International Journal of Contemporary Business Studies Vol: 2, No: 11. November, 2011 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com

Merger and Acquisitions (M&As) in the Indian Banking Sector in Post Liberalization Regime
Dept. of Commerce, AMU, Aligarh India

Azeem Ahmad Khan

ABSTRACT
The purpose of this paper is to explore various motivations of Merger and Acquisitions in the Indian banking sector. This includes the various aspects of banking Industry’s Merger and Acquisitions. It also compares pre and post merger financial performance of merged banks with the help of financial parameters like Gross-Profit Margin, Net- Profit Margin, Operating Profit Margin, Return on Capital Employed (ROCE), Return on Equity (ROE) and Debt-Equity Ratio. Through literature review it comes to know that most of the work done high lightened the impact of Merger and Acquisitions on different aspects of the companies. The data of Merger and Acquisitions since economic liberalization are collected for a set of various financial parameters. This study also examines the changes occurring in the acquiring firms on the basis of financial ground and also the overall impact of Merger and acquisitions (M&As) on acquiring banks. The Researcher used independent t-test for testing the statistical significance and this test is applied not only for the ratio analysis but also to test the effect of Merger and Acquisitions on the performance of banks. This performance is being tested on the basis of two grounds i.e. Pre merger and Post merger. The result of the study indicates that the banks have been positively affected by the event of Merger and acquisitions (M&As). These results suggest that merged banks can obtain efficiency and gains through Merger and Acquisitions (M&As) and passes the benefits to the equity share holders’ in the form of dividend. Keywords: Merger & Acquisitions, Banking, Financial parameters, Profitability, Indian Banks.

INTRODUCTION
In the globalized economy, Merger and Acquisitions (M&As) acts as an important tool for the growth and expansion of the economy. The main motive behind the Merger and acquisitions (M&As) is to create synergy, that is one plus one is more than two and this rationale beguiles the companies for merger at the tough times. Merger and Acquisitions (M&As) help the companies in getting the benefits of greater market share and cost efficiency. Companies are confronted with the facts that the only big players can survive as there is a cut throat competition in the market and the success of the merger depends on how well the two companies integrate themselves in carrying out day to day operations.

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One size does not fit for all, therefore many companies finds the best way to go ahead like to expand ownership precincts through Merger and acquisitions (M&As). Merger creates synergy and economies of scale. For expanding the operations and cutting costs, Business entrepreneur and Banking Sector are using Merger and Acquisitions world wide as a strategy for achieving larger size, increased market share, faster growth, and synergy for becoming more competitive through economies of scale. A merger is a combination of two or more companies into one company or it may be in the form of one or more companies being merged into existing companies or a new company may be formed to merge two or more existing companies. On the other hand, when one company takes over another company and clearly well-known itself as the new owner, this is called Acquisition. The companies must follow legal procedure of Merger and Acquisitions (M&As) which has given by RBI, SEBI, Companies’ Act 1956 and Banking Regulation Act 1949. Growth is always the priority of all companies and confers serious concern to expand the business activities. Companies go for Merger and Acquisitions (M&As) for achieving higher profit and expanding market share. Merger and Acquisitions (M&As) is the need of business enterprises for achieving the economies of scale, growth, diversification, synergy, financial planning, Globalization of economy, and monopolistic approach also creates interest amongst companies for Merger and Acquisitions (M&As) in order to increase the market power. Merger and Acquisitions is not a single day process, it takes time and decisions are to be taken after examining all the aspects. Indian companies were having stringent control before economic liberalization; therefore they led to the messy growth of the Indian corporate sector during that period. The government initiated the reform after 1991 and which resulted in the adaptation of different growth and expansion strategies by the companies. The Banking system of India was started in 1770 and the first Bank was the Indian Bank known as the Bank of Hindustan. Later on some more banks like the Bank of Bombay-1840, the Bank of Madras-1843 and the Bank of Calcutta-1840 were established under the charter of British East India Company. These Banks were merged in 1921 and took the form of a new bank known as the Imperial Bank of India. For the development of banking facilities in the rural areas the Imperial Bank of India partially nationalized on 1 July 1955, and named as the State Bank of India along with its 8 associate banks (at present 7). Later on, the State Bank of Bikaner and the State Bank of Jaipur merged and formed the State Bank of Bikaner and Jaipur. The Indian banking sector can be divided into two eras, the pre liberalization era and the post liberalization era. In pre liberalization era government of India nationalized 14 Banks on 19 July 1969 and later on 6 more commercial Banks were nationalized on 15 April 1980. In the year 1993 government merged The New Bank of India and The Punjab National Bank and this was the only merger between nationalized Banks, after that the numbers of nationalized Banks reduced from 20 to 19. In post liberalization regime, government had initiated the policy of liberalization and licenses were issued to the private banks which lead to the growth of Indian Banking sector. The Indian Banking Industry shows a sign of improvement in performance and efficiency after the global crisis in 2008-09. The Indian Banking Industry is having far better position than it was at the time of crisis. Government has taken various initiatives to strengthen the financial system. The economic recovery gained strength on the back of a variety of monetary policy initiatives taken by the Reserve Bank of India. Recently, on 13th August 2010, the process of M&As in the Indian banking sector passes through the Bank of Rajasthan and the ICICI Bank. Moreover, the HDFC Bank acquired the Centurion Bank of Punjab on 23 May 2008. The Reserve Bank of India sanctions the scheme of mergers of the ICICI Bank and the Bank of Rajasthan. After the merger the ICICI Bank replaced many banks to occupy the second position after the State Bank of India (SBI) in terms of assets in the Indian

