of India. It
originated as the Calcutta in June 1806. In 1809, it was renamed as the Bank of
Bengal. This was one of the three banks funded by a presidency government; the
other two were the Bank of Bombay and the Bank of Madras. The three banks were
merged in 1921 to form the Imperial Bank of India, which upon India's independence,
became the State Bank of India in 1955. For many years the presidency banks had
acted as quasi-central banks, as did their successors, until the Reserve Bank of
India was established in 1935, under the Reserve Bank of India Act, 1934. In 1960,
the State Banks of India was given control of eight state-associated banks under the
State Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate
banks. In 1969 the Indian government nationalized 14 major private banks. In 1980,
6 more private banks were nationalized. These nationalized banks are the majority of
lenders in the Indian economy. They dominate the banking sector because of their
large size and widespread networks.
The Indian banking sector is broadly classified into scheduled banks and non-
scheduled banks. The scheduled banks are those which are included under the 2nd
Schedule of the Reserve Bank of India Act, 1934. The scheduled banks are further
classified into: nationalized banks; State Bank of India and its associates; Regional
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Rural Banks (RRBs); foreign banks; and other Indian private sector banks. The term
commercial bank refers to both scheduled and non-scheduled commercial banks
which are regulated under the Banking Regulation Act, 1949.
Generally banking in India was fairly mature in terms of supply, product range and
reach-even though reach in rural India and to the poor still remains a challenge. The
government has developed initiatives to address this through the State Bank of India
expanding its branch network and through the National Bank for Agriculture and
Rural Development with things like microfinance.
Structure of Indian Banking System:
Indian Banking System
Organizational Business
Product Segmentation
Structure Segmentation
I] Organizational Structure:
The entire organized banking system comprises of scheduled and non-scheduled

banks. Banking needs of the financially excluded population is catered to by other
unorganized entities distinct from banks, such as, moneylenders, pawnbrokers and
indigenous bankers.
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1) Scheduled Banks
A scheduled bank is a bank that is listed under the second schedule of the RBI Act,
1934. In order to be included under this schedule of the RBI Act, banks have to fulfill
certain conditions such as having a paid up capital and reserves of at least 0.5
million and satisfying the Reserve Bank that its affairs are not being conducted in a
manner prejudicial to the interests of its depositors. Scheduled banks are further
classified into commercial and cooperative banks. The basic difference between
scheduled commercial banks and scheduled cooperative banks is in their holding
pattern. Scheduled cooperative banks are cooperative credit institutions that are
registered under the Cooperative Societies Act. These banks work according to the
cooperative principles of mutual assistance.
a) Scheduled Commercial Banks (SCBs):
Scheduled commercial banks (SCBs) account for a major proportion of the business
of the scheduled banks. As at end-March, 2009, 80 SCBs were operational in India.
SCBs in India are categorized into the five groups based on their ownership and/or
their nature of operations.
I)State Bank of India and its six associates (excluding State Bank of Saurashtra,
which has been merged with the SBI with effect from August 13, 2008) are
recognized as a separate category of SCBs, because of the distinct statutes (SBI
Act, 1955 and SBI Subsidiary Banks Act, 1959) that govern them.
ii) Nationalized banks (10) and SBI and associates (7), together form the public
sector banks group and control around 70% of the total credit and deposits
businesses in India. IDBI ltd. has been included in the nationalized banks group
since December 2004.
iii) Private sector banks include the old private sector banks and the new generation
private sector banks- which were incorporated according to the revised guidelines
issued by the RBI regarding the entry of private sector banks in 1993. As at end-
March 2009, there were 15 old and 7 new generation private sector banks operating
in India.
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iv) Foreign banks are present in the country either through complete
branch/subsidiary route presence or through their representative offices. At end-
June 2009, 32 foreign banks were operating in India with 293 branches. Besides, 43
foreign banks were also operating in India through representative offices.
v) Regional Rural Banks (RRBs) were set up in September 1975 in order to develop
the rural economy by providing banking services in such areas by combining the
cooperative specialty of local orientation and the sound resource base which is the
characteristic of commercial banks. RRBs have a unique structure, in the sense that
their equity holding is jointly held by the central government, the concerned state
government and the sponsor bank (in the ratio 50:15:35), which is responsible for
assisting the RRB by providing financial, managerial and training aid and also
subscribing to its share capital.
Between 1975 and 1987, 196 RRBs were established. RRBs have grown in
geographical coverage, reaching out to increasing number of rural clientele. At the
end of June 2008, they covered 585 out of the 622 districts of the country. Despite
growing in geographical coverage, the number of RRBs operational in the country
has been declining over the past five years due to rapid consolidation among them.
As a result of state wise amalgamation of RRBs sponsored by the same sponsor
bank, the number of RRBs fell to 86 by end March 2009.
b) Scheduled Cooperative Banks:
Scheduled cooperative banks in India can be broadly classified into urban credit
cooperative institutions and rural cooperative credit institutions. Rural cooperative
banks undertake long term as well as short term lending. Credit cooperatives in
most states have a three tier structure (primary, district and state level).
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[II] Business Segmentation:
The entire range of banking operations are segmented into four broad heads- retail
banking businesses, wholesale banking businesses, treasury operations and other
banking activities. Banks have dedicated business units and branches for retail
banking, wholesale banking (divided again into large corporate, mid corporate) etc.
1) Retail banking
It includes exposures to individuals or small businesses. Retail banking activities

are identified based on four criteria of orientation, granularity, product criterion and
low value of individual exposures. In essence, these qualifiers imply that retail
exposures should be to individuals or small businesses (whose annual turnover is
limited to Rs. 0.50 billion) and could take any form of credit like cash credit,
overdrafts etc. Retail banking exposures to one entity is limited to the extent of 0.2%
of the total retail portfolio of the bank or the absolute limit of Rs. 50 million. Retail
banking products on the liability side includes all types of deposit accounts and
mortgages and loans (personal, housing, educational etc.) on the assets side of
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banks. It also includes other ancillary products and services like credit cards, demat
accounts etc.
Among the large banks, ICICI bank is a major player in the retail banking space
which has had definitive strategies in place to boost its retail portfolio. It has a
strong focus on movement towards cheaper channels of distribution, which is vital
for the transaction intensive retail business. SBI’s retail business is also fast
growing and a strategic business unit for the bank. Among the smaller banks, many
have a visible presence especially in the auto loans business. Among these banks
the reliance on their respective retail portfolio is high, as many of these banks have
advance portfolios that are concentrated in certain usages, such as auto or
consumer durables. Foreign banks have had a somewhat restricted retail portfolio
till recently. However, they are fast expanding in this business segment. The retail
banking industry is likely to see a high competition scenario in the near future.
2) Wholesale banking
Wholesale banking includes high ticket exposures primarily to corporate. Internal

processes of most banks classify wholesale banking into mid corporate and large
corporate according to the size of exposure to the clients. A large portion of
wholesale banking clients also account for off balance sheet businesses. Hedging
solutions form a significant portion of exposures coming from corporate. Hence,
wholesale banking clients are strategic for the banks with the view to gain other
business from them. Various forms of financing, like project finance, leasing finance,
finance for working capital, term finance etc. form part of wholesale banking
transactions.
Wholesale banking is also a well diversified banking vertical. Most banks have a
presence in wholesale banking. But this vertical is largely dominated by large Indian
banks. While a large portion of the business of foreign banks comes from wholesale
banking, their market share is still smaller than that of the larger Indian banks. A
number of large private players among Indian banks are also very active in this
segment. Among the players with the largest footprint in the wholesale banking
space are SBI, ICICI Bank, IDBI Bank, Canara Bank, Bank of India, Punjab National
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Bank and Central Bank of India. Bank of Baroda has also been exhibiting quite
robust results from its wholesale banking operations.
3) Treasury Operations
Treasury operations include investments in debt market (sovereign and corporate),

equity market, mutual funds, derivatives, and trading and forex operations. These
functions can be proprietary activities, or can be undertaken on customer’s account.
Treasury operations are important for managing the funding of the bank. Apart from
core banking activities, which comprises primarily of lending, deposit taking
functions and services; treasury income is a significant component of the earnings
of banks. Treasury deals with the entire investment portfolio of banks (categories of
HTM, AFS and HFT) and provides a range of products and services that deal
primarily with foreign exchange, derivatives and securities.
4) Other Banking Businesses
This is considered as a residual category which includes all those businesses of

banks that do not fall under any of the aforesaid categories. This category includes
para banking activities like hire purchase activities, leasing business, merchant
banking, factoring activities etc.
[III] Product Segmentation:
The products of the banking industry broadly include deposit products, credit
products and customized banking services. Most banks offer the same kind of
products with minor variations. The basic differentiation is attained through quality of
service and the delivery channels that are adopted. Apart from the generic products
like deposits (demand deposits – current, savings and term deposits), loans and
advances (short term and long term loans) and services, there have been
innovations in terms and products such as the flexible term deposit, convertible
savings deposit (wherein idle cash in savings account can be transferred to a fixed
deposit), etc. Innovations have been increasingly directed towards the delivery
channels used, with the focus shifting towards ATM transactions, phone and
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internet banking. Product differentiating services have been attached to most

products, such as debit/ATM cards, credit cards, nomination and demat services.
1.2 Research Objectives:
Through this research, I would like to closely ponder on these points:
1. To study the banking reforms in India.

2. To study Kotak Mahindra Bank and ING Vysya Bank merger.
3. To determine the need for consolidation of banks in India.
4. To Understand the Merger procedure in banks
5. To know the reasons of Mergers and Acquisitions of banks in India
6. To find the effects of Mergers and Acquisitions of banks.
7. To know the impact of mergers and acquisitions on working and employment
conditions.
8. To know the impact of mergers and acquisitions on consumers.
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1.3 SCOPE & COVERAGE
The Scope of this study includes merger of Kotak Mahindra Bank and ING Vysya
Bank. The merger happened as per the rules of Reserve Bank of India and after the
merger the working of both banks came under one name i.e. Oriental Bank of
Commerce.
In terms of Coverage we took reference of all the mergers which have taken place.
This reference gave more credibility to our project and set up a good comparative
study. The study’s Main focus remained the merger of Kotak Mahindra Bank and
ING Vysya Bank which was approved on 20th November, 2014.
1.4 IMPORTANCE
With the globalization of the world economy, companies are growing by merger
and acquisition in a bid to expand operations and remain competitive. The
complexity of such transactions often makes it difficult to assess all risk exposures
and liabilities, and requires the skills of a specialist advisor.
Banks are facing an increasingly competitive business environment, which is

driving them to constantly improve services and increase efficiency. Growth by
cross-border Mergers and Acquisitions (M&A) is one way for them to respond to
this challenge, but a number of serious obstacles still hamper this kind of
expansion.
a) Mergers and acquisitions (M&As), joint ventures (JVs) and other forms of
strategic alliances have recorded a tremendous growth in recent years.
b) Acquisitions have become a generic strategy for many companies.
c) To drive the global economy and control
d) Facilitate synergies between merged organizations,
e) Generate efficiency improvements and increase competitiveness.
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f) The basic argument that M&As increase shareholder value through
exploitation of synergies is based on the assumption that the combined
organization can be operated in a way that generates greater value than would
be the sum of the value generated by the “stand-alone” companies (the 2+2>4
equation).
Mergers and acquisitions (M&As) are driving most profit-making sectors

towards consolidation and concentration and nowhere is this truer than in the
financial services sector.
1.5 LIMITATION
 Mergers & Acquisitions are hard to occur, so the information about them is
very less.
 It was not possible to cover every aspect. This poses to be a serious
limitation.
 As the process of mergers and acquisitions of banks is kept secret with the
general public, so the exact procedure and the reasons behind them are
difficult to find.
 As the data has been taken from the books and various websites, the data
available is not recent.
 Various financial terms related to mergers and acquisitions are the difficult
to understand.
 It is difficult to explain specific impacts made on consumers from merger
and acquisition activity within the financial services sector.
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1.6 METHODOLOGY TO COLLECT DATA
In this research, I would employ two means to collect data for analysis and
reaching a conclusion:
1. Primary data:
a. Interview of Kotak Mahindra Bank official.
b. Interviews of banking industry experts.
2. Secondary data: Financial reports and statistics of banks, opinions and
articles of industry experts, RBI discussion reports.
CHP 2: REVIEW OF LITERATURE
There have been numerous studies on merger and acquisitions (M&As) in India
and abroad in the last few decades, and several theories have been proposed and
tested for empirical validation by researchers. Researchers have studied the
economic impact of M&As on industry consolidation, returns to shareholders
following M&As, and the post-merger performance of firms. Whether or not a
merged firm achieves the expected performance is the critical question that has
been examined by most of the researchers, resulting in the proposal of several
measures for analyzing the impact and success of mergers. Such measures have
included both short-run, as well as long-run impacts of merger announcements,
effects on shareholders’ wealth (SW) and more. A number of studies were done in
the developed capital markets of Europe, Australia, China, India, and the USA on
the evaluation of corporate financial performance following mergers.
Lubatkin (1983)1 analysed the findings of various studies that have investigated
either directly or indirectly the question, “Do mergers provide real benefits to the
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acquiring firms?”, which resulted in the suggestion that acquiring firms might
benefit from merging because of technical, monetary and diversification synergies.
Healy et al. (1992)2 listed several reasons given by chief executive officers
(CEOs) to justify a merger or acquisition, which include: to obtain synergies,
economies of scale, cost savings, increased products, and rationalisation of
distribution channels.
Studies of Merger and Acquisition in Respect of Accounting Performance
Ming and Hoshino (2002), in their work “The Impact of Merger and Acquisitions
on Shareholders’ Wealth: Evidence from Taiwanese Corporations” tested a
sample of 46 M&As events in Taiwan between 1987 and 1998, to study the impact
of M&As on SW. The study distinguished among M&As of different purposes, and
found that M&As for technology-acquiring purposes are most favored by the
market, while vertical M&As are detrimental to SW, hence, the merging firms gain
modestly positive abnormal returns around the time of the merger proposals, but
evidencing to larger and statistically significant returns over longer event periods.
The study suggested that M&As are favoured by the market, thus increasing SW,
which leads to reinforce the Taiwanese government’s efforts at industrial
upgrading during the past decade. On the other hand, vertical M&As involve the
vertical integration of a firm’s businesses, which may be a more difficult task,
especially in integrating intangible human resources.
Beena (2004)28, in a work “Towards Understanding the Merger Wave in the
Indian Corporate Sector – A Comparative Perspective” analysed the pre-and post-
merger performance of a sample of 115 acquiring firms in the manufacturing
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sector in India, during 1995 – 2000, using a set of financial ratios and paired two
samples t-test. The study could not find any evidence of improvement in the
financial ratios during the post-merger period, as compared to the pre-merger
period for the acquiring firms. In short, the number of merging firms-which is less
than 10% of all firms in the industry-overall performance is far better than that of
the others and their own pre-merger period performance, thereby leading to
conclude that if the industry is able to transfer a part of its improved performance
due to consolidation to the consumers in the form of a price reduction and a better
quality of drugs, it would be a welcome sign; and on the other hand if it leads to
increased market power and consequent price rise, then it would deserve special
attention.
Sudarsanam and Mahate (2006), in a work entitled “Are Friendly Acquisitions too
bad for Shareholders and Managers? Long-term Value Creation and Top
Management Turnover in Hostile and Friendly Acquirers” investigated 519
successfully completed M&As deals, and found that at the announcement date,
both the types of acquirers (that is, friendly vs. hostile) experienced wealth losses
of -1.5% and -1.9% respectively. Just the bid announcement period showed
similar losses, in the long-run outcome period, hostile acquirers were shown to
produce significantly higher share price performance than that of their friendly
counterparts, despite the associated higher levels of co-operation in the latter,
which led to the suggestion that in the UK market, bidders help their shareholders
better by engaging in hostile transactions than those of a co-operative friendly
nature, despite the ‘extra pain’ incurred.
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Donker and Ng (2008), in a research work “Synergy Motivation and Target
Ownership Structure: Effects on Takeover Performance” found statistically
significant positive abnormal returns around M&As announcements for combined
firms. The cumulative average abnormal returns (CAARs) for combined firms are
4.62% over the event-window [-20 +20], which proved that M&As create SW;
management shareholdings have a significant negative impact on the returns to
shareholders of combined firms. Institutional shareholdings and outside block
holdings have a significantly positive influence on the abnormal returns to
shareholders of combined firms; monitoring by large institutional shareholders and
other outside shareholders increase the abnormal returns to shareholders of the
combined firm; competition between bidders increases the abnormal returns to
shareholders of combined firms; competition among the bidding firms might signal
to high valuation bidders the availability of high, non-firm-specific synergistic gains;
the positive relation between the market-to-book value of the target and the
returns to shareholders of the combined firm indicate that the target firm has large
growth opportunities, which will increase the value of the overall combined firm.
Gopalaswamy et al. (2008), in a research work “Stock Price Reaction to Merger
Announcements: An Empirical Note on Indian Markets” studied the market
behavior around the M&As announcement date for 25 stocks listed in one of the
leading Indian stock exchanges, namely, the Bombay Stock Exchange in India
during 2000 – 2007. An event study was conducted using several event windows
to examine when the price went-up and when the price fell down. The study found
that, on an average, both the target and the acquiring firms showed an upward
trend in the cumulative average abnormal returns (CAARs) few days prior to the
M&As announcement, which may be due to anticipation of the merger or leakage
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of information. The increase in the CAARs around the M&As announcement
period (upward trend) for the acquiring firms was greater when compared to that of
the target firms; there was a sudden downfall in the CAARs for the target firms
from the day of the announcement of M&As, which continued for a period of ten
trading days. The CAARs on day two after the M&As announcement was negative
and was also statistically significant; there was a decline in the returns after the
actual M&As between the firms; the behavior of the CAARs was found to be in
accordance with expectation, thereby leading support to the hypothesis that the
Indian Stock Market was semi-strong efficient.
Rajesh Kumar and Panneerselvam (2009)69, in a study entitled “Mergers,
Acquisitions, and Wealth Creation: A Comparative Study in the Indian Context’”
analysed the comparative effect of M&As on the wealth of shareholders of
acquiring and target firms. The study was based on four subsets of a sample
consisting of 252 acquiring and 58 target firms involved in M&As, and 165
acquiring and 18 target firms involved in M&As during 1998-2006. The study used
cumulative average abnormal returns (CAARs) for analysing the SW of the
acquiring firms after merger. The study indicated that the binding and target firm
had a significant positive net present value in the post-merger period. The average
announcement day excess returns were found to be the highest for target firms
involved in mergers, followed by acquiring firms involved in M&As.
Selcuk and Yilmaz (2011), in an article “The Impact of Merger and Acquisitions
on Acquirer Performance: Evidence from Turkey” analysed the impact of M&As
deals on the performance of acquiring Turkish firms. A population of 62 firms
involved in M&As deals during 2003 – 2007 were included in the sample. The
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study was based on both stock market and accounting data. The study proved the
hypothesis that acquiring firms are negatively affected by M&As activities; the
abnormal returns are statistically negative and different from zero for 10-day and
7–day event windows. Also, cumulative average abnormal returns (CAARs) (-5, -
1) and CAARs (-3, -1) values are significantly negative, indicating pre-event
leakage; returns for stocks of Turkish firms involved in M&As exceed average
industry returns.
CHP 3- MEANING OF BANK MERGERS & ACQUISITION
A bank merger occurs when banks join to become one. Many people think of bank
mergers as something that occurs between two banks, but it may involve more than
two in some cases. No matter how many banks are involved, the merger results in a
single bank with one identity rather than multiple banks with multiple identities. There
are two common ways in which a bank merger may be accomplished: one is through
a buyout and another is via cooperation with bank shareholders.
To understand what a bank merger is, it may be helpful to compare it to marriage. A

marriage is the joining of two people while a bank merger is the joining of two or
more banks. When banks merge, the separate banks lose their identities and take on
a single identity. For example, the merged banks may take on the name of one of the
banks involved in the merger or they may create a new name. In many cases, it is
preferable to keep one bank's name for the new identity, as it may have name
recognition value.
The main benefit of a bank merger may be the ability of the merging banks to not
only pool their resources, but also expand their market share. At the same time, the
merging banks may enjoy a decrease in operating costs since they form a single
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bank rather than multiple banks with separate operating costs. In many cases, there
are tax benefits involved in a bank merger as well.
Unlike takeovers, bank mergers are typically based on agreements. In most cases,
the management and stockholders agree to allow a merger. These mergers also
differ from takeovers in the fact that the change is usually considered a friendly one,
and both banks usually stand to gain in the joining. With takeovers, the gain isn’t
usually mutual.
There are cons to bank mergers as well. In some cases, the merger leads to job loss
as the new bank seeks to cut costs. Likewise, these mergers may sometimes prove
difficult as two or more banks have to work together to minimize disruptions in
operations, systems, and processes.
There are often few changes for shareholders and customers in mergers.
Shareholders are usually offered an equal amount of interest in the bank formed by
the merger. Customers may notice some changes in bank policies, but effort is
usually made to make the change as seamless as possible. For example, bank
customers who have direct deposit set up with one of the banks are often permitted
to continue using the same routing and account numbers. This saves customers the
troubles of having their employers arrange for direct deposits using new account and
routing numbers.
Objectives of M&A:
 Focus on core strength, operational synergy and efficient allocation of

managerial capabilities and infrastructure.
 Consolidation and economy of scale by expansion and diversion to exploit

extended domestic and global markets.
 Capital restructuring by appropriate mix of loans and equity funds to reduce

the cost of servicing and improving return on capital employed.
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 Acquiring constant supply of raw material and access to scientific research

and technological developments. Focus on research and development to
reap the fruits of innovation and new technological developments.
Motives of M&A:
1. Strategic Motives: These are to help the company decide and plan
strategically in terms of growth, scale of operations, competition, market
share, synergy, diversification of risks and entering into new markets.
2. Financial Motives: These cover decisions regarding company’s financial

strength and viability. These focus on investment of surplus funds, reducing
costs, tax benefits, revival of sick units and creating shareholder value.
3. Organizational Motives: These are majorly concerned with organization’s

internal working and its external lobbying like retention of management
talents, quality of management, emergence as a MNC and conglomerate.
3.1- PROCESS OF A BANK MERGERS & ACQUISITION
The Merger & Acquisition Process can be broken down into five phases:
Phase 1 - Pre Acquisition Review:

The first step is to assess your own situation and determine if a merger and acquisition
strategy should be implemented. If a company expects difficulty in the future when it
comes to maintaining core competencies, market share, return on capital, or other key
performance drivers, then a merger and acquisition (M & A) program may be necessary.
It is also useful to ascertain if the company is undervalued. If a company fails to protect

its valuation, it may find itself the target of a merger. Therefore, the pre-acquisition phase
will often include a valuation of the company - Are we undervalued? Would an M & A
Program improve our valuations?
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The primary focus within the Pre Acquisition Review is to determine if growth targets
(such as 10% market growth over the next 3 years) can be achieved internally. If not, an
M & A Team should be formed to establish a set of criteria whereby the company can
grow through acquisition. A complete rough plan should be developed on how growth will
occur through M & A, including responsibilities within the company, how information will
be gathered, etc.
Phase 2 - Search & Screen Targets:

The second phase within the M & A Process is to search for possible takeover
candidates. Target companies must fulfill a set of criteria so that the Target Company is a
good strategic fit with the acquiring company. For example, the target's drivers of
performance should complement the acquiring company. Compatibility and fit should be
assessed across a range of criteria - relative size, type of business, capital structure,
organizational strengths, core competencies, market channels, etc.
It is worth noting that the search and screening process is performed in-house by the
Acquiring Company. Reliance on outside investment firms is kept to a minimum since the
preliminary stages of M & A must be highly guarded and independent.
Phase 3 - Investigate & Value the Target:

The third phase of M & A is to perform a more detail analysis of the target company. You
want to confirm that the Target Company is truly a good fit with the acquiring company.
This will require a more thorough review of operations, strategies, financials, and other
aspects of the Target Company. This detail review is called "due diligence." Specifically,
Phase I Due Diligence is initiated once a target company has been selected. The main
objective is to identify various synergy values that can be realized through an M & A of
the Target Company. Investment Bankers now enter into the M & A process to assist
with this evaluation.
A key part of due diligence is the valuation of the target company. In the preliminary
phases of M & A, we will calculate a total value for the combined company. We have
already calculated a value for our company (acquiring company). We now want to
calculate a value for the target as well as all other costs associated with the M & A. The
calculation can be summarized as follows:
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Value of Our Company (Acquiring Company) $560

Value of Target Company $176
Value of Synergies per Phase I Due Diligence $38
Less M & A Costs (Legal, Investment Bank, etc.) $( 9)
Total Value of Combined Company $765
Phase 4 - Acquire through Negotiation:

Now that we have selected our target company, it's time to start the process of
negotiating a M & A. We need to develop a negotiation plan based on several key
questions:
 How much resistance will we encounter from the Target Company?
 What are the benefits of the M & A for the Target Company?
 What will be our bidding strategy?
 How much do we offer in the first round of bidding?
The most common approach to acquiring another company is for both companies to
reach agreement concerning the M & A; i.e. a negotiated merger will take place. This
negotiated arrangement is sometimes called a "bear hug." The negotiated merger or
bear hug is the preferred approach to a M & A since having both sides agree to the deal
will go a long way to making the M & A work. In cases where resistance is expected from
the target, the acquiring firm will acquire a partial interest in the target; sometimes
referred to as a "toehold position." This toehold position puts pressure on the target to
negotiate without sending the target into panic mode.
In cases where the target is expected to strongly fight a takeover attempt, the acquiring
company will make a tender offer directly to the shareholders of the target, bypassing the
target's management. Tender offers are characterized by the following:
 The price offered is above the target's prevailing market price.
 The offer applies to a substantial, if not all, outstanding shares of stock.
 The offer is open for a limited period of time.
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K.C. COLLEGE
 The offer is made to the public shareholders of the target.
A few important points worth noting:
 Generally, tender offers are more expensive than negotiated M & A's due to the
resistance of target management and the fact that the target is now "in play" and may
attract other bidders.
 Partial offers as well as toehold positions are not as effective as a 100% acquisition of
"any and all" outstanding shares. When an acquiring firm makes a 100% offer for the
outstanding stock of the target, it is very difficult to turn this type of offer down.
Another important element when two companies merge is Phase II Due Diligence. As
you may recall, Phase I Due Diligence started when we selected our target company.
Once we start the negotiation process with the target company, a much more intense
level of due diligence (Phase II) will begin. Both companies, assuming we have a
negotiated merger, will launch a very detail review to determine if the proposed merger
will work. This requires a very detail review of the target company - financials, operations,
corporate culture, strategic issues, etc.
Phase 5 - Post Merger Integration:

If all goes well, the two companies will announce an agreement to merge the two
companies. The deal is finalized in a formal merger and acquisition agreement. This
leads us to the fifth and final phase within the M & A Process, the integration of the two
companies.
Every company is different - differences in culture, differences in information systems,

differences in strategies, etc. As a result, the Post Merger Integration Phase is the most
difficult phase within the M & A Process. Now all of a sudden we have to bring these two
companies together and make the whole thing work. This requires extensive planning
and design throughout the entire organization. The integration process can take place at
three levels:
1. Full: All functional areas (operations, marketing, finance, human resources, etc.) will
be merged into one new company. The new company will use the "best practices"
between the two companies.
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K.C. COLLEGE
2. Moderate: Certain key functions or processes (such as production) will be merged

together. Strategic decisions will be centralized within one company, but day to day
operating decisions will remain autonomous.
3. Minimal: Only selected personnel will be merged together in order to reduce

redundancies. Both strategic and operating decisions will remain decentralized and
autonomous.
If post merger integration is successful, then we should generate synergy values.

However, before we embark on a formal merger and acquisition program, perhaps we
need to understand the realities of mergers and acquisitions.
Golden Rules:
 Before entering in to any merger or acquisition deal, the target company's market
performance and market position is required to be examined thoroughly so that
the optimal target company can be chosen and the deal can be finalized at a right
price.
 Identification of future market opportunities, recent market trends and customer's

reaction to the company's products are also very important in order to assess the
growth potential of the company.
 After finalizing the merger or acquisition deal, the integration process of the
companies should be started in time. Before the closing of the deal, when the
negotiation process is on, from that time, the management of both the companies
requires to work on a proper integration strategy. This is to ensure that no
potential problem crop up after the closing of the deal.
 If the company which intends to acquire the target company plans restructuring of
the target company, then this plan should be declared and implemented within the
period of acquisition to avoid uncertainties.
 It is also very important to consider the working environment and culture of the
workforce of the target company, at the time of drawing up Merger and
Acquisition Strategies, so that the employees of the target company do not feel
left out and become demoralized. Strive to keep the employees informed,
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K.C. COLLEGE
encourage feedback, be honest about what's ahead, and make sure people stay
focused by ensuring the best possible start for the newly expanded company.
3.2- LAWS REGULATING BANK MERGERS & ACQUISITION
Following are the laws that regulate the merger of the company:-
(I) The Companies Act , 2013
Section 230-240 of the 2013 Act contains the provision related to M&A as compared
to Section 390- 396A of the Companies Act 1956 ("1956 Act"), which is still in
presence. As the MCA notifies the sections of the new Act, the 2013 Act will replace
the 1956 Act. The coming in force of the 2013 Act will help in reducing shareholders'
litigation and make corporate restructuring process smooth and efficient. The new
act also promises to bring easy and efficient ways of doing business in India with
better governance and improved level of transparency. Accountability and making
corporate's socially responsible is also one of the main factors to scrap out
approximately 60 years old Act. The 2013 Act has surely wide amplitude as various
other forms of M&A have also been allowed.
Cross Border Merger:
The 1956 Act prohibited the merger/ demerger of Indian company with the foreign
company, however, the vice versa was possible. But as per the 2013 Act, both types
of mergers have been allowed with only those foreign entities which have been
notified by the government. RBI approval is also required to be taken for concluding
these types of deals. RBI will also notify the regulation which has to be complied to
enter into this transaction. The payment in the scheme can be done through cash or
through depository receipts or both.
Short Form Merger/ Fast Track Merger:
This type of mergers includes merger between- (a) two or more small companies (b)
parent and wholly owned subsidiary company. “Small Company means a company,
other than a public Company:
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K.C. COLLEGE
(I) paid-up share capital of which does not exceed 50 lakh rupees or such higher
amount as may be prescribed which shall not be more than 5 crore rupees; or
(ii) Turnover of which as per its last P&L account does not exceed 2 crore rupees or
such higher amount as may be prescribed which shall not be more than 20 crore
rupees3"
Therefore, in this form of mergers/ demergers no prior approvals of NCLT is required