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Banking Sector. In the last ten years, the ICICI Bank, the HDFC bank in the private sector, the Bank of Baroda (BOB) and the Oriental Bank of Commerce (OBC) in the public sector involved themselves as a bidder Banks in the Merger and Acquisitions (M&As) in the Indian Banking Sector. Table 1 gives a detailed account of all Merger and Acquisitions took place in the Indian banking sector. Table 1: List of Merger and Acquisitions (M&As) in Indian Banking Industry since post Liberalization regime. S. No
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

Name of the Transferor Bank

Name of the Transferee Bank

Date of Merger/Amalgamat ion

Bank of Bihar Ltd. State Bank of India November 8, 1969 National Bank of Lahore Ltd. State Bank of India February 20, 1970 Miraj State Bank Ltd. Union Bank of India July 29, 1985 Lakshmi Commercial Bank Ltd. Canara Bank August 24, 1985 Bank of Cochin Ltd. State Bank of India August 26, 1985 Hindustan Commercial Bank Ltd. Punjab National Bank December 19, 1986 Traders Bank Ltd. Bank of Baroda May 13, 1988 United Industrial Bank Ltd. Allahabad Bank October 31, 1989 Bank of Tamilnadu Ltd. Indian Overseas Bank February 20, 1990 Bank of Thanjavur Ltd. Indian Bank February 20, 1990 Parur Central Bank Ltd. Bank of India February 20, 1990 Purbanchal Bank Ltd. Central Bank of India August 29, 1990 New Bank of India Punjab National Bank September 4, 1993 Bank of karad Ltd Bank of India 1993-1994 Kashi Nath Seth Bank Ltd. State Bank of India January 1, 1996 Bari Doab Bank Ltd Oriental Bank of Commerce April 8, 1997 Punjab Co-operative Bank Ltd. Oriental Bank of Commerce April 8, 1997 Bareilly Corporation Bank Ltd Bank of Baroda June 3, 1999 Sikkim Bank Ltd Union Bank of India December 22, 1999 Times Bank Ltd. HDFC Bank Ltd February 26, 2000 Bank of Madura Ltd. ICICI Bank Ltd. March 10, 2001 ICICI Ltd ICICI Bank Ltd May 3, 2002 Benares State Bank Ltd Bank of Baroda June 20, 2002 Nedungadi Bank Ltd. Punjab National Bank February 1, 2003 South Gujarat Local Area Bank Ltd. Bank of Baroda June 25, 2004 Global Trust Bank Ltd. Oriental Bank of Commerce August 14, 2004 IDBI Bank Ltd. IDBI Ltd April 2, 2005 Bank of Punjab Ltd. Centurion Bank Ltd October 1, 2005 Ganesh Bank of Kurundwad Ltd Federal Bank Ltd September 2, 2006 United Western Bank Ltd. IDBI Ltd. October 3, 2006 Bharat Overseas Bank Ltd. Indian Overseas Bank March 31, 2007 Sangli Bank Ltd. ICICI Bank Ltd. April 19, 2007 Lord Krishna Bank Ltd. Centurion Bank of Punjab Ltd. August 29, 2007 Centurion Bank of Punjab Ltd. HDFC Bank Ltd. May 23, 2008 The Bank of Rajasthan ICICI Bank Ltd August 13, 2010 Source: Report on Trend and Progress, RBI, Various Issues, VIII competition and consolidation, 04 Sep 2008.