and even the approval of various other regulatory bodies is not needed. However,
the Central Government, ROC, OL approval is necessary along with the approval of
shareholders holding 9/10th portion of total shares and majority creditors
representing 9/10th in value. Moreover, the auditor's certificate for compliance with
applicable accounting standards is also not required to be provided. But the benefit
of this fast track merger/ demerger is not available to small public companies where
there is merger/demerger between two or more small companies, (Benefit only
applicable to private small companies). However, in case of merger/ demerger
between a parent company and its wholly owned subsidiary, these provisions are
applicable for both public and private companies.
The rules as was prescribed in 1956 Act have also been modified in the 2013 Act.
 The power of sanctioning the scheme has been transferred from the High
Court to NCLT (National Company Law Tribunal). This can slash the huge
number of pending cases from the High court to a specialized body.
 The M&A scheme has to be sanctioned by various statutory authorities- the
Central Government, RBI, official liquidator, ROC, SEBI, Competition
Commission of India etc... These authorities have been given a strict timeline
to work under. With the involvement of all these parties, the M&A process is
sure to be more cumbersome.
 Normally on amalgamation, based on judicial decisions, the authorized capital
of the transferor company is added to the authorized capital of the transferee
company. Now it is expressly provided that fees, if any, paid by the transferor
company on its authorized capital shall be allowed to be set-off against fees, if
any, payable by the transferee company on its authorized capital subsequent
to the amalgamation.
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K.C. COLLEGE
 The Board of Director also is required to pass the M&A in the meeting of the
board and not by circulation.
 The approval of the members and/or creditors can also be taken through
postal ballot. It will ensure more number of members to take part in M&A
process.
 The shareholders are also required to be given the report on valuation of
shares along with the scheme which will ensure the shareholders to take
informed decision. Such valuation report has to be prepared by the registered
valuer. Although, this report was also given to the shareholders in the 1956
Act, but it was not mandatory.
 The objections for the M&A can be raised by only those shareholders who
hold not less than 10 per cent of shares in the company. Creditors can object
to the scheme if and only if they hold not less than 5 per cent of the
outstanding debt which will reduce the frivolous litigations filed by various
stakeholders.
 The shareholders/ group of persons holding 90 per cent or more shares have
also been granted the authority to compulsorily notify their intention to acquire
minority shares and can subsequently acquire those shares. This is known as
minority squeeze out. This leads to majority shareholders easily acquiring the
shares of minority shareholders and reducing the lengthy process of litigation.
 Buy back as per the 2013 Act needs to be complied with, if the M&A results in
purchase of shares by the company. In the erstwhile act, a mechanism of
single window clearance was present, wherein the scheme which was
presented to the High court acted as a scheme which could comply with
almost all the regulations of the act (if necessary) and separate procedure for
every other sections was not necessary to be complied with.
 The concept of treasury shares has also been removed as earlier the
investment in intercompany in the form of shares had to be kept as a treasury
stock. But the 2013 Act requires such shares to be cancelled and holding
shares in name of trust will not be allowed.
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K.C. COLLEGE
Reverse Merger:
The merger of a company with a financially weak company, in order to get various
tax exemptions is known as reverse merger. It is also a kind of merger of listed
company with an unlisted company (private or public) by which the unlisted company
gets listed in the stock exchange wherein the listed company has already been listed
earlier. In this kind of merger, as per 1956 Act, the unlisted company automatically
gets a back door entry to become a listed company without an IPO. It means the
unlisted company can enjoy all the benefits of becoming a listed company without
diluting its shares in the public. However, as per Section 232 (h), if the transferee
company is an unlisted company, it shall not automatically become a listed company
by merging with a listed company. It has to follow the process of listing as per SEBI
(ICDR) Regulation 2009 in order to become listed. During merger the unlisted
company also has to grant an exit opportunity to the existing shareholders of the
listed company. Therefore, the process of backdoor listing will end as soon as these
provisions of 2013 Act are notified.
(II) The Competition Act ,2002

Following provisions of the Competition Act, 2002 deals with mergers of the
company:-
(1) Section 5 of the Competition Act, 2002 deals with “Combinations” which defines
combination by reference to assets and turnover
(a) exclusively in India and
(b) in India and outside India.
For example, an Indian company with turnover of Rs. 3000 crores cannot acquire
another Indian company without prior notification and approval of the Competition
Commission. On the other hand, a foreign company with turnover outside India of
more than USD 1.5 billion (or in excess of Rs. 4500 crores) may acquire a company
in India with sales just short of Rs. 1500 crores without any notification to (or
approval of) the Competition Commission being required.
(2) Section 6 of the Competition Act, 2002 states that, no person or enterprise shall
enter into a combination which causes or is likely to cause an appreciable adverse
pg. 27
K.C. COLLEGE
effect on competition within the relevant market in India and such a combination shall
be void.
(IV) SEBI Takeover Code 2011

Under the Takeover Code of 1997, an acquirer was mandated to make an open offer
if he, alone or through persons acting in concert, were acquiring 15% or more of
voting right in the target company. This threshold of 15% has been increased to 25%
under the Takeover Code of 2011.
Therefore, now the strategic investors, including private equity funds and minority
foreign investors, will be able to increase their shareholding in listed companies up to
24.99% and will have greater say in the management of the company. An acquirer
holding 24.99% shares will have a better chance to block any decision of the
company which requires a special resolution to be passed. The promoters of listed
companies with low shareholding will undoubtedly be concerned about any acquirer
misutilising it.
(V) The Indian Income Tax Act (ITA), 1961

Merger has not been defined under the ITA but has been covered under the term
'amalgamation' as defined in section 2(1B) of the Act. To encourage restructuring,
merger and demerger has been given a special treatment in the Income-tax Act
since the beginning. The Finance Act, 1999 clarified many issues relating to
Business Reorganizations thereby facilitating and making business restructuring tax
neutral. As per Finance Minister this has been done to accelerate internal
liberalization. Certain provisions applicable to mergers/demergers are as under:
Definition of Amalgamation/Merger — Section 2(1B). Amalgamation means merger
of either one or more companies with another company or merger of two or more
companies to form one company in such a manner that:
(1) All the properties and liabilities of the transferor company/companies become the
properties and liabilities of Transferee Company.
(2) Shareholders holding not less than 75% of the value of shares in the transferor
company (other than shares which are held by, or by a nominee for, the transferee
company or its subsidiaries) become shareholders of the transferee company.
The following provisions would be applicable to merger only if the conditions laid
down in section 2(1B) relating to merger are fulfilled:
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K.C. COLLEGE
(1) Taxability in the hands of Transferee Company — Section 47(vi) & section 47
(a) The transfer of shares by the shareholders of the transferor company in lieu of
shares of the transferee company on merger is not regarded as transfer and hence
gains arising from the same are not chargeable to tax in the hands of the
shareholders of the transferee company. [Section 47(vii)]
(b) In case of merger, cost of acquisition of shares of the transferee company, which
were acquired in pursuant to merger will be the cost incurred for acquiring the shares
of the transferor company. [Section 49(2)]
(VI) Mandatory permission by the courts

Any scheme for mergers has to be sanctioned by the courts of the country. The high
courts can also supervise any arrangements or modifications in the arrangements
after having sanctioned the scheme of mergers as per the section 392 of the
Company Act. Thereafter the courts would issue the necessary sanctions for the
scheme of mergers after dealing with the application for the merger if they are
convinced that the impending merger is “fair and reasonable”.
The courts also have a certain limit to their powers to exercise their jurisdiction which
have essentially evolved from their own rulings. For example, the courts will not
allow the merger to come through the intervention of the courts, if the same can be
effected through some other provisions of the Companies Act; further, the courts
cannot allow for the merger to proceed if there was something that the parties
themselves could not agree to; also, if the merger, if allowed, would be in
contravention of certain conditions laid down by the law, such a merger also cannot
be permitted. The courts have no special jurisdiction with regard to the issuance of
writs to entertain an appeal over a matter that is otherwise “final, conclusive and
binding” as per the section 391 of the Company act.
(VII) Stamp duty

Stamp act varies from state to State. As per Bombay Stamp Act, conveyance
includes an order in respect of amalgamation; by which property is transferred to or
vested in any other person. As per this Act, rate of stamp duty is 10 per cent.
pg. 29
K.C. COLLEGE
Legal Procedure For Bringing About Merger Of Companies

(1) Examination of object clauses:
The MOA of both the companies should be examined to check the power to
amalgamate is available. Further, the object clause of the merging company should
permit it to carry on the business of the merged company. If such clauses do not
exist, necessary approvals of the shareholders, board of directors, and company law
board are required.
(2) Intimation to stock exchanges:
The stock exchanges where merging and merged companies are listed should be
informed about the merger proposal. From time to time, copies of all notices,
resolutions, and orders should be mailed to the concerned stock exchanges.
(3) Approval of the draft merger proposal by the respective boards:
The draft merger proposal should be approved by the respective BOD’s. The board
of each company should pass a resolution authorizing its directors/executives to
pursue the matter further.
(4) Application to high courts:
Once the drafts of merger proposal is approved by the respective boards, each
company should make an application to the high court of the state where its
registered office is situated so that it can convene the meetings of shareholders and
creditors for passing the merger proposal.
(5) Dispatch of notice to shareholders and creditors:
In order to convene the meetings of shareholders and creditors, a notice and an
explanatory statement of the meeting, as approved by the high court, should be
dispatched by each company to its shareholders and creditors so that they get 21
days advance intimation. The notice of the meetings should also be published in two
newspapers.
(6) Holding of meetings of shareholders and creditors:
A meeting of shareholders should be held by each company for passing the scheme
of mergers at least 75% of shareholders who vote either in person or by proxy must
approve the scheme of merger. Same applies to creditors also.
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K.C. COLLEGE
(7) Petition to High Court for confirmation and passing of HC orders:

Once the mergers scheme is passed by the shareholders and creditors, the
companies involved in the merger should present a petition to the HC for confirming
the scheme of merger. A notice about the same has to be published in 2
newspapers.
(8) Filing the order with the registrar:
Certified true copies of the high court order must be filed with the registrar of
companies within the time limit specified by the court.
(9) Transfer of assets and liabilities:
After the final orders have been passed by both the HC’s, all the assets and liabilities
of the merged company will have to be transferred to the merging company.
(10) Issue of shares and debentures:
The merging company, after fulfilling the provisions of the law, should issue shares
and debentures of the merging company. The new shares and debentures so issued
will then be listed on the stock exchange.
3.3- Impact of Bank MERGERS & ACQUISITION
Sr No. Favourable Effects Adverse Effects