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LITERATURE REVIEW AND GAP
Under this study the researcher reviewed research papers for the purpose of providing an insight into the work related to Merger and Acquisitions (M&As). After going through the available relevant literature on M&As and it comes to know that most of the work done high lightened the impact of M&As on different aspects of the companies. A firm can achieve growth both internally and externally. Internal growth may be achieved by expanding its operation or by establishing new units, and external growth may be in the form of Merger and Acquisitions (M&As), Takeover, Joint venture, Amalgamation etc. Many studies have investigated the various reasons for Merger and Acquisitions (M&As) to take place, Just to look the effects of Merger and Acquisitions on Indian financial services sector. Sinha Pankaj & Gupta Sushant (2011) studied a pre and post analysis of firms and concluded that it had positive effect as their profitability, in most of the cases deteriorated liquidity. After the period of few years of Merger and Acquisitions(M&As) it came to the point that companies may have been able to leverage the synergies arising out of the merger and Acquisition that have not been able to manage their liquidity. Study showed the comparison of pre and post analysis of the firms. It also indicated the positive effects on the basis of some financial parameter like Earnings before Interest and Tax (EBIT), Return on share holder funds, Profit margin, Interest Coverage, Current Ratio and Cost Efficiency etc. Goyal K.A. & Joshi Vijay (2011) in their paper, gave an overview on Indian banking industry and highlighted the changes occurred in the banking sector after post liberalization and defined the Merger and Acquisitions as per AS-14. The need of Merger and Acquisition in India has been examined under this study. It also gave the idea of changes that occurred after M&As in the banking sector in terms of financial, human resource & legal aspects. It also described the benefits come out through M&As and examined that M&As is a strategic tools for expanding their horizon and companies like the ICICI Bank has used merger as their expansion strategy in rural market to improve customers base and market share. The sample of 17 Merger of post liberalization and discussed about communication in M&As, the study lightened the role of media in M&As. Kuriakose Sony & Gireesh Kumar G. S (2010) in their paper, they assessed the strategic and financial similarities of merged Banks, and relevant financial variables of respective Banks were considered to assess their relatedness. The result of the study found that only private sector banks are in favor of the voluntary merger wave in the Indian Banking Sector and public sector Bank are reluctant toward their type of restructuring. Target Banks are more leverage (dissimilarity) than bidder Banks, so the merger lead to attain optimum capital Structure for the bidders and asset quality of target firms is very poor except the cases of the HDFC Vs the CBOP merger in 2007. The factor behind voluntary amalgamation are synergies, efficiency, cost saving, economies of scale. The merging partners strategically similarities and relatedness are very important in the synergy creation because the relatedness of the strategic variable have a significant impact on the Bank performance and the effect of merger on the stock market. Aharon David Y et al., (2010), analyzed the stock market bubble effect on Merger and Acquisitions and followed by the reduction of pre bubble and subsequent, the bursting of bubble seems to have led to further consciousness by the investors and provide evidence which suggests that during the euphoric bubble period investor take more risk. Merger of banks through consolidation is the significant force of change took place in the Indian Banking sector. Kuriakose Sony et al., (2009), focused on the valuation practices and adequacy of swap ratio fixed in voluntary amalgamation in the Indian Banking Sector and used swap ratio for valuation of banks, but in most of the cases the final swap ratio is not justified to their financials. Schiereck