Overall Picture
1 The size of each business entity It will be difficult to precisely assess the
after merger is expected to add impact of mergers in quantitative terms, at
strength to the Indian Banking this juncture. We must know the terms of
System in general and Public merger, before embarking on such
Sector Banks in particular. exercise.
2 Indian Banks can slowly and Nevertheless, this process may take more
gradually evolve/transform than 2 years.
themselves into global banks.
3 After merger, Indian Banks can Mergers will result in shifting/closure of
manage their liquidity – short many ATMs, Branches and controlling
term as well as long term – offices, as it is not prudent and
position comfortably. Thus, they economical to keep so many banks
pg. 31
K.C. COLLEGE
will not be compelled to resort to concentrated in several pockets, notably

overnight borrowings in call in urban and metropolitan centers.
money market and from RBI Though the closure or merger of a large
under Liquidity Adjustment number of branches will not happen all of
Facility (LAF) and Marginal a sudden, it is bound to happen over a
Standing Facility (MSF). period of next 5 years.
4 The number of public sector Mergers will result in immediate job losses
banks will come down, perhaps on account of large number of people
to 6 or 7, after the proposed taking VRS on one side and slow down or
consolidation of banks. This will stoppage of further recruitment on the
end the unhealthy and intense other. This will worsen the unemployment
competition going on even situation further and may create law and
among public sector banks as of order problems and social disturbances.
now. While professional The plight of people taking pre-mature
competition in the market place is retirement (through VRS route or
welcome, unhealthy competition otherwise) will turn more pitiable than
leads to many unethical practices being envisaged.
and regulatory violations.
5 Even now, public sector banks in Financial inclusion plans may be affected
India hold 77% market share. and their deadline for their implementation
Therefore, the new banks, after may be delayed. ‘Direct Benefit Transfer’
merger, will give the private (DBT) of government aid, subsidies and
sector banks a good run for their grants also will be affected.
money.
6 In the global market, the Indian The bank accounts linked to ECS and
banks will gain greater DEMAT records are to be changed. This
recognition and higher rating. is a laborious, time taking and expensive
exercise.
7 The volume of inter-bank The Head Office of the banks after merger
transactions will come down, will be situated at a far off place may be
resulting in saving of more than thousand kilometers away from
considerable time in clearing and different branches situated at different
reconciliation of accounts. corners of the country.
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K.C. COLLEGE
8 The burden on the central Different banks have different goals,

government to recapitalize the priorities and business strategies.
public sector banks again and
again will come down
substantially.
9 The overall profitability of This presumption may go wrong also.
mergers is expected to improve.
Banks’ Financial Health
1 For meeting more stringent The weaknesses of the small banks may
norms under BASEL III, get transferred to the bigger bank also.
especially capital adequacy ratio, The amalgamation of Global Trust Bank
the larger banks need not with Oriental Bank of Commerce in 2004
struggle. is a case in point.
2 Many controlling offices have to This may result in data losses on one side
be closed. and dilution of control on the other.
3 A great number of posts of CMD, For the top positions of the banks, whose
ED, GM and Zonal Managers will number will get reduced in the post-
be abolished, resulting in savings merger scenario, there will be tough and
of crores of Rupee. ugly competition.
4 Similarly, in many banks, the This may loosen the control of RBI over
GOI’s nominee and RBI’s larger banks. There is also a likelihood of
representative on the bank a large scale irregularity escaping the
boards will lose their jobs. This immediate notice of RBI, but surfacing
will not only save considerably much later. This will spoil the reputation
huge money, but reduce their and credibility of individual banks and the
unnecessary interference in day regulator (RBI).
to day affairs of the banks.
Organizational Climate/Culture
1 Caste and Provincialism will New power centers will emerge in the
diminish to a great extent. A changed environment.
semblance of cosmopolitan
outlook and culture will unfold.
2 The new organizational entity will Since the number of bank branches will be
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K.C. COLLEGE
be able to take bold and quicker large, managing them may pose greater
decisions, provided there is challenges. It is estimated that each bank
adequate clarity in will have not less than 8,000 branches,
communication coupled with after merger.
decentralization and delegation
of authority.
3 Fresh blood and fresh thinking Mergers will result in clash of different
will get infused in the new entity. organizational cultures. Conflicts will arise
Better systems also may be in the area of systems and processes too.
introduced, to make the work life
of the employees more
comfortable and enjoyable.
Human Resources
1 After mergers, bargaining Banks will be compelled to offer another

strength of bank staff will become round of VRS, especially to those above
more and visible. Bank staff may 50 years of age and to those having more
look forward to better wages and than 25 years of experience in the same
service conditions in future. bank.
2 Though VRS this time may not Banks will lose thousands of talented and
be a ‘golden handshake’ like the experienced personnel at a time, resulting
one offered in 2001, it will in serious crisis at the middle and senior
definitely be a better offer than management levels.
the ordinary VRS now available
under pension regulations.
3 The wide disparities between the People working in the larger bank
staff of various banks in their (acquiring bank) will try to dominate the
service conditions and monetary personnel working in the smaller bank
benefits will narrow down. (acquired bank). Thus, the latter will be
treated as second class citizens in the
new, merged entity.
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K.C. COLLEGE
4 As the network of branches, after Staff identified as surplus in many pockets

mergers, will be evenly (urban and metros) will be transferred to
distributed across the country, far off places. This will create turmoil and
the threat of transfers to far off widespread protests. It will take minimum
places will diminish for officers up 3 years for the disturbances to subside
to MMGS III. and for the peace to return in the new
organizational space.
5 Employees will get wider Too much dependence on more

exposure in changed sophisticated technology will result in loss
environment and new of human values.
opportunities will open up for
them.
3.4- KOTAK MAHINDRA BANK AND ING VYSYA MERGER
About Kotak Mahindra Bank:

Established in 1985, the Kotak Mahindra Group is one of India’s leading financial
services conglomerates. In February 2003, Kotak Mahindra Finance Ltd. (KMFL), the
Group’s flagship company, received a banking license from the Reserve Bank of
India (RBI). With this, KMFL became the first non-banking finance company in India
to become a bank – Kotak Mahindra Bank Limited.
Kotak Mahindra Bank (KMB) offers complete retail financial solutions for varied
customer requirements. The Savings Bank Account goes beyond the traditional role
of savings, and provides a wide range of services through a comprehensive suite of
investment services and other transactional conveniences like Online Shopping, Bill
Payments, ASBA, Netc@rd, ActivMoney (Automatic TD sweep-in and Sweep-out)
etc. Kotak’s Jifi, a first-of-its-kind fully integrated Social Bank Account, redefines
digital banking by seamlessly incorporating social networking platforms like Twitter
and Facebook with mainstream banking. KayPay, the world’s first bank agnostic
payment product for Facebook users enables millions of bank account holders
pg. 35
K.C. COLLEGE
transfer money to each other at any hour of the day or night, without the need of net
banking, or knowing various bank account related details of the payee.
About ING Vysya Bank:

ING Vysya Bank Ltd is a premier private sector bank with retail, private and
wholesale banking platforms that serve over two million customers. With over 80
years of history in India and leveraging ING’s global financial expertise, the bank
offers a broad range of innovative and 5 established products and services, across
its 573 branches. The Bank, which has close to 10,000 employees, is also listed in
Bombay Stock Exchange Limited and National Stock Exchange of India Limited. ING
Vysya Bank was ranked among top 5 Most Trusted Brands among private sector
banks in India in the Economic Times Brand Equity – Nielsen survey 2011. ING is a
global financial institution of Dutch origin offering banking services through its
operating company ING Bank and holds significant stakes in listed insurers NN
Group NV and Voya Financial, Inc. ING Bank’s 53,000 employees offer retail and
commercial banking services to customers in over 40 countries.
Merger Transaction:
The Board of Directors of Kotak Mahindra Bank and ING Vysya Bank approved the
merger on 20th November, 2014.
The Swap ratio was agreed upon to be 0.725:1. So the share exchange would be:
725 shares of Kotak Mahindra Bank for every 1000 shares of ING Vysya Bank.
Upon obtaining all the approvals, at effective date:
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K.C. COLLEGE
 ING Vysya including its business and branches mergers into Kotak.
 Kotak issues shares to ING Vysya shareholders.
 All shareholders (that of Kotak and ING Vysya) participate thereafter in the
(merged) Kotak business.
Strategic Rationale and Benefits:

1. Complementary Network- Breadth and Depth Together
The breadth indicates that the number of branches and ATMs in the regions of the
country and depth refers to branch density within the cities. Both these are
complemented through the merger. The number of branches and ATMs of Kotak
Mahindra Bank before the merger were dominant in the west and north; and were
very less in Bangalore and Hyderabad. So through the merger, the merged Kotak
has a wider Pan-India with respect to the regions as well as the major cities.
2. Higher Customer Wallet Share
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K.C. COLLEGE
The merger has enabled Kotak (new entity) to serve larger share of customer wallet
as the customer base will expand and so will the product horizons. The new merged
entity will be more capable of serving clients nationally and internationally.
3. Cost efficiencies:
Over a period of time, the merger will provide cost benefits as there will be less need
for branch expansion, save on product introduction costs, higher throughput of
various products using the network and save on overlap of infrastructure.
4. Value driver for shareholders:
The shareholders would experience significant growth without dilution.
The CAR (ING Vysya): 14.99%, CAR (Kotak): 17.59% and CAR (Combined):
16.51%. ING Vysya would be the largest non-promoter shareholder in the merged
Kotak in turn providing significant trading flexibility to ING Vysya shareholders.
5. Growth opportunities for employees:

 Experience, expertise and diversity of employees is a significant asset for
ING Vysya.
 ING Vysya employees will have growth opportunities across Kotak group.
 Kotak employees would be a part of a larger and deeper Pan-India
franchise.
6. Benefits to customers
 ING Vysya’s diverse customer segments with more than 2 million
customers will now have access to Kotak’s wide product suite across
financial services.
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K.C. COLLEGE
 “Digital” a key strategic driver for both banks will be a priority for the
merged Kotak entity – ING Group, which has a successful global
experience in this area, can play a vital role to assist over time.
Financial Summary:
The table shown below provides details regarding the financial position of Kotak and
ING pre merger. It also shows the expected financials of the merged entity:
pg. 39
K.C. COLLEGE
The following table shows the FY2015-2016 Q1 financial results:
pg. 40
K.C. COLLEGE
ANALYSIS:
The standalone highlights of the Financials of the merged Kotak Mahindra Bank
shows that the Profit After Tax has been considerably low. But there are various
positive drivers to the quarter results. The consolidated Kotak Mahindra Bank now
has 1214 branches in total. The total assets have gone up by 87% w.r.t. the last
financial year’s first quarter. The CAR is 16.5% which motivates shareholders to
invest as it suggests room for growth with less dilution. The net non-performing
assets have been kept under control (it is 1.04% which earlier was 0.98%). The
current and savings accounts with the merged Kotak have considerably increased
(Rs.40,115 Cr from Rs.19,037 Cr in Q1FY15). The CASA ratio is 34% which implies
that the Net Interest Margin should be better than the Q1FY15. But that is not the
case here, as the NIM (4.2% currently was 5% in Q1FY15) has decreased as it also
takes into account the CASA of ING Vysya Bank and the interest offered on savings
account for both the banks was different.
The merger implementation plan is still in the process and the full integration would
take place around April,2016. Thus, the actual performance of the merged Kotak and
the benefits the merger reaped would be more concrete after 2 years or so.
3.5- NEED FOR CONSOLIDATION OF BANKS

The question of restructuring the Indian banking industry has been a bone of
contention for both the Government of India as well as the Reserve Bank of India. At
present the Indian banking industry is highly fragmented in terms of size,
competitiveness and other structural features which in turn reduce its operational
efficiency and distribution efficiency. Most of the mergers in the pre-reform period
have been forced ones. The post-reform era has witnessed both forced and
voluntary mergers (Exhibit 1). The forced mergers have been caused by the financial
ill health of the acquired banks. Banks witnessing erosion in net worth, huge NPAs
and decline in capital adequacy ratio have been forced by the regulatory authority to
undergo merger (Jayadev and Sensarma, 2007). Oriental Bank of Commerce’s
acquisition of Global Trust Bank is an example of forced merger. Voluntary mergers
have expansion, diversification and growth as the main motives ICICI’s acquisition of
pg. 41
K.C. COLLEGE
Madura Bank and Kotak Mahindra Bank’s merger with ING Vysya Bank are a few
examples of voluntary mergers. India has also witnessed cross- border acquisitions
in the recent past. SBI’s acquisition of a Mauritian bank is one such example.
Exhibit 1: Number of forced and voluntary mergers from 1961-2006
Duration Number of Mergers
(1961-1968) Pre-nationalization 46
(1969-1992) Nationalization 13
(1993-2006) Post-reform 21
13
 Forced Mergers
 Market driven Mergers 5
 Convergence of Financial Institutions into Banks 2
 Regulatory Compulsions
1
Need for Consolidation:
To emphasize the need for consolidation, we can compare State Bank of India and
Bank of America. SBI has a customer base of 90 to 100 million while BoA has a
customer base of 30 million. But BoA’s assets are about a trillion US dollars while
SBI’s assets are only about 93.75 billion US dollars. This shows that big banks are
able to reduce costs and enhance revenues more easily than small banks. Also,
when Tata Steel was acquiring Corus Group Plc (Corus) for 12.11 billion US dollars,
no Indian PSB was big enough to finance the acquisition. Hence Indian banks need
to enhance their balance sheets to enable wider extension of credit and meet the
demands of fast economic development.
The proposed Basel III norms lay down a more stringent capital and liquidity
requirement (RBI, 2012). Incorporation of Basel III norms would require additional
capital. Big banks with their huge capital reserves will be able to meet these
requirements more easily. Also, the second phase of WTO commitment which
pg. 42
K.C. COLLEGE
commenced in April, 2009 has cleared the way for foreign banks to undertake
merger and acquisition activity in India. Mergers will enable the Indian banks to
compete effectively with these foreign banks which have huge capital reserves,
skilled personnel and cutting edge technology.
Also, the various committees appointed by the Government of India have advocated
consolidation. They argue that we need to have three to four large nationalized
banks in order to improve the operational efficiency and distribution efficiency. The
Narasimhan Committee II (Narasimhan Committee Report, 1998) has specifically
emphasized the need to have Indian banks which are comparable in size with global
leading banks. The Narasimhan committee proposed a three tier banking structure
in India with around 3-4 large banks to take a stand in global scenario, 8-10 banks to
provide national coverage and the rest to take care of local coverage.
Benefits of Consolidation:
Consolidation has been fruitful in the past. The following are the major benefits of
consolidation:
Growth: The loan to GDP ratio for Indian banks is about 30 percent which is very
low in comparison to banks in other emerging South East Asian economies. Organic
growth takes time. Therefore dynamic banks prefer consolidation to grow in size and
reach. Consolidation leads to growth in business prospects as well as reduces
operating costs. ICICI Bank Limited’s merger with Bank of Madura is an example
where the motive behind consolidation was growth. IBL wanted to expand its branch
network from 106 to 400 without acquiring RBI’s permission.
The merger helped IBL to increase its branch network to 378 with 97 branches in the
rural sector. It provided IBL an additional customer base of 1.2 million and an asset
base of Rs. 16,000 crore. This enabled IBL to enter into the small and medium
segment markets and provided IBL the opportunity to cross sell various products.
The merger also provided IBL the opportunity to reorient its asset profile and create
a robust micro-credit system.
pg. 43
K.C. COLLEGE
Universal banking model and integration of financial services: Due to the

flexibility provided to banks by RBI in credit delivery, the DFIs (Developmental
Financial Institutions) which were opened with the aim of improving allocation
efficiency of resources have become redundant. Hence it is better to have a
universal banking model by merging various financial entities like banks and financial
institutions. In 2002, ICICI merged with its subsidiary ICICI Bank Limited to integrate
its services. Another example is IDBI’s merger with IDBI Bank Ltd. in 2004.
Synergy benefits: Synergies lead to revenue enhancement and cost reduction.

Consolidation helps to get a jumpstart by allowing banks to build on an already
established platform. Oriental Bank of Commerce’s merger with Global Trust Bank is
an example where the motive behind consolidation was synergy benefits. GTB being
a private sector bank had a much advanced IT platform with a centralized banking
infrastructure in place whereas OBC was lagging behind in computerization and high
end technology. This merger therefore helped OBC get a jumpstart in its quest to
introduce cutting edge banking technology and solution. In turn GTB gained on non-
interest income because of OBC’s thrust on retail.
Strategic benefits: Banks with complimentary business interests can merge

together to strengthen their market position. HDFC Bank’s merger with Centurion
Bank of Punjab is an example where the motive behind consolidation was business
complimentarity. This merger enabled HDFC Bank to build a strong SME (strong and
medium enterprises) portfolio, thereby complementing its bent towards corporate
entities. CBoP’s products were simple and low cost which complemented HDFC
Bank’s products which were sophisticated and costly. The Pre-merger and post
merger financial performance ratios of HDFC also validate the improvement in
performance after merger (Exhibit 2).
Exhibit 2: Pre-merger and post merger financial performance ratios of HDFC Bank
pg. 44
K.C. COLLEGE
Ease of market entry: Cash rich firms acquire already established players to enter
into new markets. This provides them an already existing platform on which they can
build upon easily. Standard Chartered’s merger with ANZ Grindlays is an example
where the motive behind consolidation was market entry. To be the leading bank in
emerging markets, Standard Chartered wanted to establish its foothold in India. ANZ
Grindlays’s well established foothold in India and its willingness to wind up its India
operations made it a plausible acquisition target for Standard Chartered. This merger
made Standard Chartered the largest foreign bank in India and provided it the
opportunity to utilize ANZ Grindlays’s infrastructure to service its overseas clients
(Business Today, 2002).
Regulatory Intervention: RBI in certain cases forces the merger of ill banks to
safeguard the interests of the depositors and to prevent financial destabilization.
Mostly banks witnessing erosion in net worth, huge NPAs and decline in capital
adequacy ratio have been forced to undergo merger. GTB had bad loans of about
Rs. 1,500 crore and had accumulated losses of about Rs. 260 crore (BS Bureaus,
2004). Hence RBI forced the merger of GTB with OBC. This step ensured that the
clients GTB were effectively transferred to OBC and did not lose their deposits.
Challenges:
pg. 45
K.C. COLLEGE
Consolidation poses certain stiff challenges. The management of the merged entity
needs to look into these post merger issues carefully.
People issues: The mergers of banks pose human resource management

problems. The cross cultural integration is an important post merger issue to be
handled by the management of the two banks. The merger of ICICI Bank Limited
with Bank of Madurai an example where merger led to people issues because of
cultural misfit between the two banks. Also, BoM had a trade union system unlike
IBL. Some of the measures that can be taken by the management to ensure
employee satisfaction are changes in compensation, policies or work conditions.
Technology integration: Integration of technology platforms poses a stiff challenge

as the merging banks use different working platform and are at different stages of
technology implementation. The merger of IBL with BoM caused problems in
integration of working platforms as IBL followed Banks 2000 software package while
BoM followed ISBS software package (ICICI or Bank of Madura: Who will benefit?).
Free capital account convertibility: Free convertibility offers opportunity for banks
to gain enormous profits. But research at the World Bank suggests that free
convertibility comes with a risk of financial crisis and misallocation of resources. This
is evident from the East Asian financial crisis of 1997-98 which was a consequence
of the herd behavior of foreign fund managers.
Are mergers the only way out?
Meeting the capital requirements of public sector banks has been of concern to the
authorities for the past 25 years, but a sustainable resolution has been elusive.
Official committees have advocated that the minimum 51 per cent government
holding in PSBs be brought down. Governments of different political hues have
considered reducing the minimum share of government below 51 per cent but the
body politic has turned it down.
When the government recapitalized PSBs in the early 1990s it was felt this would be
a one-time burden. This was belied, and year after year the government has had to
recapitalize PSBs. The weaker the bank the larger the capital infusion. This has
resulted in stronger and weaker banks growing at more or less the same pace.
pg. 46
K.C. COLLEGE
The Basel III capital norms will require PSBs to raise equity tier 1 capital of about
Rs.2.4 lakh crore by March 2019. It is estimated that if the share of government in
PSBs is reduced to 52 per cent, Rs.1.61 lakh crore can be raised from the market.
The government would need to provide only Rs. 79,000 crores, and net of dividends
the requirements would be only Rs. 44,000 crores.
It would appear that an ‘open sesame’ approach has resolved the financing
requirements of PSBs. The snag is that the stronger banks have already brought
down the percentage holding of the government while those banks which still have a
very high government proportion are invariably the weak banks which may not be
able to access the market.
Merger of small banks

From time to time the government has mooted the merger of weak PSBs with
stronger banks. The experience of the New Bank of India with the Punjab National
Bank (PNB) in the 1990s was not without a massive drain on the exchequer besides
a drain on the PNB which took years to recoup from this.
More recently, it is reported that the working group on consolidation and restructuring
of PSBs has proposed that with a view to increasing profitability, PSBs could
consider sharing infrastructure, including back office space, and IT and telecom
contracts through shared services.
It is also stressed that PSBs should improve risk management, shift to profitability-
linked performance metrics, leverage technology, and develop capital-light business
models. Small PSBs are to exit from areas which are unprofitable, according to news
reports. The target group of small banks (with less than Rs.2 lakh crore loans plus
investments) which need to be taken over are Andhra Bank, Bank of Maharashtra,
Dena Bank, Punjab and Sind Bank, Vijaya Bank and United Bank.
The story so far