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Dirk et al., (2009), explained the relationship between bank reputation after Merger and Acquisitions and its effects on shareholder’s wealth. This study considered 285 European merger and Acquisition transaction announced between 1997 and 2002 and finds that on average wealth not significantly effect by Merger and Acquisitions. It is found in the study of Bhaskar A Uday et al., (2009) that Banking sector witness of Merger activities in India when banks facing the problem of loosing old customer and failed to attract the new customers. It described that the acquiring firms mainly focuses on the economies of scale, efficiency gain and address the need of communication and employee concern, and described the integration process was handled by professional and joint integration committee. Road map is prepared and HR integration is done as per schedule and they took a case of the Bank of Punjab acquired the Lord Krishna Bank and later on the Centurion Bank of Punjab acquired by the HDFC Bank and gave the frame of integration. This study regulate the link between communication, HR integration, management action and consequent contribution of post merger success by conducted interview in a recent bank merger, in depth interviews work conducted in a recent mergers of a Indian Bank. It was inferred that proactive communication, changes in organizational structure, and appropriate human resource integration would smoothen the journey towards successful integration. Anand Manoj & Singh Jagandeep (2008) studied the impact of merger announcements of five banks in the Indian Banking Sector on the share holder bank. These mergers were the Times Bank merged with the HDFC Bank, the Bank of Madurai with the ICICI Bank, the ICICI Ltd with the ICICI Bank, the Global Trust Bank merged with the Oriental Bank of commerce and the Bank of Punjab merged with the centurion Bank. The announcement of merger of Bank had positive and significant impact on share holder’s wealth. The effect on both the acquiring and the target banks, the result showed that the agreement with the European and the US Banks Merger and Acquisitions except for the facts the value of share holder of bidder Banks have been destroyed in the US context, the market value of weighted Capital Adequacy Ratio of the combined Bank portfolio as a result of merger announcement is 4.29% in a three day period (-1, 1) window and 9.71 % in a Eleven days period (-5, 5) event window. The event study used for proving the positive impact of merger on the bidder Banks. Lehto Eero & Bockerman Petri (2008) evaluated the employment effects of Merger and Acquisitions on target by using match establishment level data from Finland over the period of 1989-2003. They focused cross border Merger and Acquisitions as well as domestic Merger and Acquisitions and analyzed the effect of employment of several different types of Merger and Acquisitions. They evaluated that the cross border Merger and Acquisitions lead to downsizing the manufacturing employment and the effects of cross border Merger and Acquisitions on employment in non- manufacturing are much weaker and change in ownership associated with domestic Merger and Acquisitions and internally restructuring also typically causes employment losses. To look the effects of cross border Merger and Acquisitions (M&As) Hijzen Alexander et al., (2008) studied the impact of cross border Merger and Acquisitions (M&As) and analyzed the role of trade cost, and explained the increased in the number of cross border Merger and Acquisitions (M&As) and used industry data of 23 countries over a period of 1990 -2001. The result suggested that aggregate trade cost affects cross border merger activity negatively, its impact differ importantly across horizontal and non-horizontal mergers. They also indicated that the less negative effects on horizontal merger, which is consistent with the tariff jumping agreement, put forward in literature on the determinant of horizontal FDI. Mantravadi Pramod & Reddy A Vidyadhar (2007) evaluated that the impact of merger on the operating performance of acquiring firms in different industries by using pre and post financial ratio to examine the effect of merger on firms. They selected all mergers involved in public limited and traded companies in India between 1991 and 2003, result suggested that there were little variation in terms of impact as operating performance after mergers. In different industries
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in India particularly banking and finance industry had a slightly positive impact of profitability on pharmaceutical, textiles and electrical equipments sector and showed the marginal negative impact on operative performance. Some of the industries had a significant decline both in terms of profitability and return on investment and assets after merger. Coming down on the various motives for Merger and Acquisitions, Mehta Jay & Kakani Ram Kumar (2006) stated that there were multiple reasons for Merger and Acquisitions in the Indian Banking Sector and still contains to capture the interest of a research and it simply because of after the strict control regulations had led to a wave of merger and Acquisitions in the Banking industry and states many reason for merger in the Indian Banking sector. While a fragmented Indian banking structure may be very well beneficial to the customer because of competition in banks, but at the same time not to the level of global Banking Industry, and concluded that merger and Acquisition is an imperative for the state to create few large Banks. Müslümov Alövsat (2002) examined that synergy is one of the main factor behind the merger and took 56 mergers from US industry, and the cash flows improvement in the productive usage of assets and increasing the sales and showed the surviving firm improvement in operating cash flows. The post merger create additional value and shows the improvement of bidder firm with price to book ratio, used non-parametric test as most suitable method of testing post merger performance. R. Srivassan et al., (2009) gave the views on financial implications and problem occurring in Merger and Acquisitions (M&As) highlighted the cases for consolidation and discussed the synergy based merger which emphasized that merger is for making large size of the firm but no guarantee to maximize profitability on a sustained business and there is always the risk of improving performance after merger.

RESEARCH GAP
It is seen that, most of the works have been done on trends, policies & their framework, human aspect which is needed to be investigated, whereas profitability and financial analysis of the mergers have not give due importance. The present study would go to investigate the detail of Merger and Acquisitions (M&As) with greater focus on the Indian banking sector in post liberalization regime. The study will also discuss the pre and the post merger performance of banks. An attempt is made to predict the future of the ongoing Merger and Acquisitions (M&As) on the basis of financial performance and focusing mainly of Indian banking sector.