The stronger banks which have capabilities for taking over small PSBs include Bank
of Baroda, Bank of India, Canara Bank, PNB and Union Bank. The working group
rightly stresses that any consolidation should be driven by market forces and the
decision should be taken independently by the boards of these banks. But the way
pg. 47
K.C. COLLEGE
boards are presently constituted, their independence is a mere fig leaf. The track
record is that voluntary mergers without strong intervention
by the government just do not take place. Where the
majority owner (government) is passive, unions can
effectively block such mergers.
Mergers invariably involve bloodshed and the bank

undertaking the merger expects compensation from the
government; this is precisely what the government wants
to avoid. Bank mergers in India have all along been used
to bail out weak banks. Thus, voluntary mergers of weak
PSBs with larger PSBs are unlikely to fructify.
Given the relatively small size of Indian banks and the

increasing globalization of finance, the merger of strong
PSBs would be desirable. The Bank of India and the Union
Bank did consider a voluntary merger but in the absence
of explicit government support the proposal was aborted.
The merger of strong PSBs would not resolve the
government’s financing problem of recapitalizing weak
banks.
At present, PSBs account for a little over three-fourths of the commercial banking
system. If the government is willing to allow the share of PSBs to gradually decline
to, say, 65-70 per cent, there could be a significant reduction in the burden of
recapitalization.
A viable alternative
What could be considered is that government would restrict its capital injection into
each PSB equal to the bank’s dividend to government. Under such an arrangement,
with a proviso that government’s share would not fall below 51 per cent, the
government should treat holdings in PSBs of public sector units as part of the
government’s 51 per cent holding.
pg. 48
K.C. COLLEGE
Since the weaker PSBs would not be able to generate adequate profits they would
have to ensure that their loan portfolio grows at a rate substantially below that of the
system. These banks would restrict their lending to very safe lending, government
securities and money market instruments such as commercial paper. Moreover, the
weak PSBs should ensure that they raise deposits at the lower end of the deposit
interest structure. In other words, the weak PSBs should be required to operate as
narrow banks.
It is appreciated that at the present time neither the government nor the regulator are
enamored by narrow banking. It would be recalled that in the 1990s, a number of
weak banks came out of the red precisely by resorting to narrow banking. The
choices before the government are clear. Either the government accepts a
continuing drain on the fiscal of periodically recapitalizing the weak PSBs, or the
weak banks are directed to go back to narrow banking.
Recent Developments for Public Sector Banks:
Modi government unveils 7-point revamp plan for Public Sector Banks
(Economic Times)
The Modi government has unveiled a seven-pronged revamp plan to shake up the
struggling staterun banks, including a Rs 20,000-crore capital infusion lifeline
besides hiring private sector executives for the first time to run public sector lenders.
A new umbrella structure under the Bank Board Bureau will guide policy, functioning
and appointments. The government, which said these marked the most significant
measures since bank nationalization about 50 years back, assured the lenders that
they would be allowed to function without political interference.
Cleaning up appointments
Executives from the private sector have been hired to run state-owned banks with
the government appointing Rakesh Sharma, head of private sector lender Lakshmi
Vilas Bank, as chief executive of Canara Bank. PS Jayakumar, chief executive of
real estate developer VBHC Value Homes, has been named head of Bank of
Baroda.
pg. 49
K.C. COLLEGE
Bank Board Bureau

The Bank Board Bureau will start functioning from the next financial year and is the
first step toward a full-fledged bank holding company, an entity that will house the
government's stake in state run banks struggling with mounting non-performing loans
that have touched 6 per cent of gross advances. Envisaged as a panel of eminent
professionals, the bureau will advise banks and act as a link with the government.
De-stressing banks
After a thorough assessment of the contributing factors to NPAs, the government
has drawn up a plan that hinges on getting projects moving through expeditious
approval and hand holding, taking over management control of equity infusion by
promoters, rejigging the duty structure, pushing for flexibility in restructuring of
existing loans. Apart from strengthening debt recovery tribunals, several steps have
been undertaken to strengthen risk controls and NPA disclosures.
CHP 4: RESEARCH METHODOLOGY
Formulating The Research Problem:
Problem Statement:
“To understand the process & impact of Mergers & Acquisition on the Banks”
4.1Research Design:
 The research design is exploratory in nature.

 It is useful to find out views and attitudes of respondents towards Bank
Mergers & Acquisition.
4.2Sample Design:
 The survey was conducted of 100 people.

 Convenient Sampling is taken into consideration.
4.3Sources of Data:
pg. 50
K.C. COLLEGE
Primary Data
• Questionnaire
• Interview of Kotak Mahindra Bank Official
Secondary Data
• Websites
• Newspaper Articles
• Books
• Financial reports and statistics of banks
4.4Limitations:
 The results are based on primary data.

 The accuracy of the result is also limited to the reliability of methods of
investigation, measurement, and analysis of data.
 The data collected may or may not be accurate because of the respondents
might have been bias.
4.5 Analysis of Data
The data so tabulated was analyzed by representing it in the form of:
a) Pie charts
b) Column diagram
c) Bar diagrams
d) Doughnut diagram
After graphical representation, the interpretations were noted down
pg. 51
K.C. COLLEGE
CHP 5: DATA ANALYSIS AND INTERPRETATION
5.1 QUESTIONAIRRE ANALYSIS
1. Are you aware about the term Bank Mergers & Acquisition?
Particulars Sales
Yes 80.50%
No 19.50%
19.50% Yes
No
80.50%
pg. 52
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, 80.50% of respondents know about the
term Bank Mergers & Acquisition & 19.50% does not know the term that means
there is enough awareness in the people about the term Bank Mergers & Acquisition.
2. According to you, does India need More Banks or Bigger Banks?
Particulars Sales
Bigger Banks 65.9
More Banks 34.1
Bigger Banks
34.1
More Banks
65.9
pg. 53
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, 65.9% of the respondents think that
India needs Bigger Banks & 34.1% thinks More Banks.
3. Which sectors of the bank gets more advantage while Mergers & Acquisition?
Particulars Sales
Public Sector 31.70%
Private Sector 68.30%
Public Sector
68.30%
Private Sector
31.70%
pg. 54
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, 68.30% respondents believe that Bank
Mergers & Acquisition gives more advantage to Private Sector while 31.70%
believes Public Sectors gets more advantage.
4. According to you, what would be the biggest challenge in integration of banks

in India?
Particulars Sales
Human Resource 36.60%
Competition 29.30%
Employees Retention 31.70%
Other 2.40%
Human Resource
29.30%
Competition
36.60%
Employees Retention
Other
2.40%
31.70%
pg. 55
K.C. COLLEGE
Interpretation:
From the above pie diagram, it can be found that, 36.60% of the respondents have
voted that Human Resource is the biggest challenge in integration of banks in India
followed by Employee Retention 31.70%, Competition 29.30%, Other 2.40%.
5. According to you, does a bank get profit from Mergers & Acquisition?
Particulars Sales
Yes 78.00%
No 22%
78.00%
22%
Yes No
pg. 56
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, 78% of the respondents have voted yes
that bank does get a profit from Mergers & Acquisition while 22% said no.
6. To whom the Merger benefits the most after the banks?
Particulars Sales
Customers 65.90%
Employees 9.80%
Shareholders 24.40%
9.80% 24.40%
Customers
Employees
65.90%
Shareholders
pg. 57
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, 65.90% respondents have voted that
Bank Mergers & Acquisition benefits the Customers, 24.40% benefits the
Shareholders & 9.80% benefits the Employees.
7. For which banks the economies of scale are considered to be the most
important factor while deciding for a merger?
Particulars Sales
Regular Banks 53.70%
Regional Rural Banks 46.30%
Regular Banks
46.30%
Regional Rural Banks
53.70%
pg. 58
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, according to 53.70% respondent’s
economies of scale are considered to be the most important factor while deciding for
a Merger in Regular Banks & 46.30% in Regional Rural Banks.
8. Does Mergers & Acquisition improve the service rendered by the banks?
Particulars Sales
Yes 46.30%
No 9.80%
Can't Say 43.90%
Yes
46.30% No
9.80% Can't Say
43.90%
pg. 59
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, 46.30% respondents voted Yes that
Bank Mergers & Acquisition improve the service rendered by the banks, 43.90%
Can’t Say & 9.80% said that services do not improve.
9. Does Mergers & Acquisition facilitate economic growth & Stability in the
country?
Particulars Sales
Yes 58.50%
No 4.90%
Can't Say 36.60%
Yes
No
58.50% 4.90% Can't Say
36.60%
pg. 60
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, 58.50% respondents said Yes, 36.60%
Can’t Say & 4.90% respondents said No that Bank Mergers & Acquisition facilitate
economic growth & Stability in the country.
10. Does Merger & Acquisition reinstate the public confidence in the banks?
Particulars Sales
Yes 51.20%
No 14.60%
Can't Say 34.10%
Yes
51.20% No
14.60%
Can't Say
34.10%
pg. 61
K.C. COLLEGE
Interpretation:
From the above pie diagram, it is found that, 51.20% respondents said Yes when
asked that Bank Mergers & Acquisition reinstate public confidence in the banks,
34.10% Can’t Say & 14.60% said No.
5.2 HYPOTHESIS TESTING

To study the effects of awareness of bank mergers and acquisition in
reinstating public confidence in banks.
To fulfill this objective, I used cross tabs & chi-square test
The results are compiled in a sheet which shows the significance value & chi- square
values of all the cross tabs.
AWARENESS IN RESPECT TO REINSTATEMENT OF CONFIDENCE AMONG
PEOPLE
NULL HYPOTHESIS: Awareness causes reinstatement of confidence.
Q1*Q10 Cross Tabulation

Q10
Total
Yes No Can’t Say
Yes 31 10 29 80
Q1 No 10 4 6 20
Total 51 14 35 100
EXPECTED VALUE TABLE
Observed Expected
Values Values (O-E) (O-E)2 (O-E)2/E
41 40.8 0.2 0.04 0.0009804
10 10.2 -0.2 0.04 0.0039216
10 11.2 -1.2 1.44 0.1285714
4 2.8 1.2 1.44 0.5142857
29 28 1 1 0.0357143
6 7 -1 1 0.1428571
pg. 62
K.C. COLLEGE
TOTAL CHI SQUARE = 0.8263

DEGREE OF FREEDOM = (5-1) *(7-1) = 24
CHI SQUARE at 0.05% = 0.103

P=1
Therefore, the result is not significant at p<0.05
Interpretation: From the survey and the hypothesis test, we can conclude that the
awareness about the bank mergers and acquisitions does not actually play a role in
the reinstatement of confidence on the banks in India.
CHP 6- RECOMMENDATIONS & CONCLUSION