SCOPE AND OBJECTIVES OF THE STUDY •To evaluate the banks performance in terms of net profitability. •To analyze the performance of banks after merger in terms of return on capital employed. •To find out the impact of merger on company’s debt equity ratio. •To examine the effects of merger on equity share holder’s. HYPOTHESES 1.Testing the significance difference between Pre and Post merger Net Profit Margin H0 (Null Hypothesis) There is no significance difference between the pre and post merger Net Profit Margin. H1 (Alternative Hypothesis) There is significance difference between the pre and post merger Net Profit Margin.

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International Journal of Contemporary Business Studies Vol: 2, No: 11. November, 2011 ISSN 2156-7506 Available online at http://www.akpinsight.webs.com

2.Testing the significance difference between Pre and Post merger Return on Capital Employed H0 (Null Hypothesis) There is no significance difference between the pre and post merger Return on Capital Employed. H1 (Alternative Hypothesis) There is significance difference between the pre and post merger Return on Capital Employed. 3.Testing the significance difference between Pre and Post merger Return on Equity H0 (Null Hypothesis) There is no significance difference between the pre and post merger Return on Equity. H1 (Alternative Hypothesis) There is significance difference between the pre and post merger Return on Equity. 4.Testing the significance difference between Pre and Post merger Debt Equity Ratio H0 (Null hypothesis) There is no significance difference between the pre and post merger Debt Equity Ratio. H1 (Alternative hypothesis) There is significance difference between the pre and post merger Debt Equity Ratio.

DATA AND METHODOLOGY
a) Data Collection For the purpose of evaluation investigation data is collected from Merger and Acquisitions (M&As) of the Indian banking industry in post liberalization regime. The financial and accounting data of banks is collected from companies Annual Report to examine the impact of M&As on the performance of sample banks. Financial data has been collected from Bombay Stock Exchange (BSE), National Stock Exchange (NSE), Securities and Exchange Board of India (SEBI) & money control for the study. b) Methodology To test the research prediction, methodology of comparing the pre and post performances of banks after Merger and Acquisitions(M&As) has been adopted, by using following financial parameters such as Gross profit margin, Net profit margin, Operating profit margin, Return on capital employed, Return on equity, and Debt equity ratio. Researcher has taken two cases of Merger and Acquisitions (M&As) randomly as sample, one from public sector bank and the other from private sector bank in order to evaluate the impact of M&As. The pre merger (3years prior) and post merger (after 3 years) of the financial ratios are being compared. The observation of each case in the sample is considered as an independent variable. Before merger two different banks carried out operating business activities in the market and after the merger the bidder bank carrying business of both the banks. Keeping in view the purpose & objectives of the study independent t- test is being employed under this study. The year of merger was considered as a base year and denoted as 0 and it is excluded from the evaluation. For the pre (3 years before) merger the combined ratios of both banks are considered and for the post merger (after 3 years) the ratios of acquiring bank were used. The Student’s t- distribution is

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= Where

,

= is the mean of acquiring

, is the mean of combined pre merger ratios of both banks st bank post merger are the number of observations of 1 is the combined standard deviation.

and 2nd series respectively. S

Degree of freedom Where A1 and A2 are the assumed means of 1st and 2nd series Ratios Gross Profit Margin = Gross Profit/Sales × 100 Net Profit Margin = Net Profit/Sales × 100 Operating Profit Margin = Operating Profit/Sales × 100 Return on Capital Employed (ROCE) =Net Profit/Total Assets × 100 Return on Equity (ROE) =Net Profit/Equity Share Holder’s Funds × 100 Debt Equity Ratio (Pure Ratio) = Total Debt/ Share Holder Equity

ANALYSIS AND INTERPRETATIONS
In Table 2, researcher selected two cases for study, first the merger of the PNB and the Nedungadi bank on 1 Feb, 2003 second the merger of the CBOP and the HDFC bank Ltd. on 23 May, 2008 and analyzed both the cases as considered one public and other from private sector bank. In order to analyze the financial performance of banks after Merger and Acquisitions (M&As). The financial and accounting ratio like Gross profit margin, Net profit margin, Operating profit margin, Return on capital employed, Return on equity, and Debt equity ratio have been calculated. In the first case, Table 3 indicated the profile of both banks before merger. Table 4, shows the post performance of bidder bank after merger. Table 5, shows the combined performance of both banks prior to merger. Similarly, in second case, Table 6 depicts the profile of both the banks before merger, Table 7 indicates the performance of acquiring bank after merger and Table 8 shows combined financial performance of both the banks before merger. In both the cases all financial and accounting ratios have computed by the researcher’s. In first case, the merger of the Nedungadi Bank with the Punjab National Bank is shown and then the financial performance between the Pre & Post merger has been compared on the basis of key ratios. It is found that there is no difference in the mean of gross profit margin (76.2193 percent Vs 74.6209 percent) and t-value 1.125. It is seen that the mean value of gross profit margin has decline so it is considered that it does not effect by merger, so it is not shows significant, however the net profit margin statistically confirmed highly significance with mean value (7.5965 percent Vs 15.3128 percent) and t- value -8.683. The mean of net profit margin increased after the
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merger so the performance of the bank has improved in post merger, similarly the mean value of operating profit margin shows significant decline in the mean (61.8458 percent Vs 55.7335 percent) and t-value 2.737 which indicates that it has no effect after merger and statically it is not significant, result also shows the mean difference on return on capital employed (0.7062 percent Vs 1.0637 percent) and t-value -5.671 which is conformed significant statically, this shows the return on capital employed has increase after the merger and bank has shows positive impact of merger on investment, the mean value of return on equity of bank has been increased after merger and indicated that bank give more return on equity after merger to the equity share holders and the mean value of return on equity (2.0714 percent Vs 4.4054 percent) and t-value -8.934 and shows significance, while lastly debt equity ratio shows significance with mean value (2.6119 percent Vs 3.5762 percent) and t-value -3.196. Therefore this indicates that the debt equity ratio also improved after merger so it directly increased the performance of the banks, and majority of financial parameter indicate that bank performance has improved after merger.

Table 2 - Merger Dates SL. NO Bidder Bank Target Bank Case 1 Punjab National Bank Nedungadi Bank Ltd Case 2 HDFC Bank Ltd Centurion Bank of Punjab Ltd. Source: Researcher’s compilation from table 1 Date of Announcement February 1, 2003 May 23, 2008

Table 3:- Profile of Nedungadi Bank and Punjab National Bank for the last three financial years ending before the merger announcement. Financial Ratios (in Percentage) Punjab National Bank(Bidder Nedungadi Bank(Target Bank) Bank) As on 31 As on 31 As on 31 As on 31 As on 31 As on 31 Mar’2000 Mar’2001 Mar’2002 Mar’2000 Mar’2001 Mar’2002 Gross Profit Margin 89.67408 52.9425 94.39294 76.56032 75.0357 76.91365 Net profit Margin 9.01361 -38.25537 0.81756 7.91805 7.90724 Operating Profit 67.79003 36.60779 49.30475 62.44347 61.75684 Margin Return on Capital 0.84123 -3.56673 0.08052 0.75401 0.73008 Employed Return on Equity 143.43137 -664.70588 12.45098 192.3011 218.45081 Debt-Equity Ratio 157.82352 172.53823 141.5960 226.8453 267.64196 Source: Researcher’s compilation from financial statement of Banks retrieved from http://www.moneycontrol.com/stocksmarketsindia/ 8.4597 62.20639 0.77129 264.9783 304.0522

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Table 4:- Profile of Punjab National Bank (Bidder Bank) for the next three financial years was ending after the merger announcement. Financial Ratios (in Percentage)
Punjab National Bank (Bidder Bank) As on 31 As on 31 As on 31 Mar’2004 Mar’2005 Mar’2006 76.16037 75.1635 72.53872 14.25245 16.66838 15.0176 52.15157 55.35606 59.69293 1.08342 1.117 0.9908 417.90049 447.2312 456.48905 336.24372 335.82359 400.79955

Gross Profit Margin Net profit Margin Operating Profit Margin Return on Capital Employed Return on Equity Debt-Equity Ratio

Source: Researcher’s compilation from financial statement of Banks retrieved from http://www.moneycontrol.com/stocksmarketsindia/ Table 5:- Combined profile of Nedungadi Bank and Punjab National Bank for the last three financial years ending before the merger announcement. Financial Ratios (in Percentage)
Nedungadi Bank and Punjab National Bank As on 31 Mar’2000 Gross Profit Margin Net profit Margin Operating Profit Margin Return on Capital Employed Return on Equity Debt-Equity Ratio 76.96064 7.95149 62.60668 0.75673 190.06024 223.68036 As on 31 Mar’2001 74.38446 6.55287 61.01898 0.6052 177.9536 263.28097 As on 31 Mar’2002 77.31276 8.2852 61.9118 0.75667 253.39866 296.60281