RECOMMENDATIONS
The Reserve Bank of India has, in the recent past, received some interest for
merger/amalgamation from among the urban cooperative banks (urban banks).
With a view to encouraging and facilitating consolidation and emergence of strong

entities and providing an avenue for non-disruptive exit of weak/unviable entities in
the co-operative banking sector, the Reserve Bank has decided to issue suitable
guidelines to facilitate merger/amalgamation in the sector and place them in public
domain. The guidelines have been sent to the chief executives of the urban
cooperative banks with a request to place them before their board of directors. The
guidelines have also been forwarded to the registrars of cooperative societies.
According to the guidelines, the Reserve Bank of India will consider proposals for
merger and amalgamation in the urban banks sector in the following circumstances:
1) When the net worth of the acquired bank is positive and the acquirer bank assures to
protect entire deposits of all the depositors of the acquired bank;
2) When the net worth of acquired bank is negative but the acquirer bank on its own
assures to protect deposits of all the depositors of the acquired bank; and
3) When the net worth of the acquired bank is negative and the acquirer bank assures
to protect the deposits of all the depositors with financial support from the State
Government extended upfront as part of the process of merger.
The Reserve Bank has further stated that in all cases of merger/ amalgamation, the
financial parameters of the acquirer bank post merger will have to conform to the
prescribed minimum prudential and regulatory requirement for urban co-operative
banks. The realisable value of assets will have to be assessed through a process of
due diligence.
While considering such proposals, the Reserve Bank will confine itself to the
financial aspects of the merger and to the interests of depositors as well as the
stability of the financial system.
pg. 63
K.C. COLLEGE
CONCLUSION
India, one of the fastest growing economies in the world, is considered to be an

agrarian economy but in order to compete with China, India has to be industrialized
as well. Be it ‘Make in India’ or ‘Jan DhanYojana’, both these schemes of the NDA
government have direct or indirect relation with the banking industry. Banks form the
base for financing infrastructure projects, setting up of industries and financial
inclusion in the country. Banks are majorly recognized as Public sector, which are
owned by the government and Private sector, which is owned by an independent
board. While it may be argued that PSBs have a lot of infra financing, it is so
because the government forced them to lend to a set of particular projects which
would lead to overexposure in certain sectors and then most banks got stuck in it. So
the government has decided not to interfere in such matters of PSBs.
The reasons for merger in India could be looked at through various dimensions:
1. Corporate angle- This is basically focusing at how the bank merger would
benefit the banks individually that is independent from the merger’s impact on
the economy as a whole. Moreover, PSBs have had forced mergers whereas
Private sector Banks have had voluntary mergers.
 PSBs, particularly need mergers for:
 Surviving in the market as a bank.
 Meeting their capital requirements.
 Competing with private sector and foreign banks.
 Hiving off its bad debts to a stronger PSB.
 Sustaining its position as the backbone of Indian banking industry.
 Preventing the bank to turn its operations to narrow banking.
 Having better geographical reach.
 Lesser intervention of the government in the functioning of the bank.
 Enjoying the benefit of cost advantage.
 Private sector Banks, would think about mergers for:
 Creating geographical complementarity.
 Becoming a global bank i.e. entering foreign markets.
 Absorbing new technological advancements.
pg. 64
K.C. COLLEGE
 Ensuring operational efficiency and cost advantage.

 Providing a wider and better expertise on various product offerings.
 Competing with international banks.
 Meeting the demands of fast economic development.
 Diversifying into various segment markets.
 Strengthening its market position.
2. Economic point of view- This focuses on the benefits that a merger creates for
the economy as a whole. The reasons why banks should merge, keeping in
mind the nation’s advantage, are:
 Global Indian banks would improve balance of payments of the country.
 India would enjoy better GDP as the country would be able to finance various
projects creating value.
 Strong merged banks would ensure higher fund flow within and outside the
country.
 It also helps in establishing a strong political position of India among various
other countries.
 Merged Banks would be in a better position to finance start-ups in the country.
 The banks would be able to provide consumer durables financing at
affordable interest rates which in turn increases the per capita consumption
and also improves the lifestyle of the citizens.
 It would create more job opportunities in turn reducing unemployment in the
country.
 The gross value added to the country’s economy would increase, as banking
service industry would expand, which would in turn assist the government to
provide better range of public services like health, education,etc.
 India would turn into a global financial center.
Bank mergers should always be between banks of the ‘right fit’ just like marriage
wherein its necessary for both the partners to have an understanding and create
mutually beneficial synergistic gains. India, does need such bank marriages for
strong association that would change the economic order of the country. Thus, bank
mergers are the most sought after step to be taken in the near future to establish the
banking industry as India’s leading export industry.
pg. 65
K.C. COLLEGE
BIBLIOGRAPHY
1. BOOKS:
 Mergers, acquisitions and takeover- H.R. Machiraju
 Mergers, acquisitions and business valuation- RavindharVadapalli
 Introduction to Banking- VijayaragavanIyengar
2. NEWSPAPERS AND MAGAZINES:
 http://www.business-standard.com/article/finance/kotak-mahindra-bank-ing-
vysya-merger-why-india-needs-more-bank-marriages-business-standard-
news-114112100619_1.html
 http://www.business-standard.com/article/finance/mergers-of-public-sector-
banks-favoured-109033100109_1.html
 http://www.moneycontrol.com/news/economy/is-merging-psu-banks-good-
idea-experts-debate-proscons_1144386.html
 http://www.thehindu.com/todays-paper/tp-sports/bankers-discuss-pros-and-
cons-of-consolidation/article869996.ece
 http://www.thehindubusinessline.com/opinion/columns/s-s-tarapore/bank-
mergers-are-not-a-smooth-ride/article7159154.ece
 http://www.thehindu.com/business/Industry/a-trendsetter-bank-
merger/article6625307.ece
 http://www.dnaindia.com/money/report-government-may-consider-merging-
banks-to-create-strong-global-banks-2049663
 http://www.business-standard.com/article/finance/rbi-approves-ing-vysya-
kotak-mahindra-merger-115040100278_1.html
 http://www.moneycontrol.com/news/business/do-we-need-more-banks-or-
bigger-banks_829673.html
 http://profit.ndtv.com/topic/bank-merger
 http://www.business-standard.com/article/companies/kotak-mahindra-bank-to-
merge-with-ing-vysya-bank-114112000844_1.html
 http://economictimes.indiatimes.com/magazines/money-you/what-is-casa-
ratio/articleshow/4504623.cms
3. JOURNALS:
 http://www.federalreserve.gov/pubs/feds/1997/199709/199709pap.pdf
 http://theglobaljournals.com/gra/file.php?val=January_2013_1358502222_370
69_04.pdf
 http://indianresearchjournals.com/pdf/IJMFSMR/2012/October/8.pdf
 http://indianresearchjournals.com/pdf/IJMFSMR/2012/September/3.pdf
 http://finance.mapsofworld.com/merger-acquisition/impact.html
pg. 66
K.C. COLLEGE
ANNEXURE
Research questions on Bank Mergers and Acquisitions
1. Are you aware about the term Bank Mergers & Acquisition?
o Yes
o No
2. According to you, does India need More Banks or Bigger Banks?

o Bigger Banks
o More Banks
3. Which sectors of the bank gets more advantage while Mergers & Acquisition?
o Public Sector
o Private Sector
4. According to you, what would be the biggest challenge in integration of banks

in India?
o Human Resource
o Competition
o Employees Retention
o Others
5. According to you, does a bank get profit from Mergers & Acquisition?
o Yes
o No
6. To whom the Merger benefits the most after the banks?

o Customers
o Employees
o Shareholders
7. For which banks the economies of scale are considered to be the most
important factor while deciding for a merger?
o Regular Banks
pg. 67
K.C. COLLEGE
o Regional Rural banks
8. Does Mergers & Acquisition improve the service rendered by the banks?
o Yes
o No
o Can’t Say
9. Does Mergers & Acquisition facilitate economic growth & Stability in the
country?
o Yes
o No
o Can’t Say
10. Does Merger & Acquisition reinstate the public confidence in the banks?
o Yes
o No
o Can’t Say
pg. 68
K.C. COLLEGE

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BANKING MERGERS AND ACQUSITIONS

CHP 1- INDIAN BANKING SYSTEM

Structure of Indian Banking System:

Indian Banking System

The entire organized banking system comprises of scheduled and non-scheduled

a) Scheduled Commercial Banks (SCBs):

b) Scheduled Cooperative Banks:

[II] Business Segmentation:

It includes exposures to individuals or small businesses. Retail banking activities

Wholesale banking includes high ticket exposures primarily to corporate. Internal

Treasury operations include investments in debt market (sovereign and corporate),

4) Other Banking Businesses

This is considered as a residual category which includes all those businesses of

[III] Product Segmentation:

internet banking. Product differentiating services have been attached to most

1.2 Research Objectives:

Through this research, I would like to closely ponder on these points:

1. To study the banking reforms in India.

1.3 SCOPE & COVERAGE

ING Vysya Bank which was approved on 20th November, 2014.

Banks are facing an increasingly competitive business environment, which is

strategic alliances have recorded a tremendous growth in recent years.

b) Acquisitions have become a generic strategy for many companies.

c) To drive the global economy and control

d) Facilitate synergies between merged organizations,

e) Generate efficiency improvements and increase competitiveness.

f) The basic argument that M&As increase shareholder value through

exploitation of synergies is based on the assumption that the combined

Mergers and acquisitions (M&As) are driving most profit-making sectors

 It was not possible to cover every aspect. This poses to be a serious

available is not recent.

 It is difficult to explain specific impacts made on consumers from merger

and acquisition activity within the financial services sector.

1.6 METHODOLOGY TO COLLECT DATA

CHP 2: REVIEW OF LITERATURE

tested for empirical validation by researchers. Researchers have studied the

economic impact of M&As on industry consolidation, returns to shareholders

following M&As, and the post-merger performance of firms. Whether or not a

been examined by most of the researchers, resulting in the proposal of several

included both short-run, as well as long-run impacts of merger announcements,

the evaluation of corporate financial performance following mergers.

benefit from merging because of technical, monetary and diversification synergies.

(CEOs) to justify a merger or acquisition, which include: to obtain synergies,

economies of scale, cost savings, increased products, and rationalisation of

Studies of Merger and Acquisition in Respect of Accounting Performance

on Shareholders’ Wealth: Evidence from Taiwanese Corporations” tested a

which leads to reinforce the Taiwanese government’s efforts at industrial

vertical integration of a firm’s businesses, which may be a more difficult task,

especially in integrating intangible human resources.

Beena (2004)28, in a work “Towards Understanding the Merger Wave in the

Indian Corporate Sector – A Comparative Perspective” analysed the pre-and post-

merger performance of a sample of 115 acquiring firms in the manufacturing

financial ratios during the post-merger period, as compared to the pre-merger

Management Turnover in Hostile and Friendly Acquirers” investigated 519

counterparts, despite the associated higher levels of co-operation in the latter,

better by engaging in hostile transactions than those of a co-operative friendly

nature, despite the ‘extra pain’ incurred.

Donker and Ng (2008), in a research work “Synergy Motivation and Target

Ownership Structure: Effects on Takeover Performance” found statistically

significant positive abnormal returns around M&As announcements for combined

management shareholdings have a significant negative impact on the returns to

shareholders of combined firms. Institutional shareholdings and outside block

holdings have a significantly positive influence on the abnormal returns to

shareholders of combined firms; monitoring by large institutional shareholders and