Source: Researcher’s compilation from financial statement of Banks retrieved from http://www.moneycontrol.com/stocksmarketsindia/ Table 6:- Profile of Centurion Bank of Punjab and HDFC Bank for the last three financial years is ending before the merger announcement. Financial Ratios (in Percentage) Centurion Bank of Punjab(Target HDFC Bank Bank) (Bidder Bank) As on 31 As on 31 As on 31 As on 31 As on 31 As on 31 Mar’2005 Mar’2006 Mar’2007 Mar’2005 Mar’2006 Mar’2007
Gross Profit Margin Net profit Margin Operating Profit Margin Return on Capital Employed Return on Equity Debt-Equity Ratio 55.8583 8.7116 37.23308 0.65377 29.7572 35.275661 53.41508 15.249 22.43152 1.081 86.9701 67.110771 69.57029 9.56855 37.60888 0.65671 77.46505 100.80164 74.17189 21.51485 53.1167 1.29413 214.77991 134.38834 71.12331 19.45729 46.00834 1.18463 278.08009 192.74861 69.94028 16.56912 47.93091 1.2511 357.38438 222.65358

Source: Researcher’s compilation from financial statement of Banks retrieved from http://www.moneycontrol.com/stocksmarketsindia/

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Table 7:- Profile of HDFC Bank (Bidder Bank) for the next three financial years was ending after the merger announcement. Financial Ratios (in Percentage)
HDFC Bank (Bidder Bank) As on 31 As on 31 Mar’2009 Mar’2010 74.76217 74.66454 13.74548 18.23227 54.61426 51.12141 1.22493 1.3255 527.75165 644.18447 342.04104 393.9357

Gross Profit Margin Net profit Margin Operating Profit Margin Return on Capital Employed (ROCE) Return on Equity (ROE) Debt-Equity Ratio

As on 31 Mar’2011 76.2925 19.70267 54.53866 1.41566 843.96749 479.29082

Source: Researcher’s compilation from financial statement of Banks retrieved from http://www.moneycontrol.com/stocksmarketsindia/ Table 8:- Combined Profile of Centurion Bank of Punjab and HDFC Bank for the last three financial years was ending before the merger announcement. Financial Ratios (in Percentage)
Centurion Bank of Punjab and HDFC Bank As on 31 Mar’2005 Gross Profit Margin Net profit Margin Operating Profit Margin Return on Capital Employed Return on Equity Debt-Equity Ratio 72.32917 20.22659 51.51849 1.24143 169.19017 109.9669 As on 31 Mar’2006 68.42877 18.81694 42.42082 1.17079 218.79419 153.77339 As on 31 Mar’2007 69.88274 15.4805 46.32579 1.15097 265.25583 182.54902

Source: Researcher’s compilation from financial statement of Banks retrieved from http://www.moneycontrol.com/stocksmarketsindia/ In second case, the merger of the Centurion Bank of Punjab and the HDFC Bank, the comparison between pre and post merger performance we seen that the mean value of gross profit margin (70.2136 percent Vs 75.2397 percent) has increased with t-value -4.008 which shows significance improvement in the gross profit margin after merger but in net profit margin and operating profit margin you can see the decline in the mean of both parameters that indicates that there is no change in the performance of banks net profit margin and operating profit margin after merger and result shows that there is no significance with mean (18.8413 percent Vs 17.2268 percent) and t-value 0.610 and (46.7550 percent Vs 53.4248 percent) and t-value -2.319 and the mean return on capital employed (1.1877 percent Vs 1.3220 percent) and t-value -2.182 which is also not significant statically and shows that no change has been seen in term of investment after the merger. The mean of return on equity and debt equity ratio shows improvement, and statically conformed significant to mean value (2.1775 percent Vs 6.7197 percent) and t-value -4.711 and (1.4876 percent Vs 4.0509 percent) and t-value -5.667. The mean value of equity in post merger has been increased so it increased the shareholder return so it also shows the improved performance of bank after merger. Similarly the debt equity ratio also improved after the merger the mean value shows the change in debt equity ratio after merger. So we conclude that some ratios indicate no effect but most of ratios shows the positive effect and increased the performance of banks after the merger.

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Table 9:- Mean and Standard Deviation of Pre-merger and Post-merger Ratios of combined Banks (Nedungadi Bank & Punjab National Bank) and Acquiring Bank (PNB).
Mean Gross Profit Margin Net profit Margin Operating Profit Margin Return on Capital Employed Return on Equity Debt-Equity Ratio Pre Post Pre Post Pre Post Pre Post Pre Post Pre Post 76.2193 74.6209 7.5965 15.3128 61.8458 55.7335 0.7062 1.0637 2.0714 4.4054 2.6119 Std.Deviation 1.59873 1.87081 0.91910 1.23472 0.79590 3.78482 0.08747 0.06536 40.51807 20.14562 36.50625 -8.934 -3.196 .001 .033 -8.683 2.737 -5.671 .001 .052 .005 t-value 1.125 Sig. .324

3.5762 37.39320 Source: Researcher’s compilation based on tables 3&5, 5% level of significance

Table 10:- Mean and Standard Deviation of Pre-merger and Post-merger Ratios of combined (CBOP &HDFC Banks) and Acquiring Bank (HDFC Bank) Mean Std.Deviation t-value Sig.
Gross Profit Margin Net profit Margin Operating Profit Margin Return on Capital Employed Return on Equity Debt-Equity Ratio Pre Post Pre Post Pre Post Pre Post Pre Post Pre Post 70.2136 75.2397 18.8413 17.2268 46.7550 53.4248 1.1877 1.3220 2.1775 6.7197 1.4876 1.97113 0.91303 3.37311 3.10326 4.56400 1.99513 0.04755 0.09541 48.04140 159.92827 36.54953 -4.008 0.610 -2.319 -2.182 -4.711 -5.667 .016 .575 .081 .095 .009 .005

4.0509 69.30134 Source: Researcher’s compilation based on tables 6&8, 5% level of significance

8-RESULTS AND DISCUSSIONS
a) Results The result suggest that the performance of the PNB after acquired the Nedungadi Bank has been improved in terms of Net Profit Margin with t-value -8.683 which leads to the conclusion that the difference is statistically significant therefore, the H1 (Alternative Hypothesis) is accepted which say that there is significance difference between the pre and post merger net profit margin. The performance of the Punjab National Bank in terms of Return on Capital Employed has been improved after the merger with t-value -5.671 which is significant therefore , the H1 (Alternative Hypothesis) is accepted. The bank performance is improved after merger in relation to the Return on Equity with t- value -8.934 which leads to the conclusion that the difference is statistically significant therefore the H1 (Alternative Hypothesis) is accepted. In the Debt Equity Ratio, the performance of bank after the merger seems improvement with t-value -3.196 which shows significant statistically therefore H1 (Alternative Hypothesis) is accepted, which
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leads to the conclusion that there is a significance difference between pre and post merger Debt Equity Ratio. All the Alternative Hypothesis is accepted in case of the Punjab National Bank and the Nedungadi Bank, so the conclusion suggest that the merger of banks has been beneficial to the Equity share holders and increases the overall bank performance in terms of profitability. Similarly in the case of the Centurion Bank of Punjab and the HDFC Bank, the Net Profit Margin does not shows any change after the merger with t-value 0.610 which is statistically insignificant therefore H0 (Null Hypothesis) is accepted which leads to the conclusion that there is no difference between pre and post merger net profitability. The Return on Capital Employed also shows no change after the merger with t- value -2.182 which is statistically insignificant therefore H0 (Null Hypothesis) is accepted which also leads to the conclusion that there is no significance difference between pre and post merger Return on Capital Employed. The Return on Equity shows improvement after the merger with t- value -4.711 which is statistically significant therefore H1(Alternative Hypothesis) is accepted , which leads to the conclusion that there is significance difference between pre and post merger Return on Equity. The performance of bank also improved in terms of Debt Equity Ratio with t-value -5.667 which is statistically significant therefore H1(Alternative Hypothesis) is accepted , which leads to the conclusion that there is significance difference between pre and post merger Debt Equity Ratio. The results suggest that the performance of banks has been improved in terms of Return on Equity and Debt Equity Ratio, but no change have been seen in Net Profit Margin and Return on Capital Employed. It may be possible the performance of bank in terms of net profitability will increase in longer run. b) Discussions After the merger we will see that in various financial parameter of the bank performance have improved in both cases and some parameter have shown no change but it may be possible that improved performance of merged Bank will show in later years the profit are not visible because we compared only three years financial ratios, it may be possible that profit will be seen in future. There are various motives, which attract the bank for merger but it is not necessary to achieved all objectives after merger, the size of the bank will increase but no guarantee to increase net profitability after merger. The success of merger is dependent upon synergy gains created after the merger and overall performance of bank, the financial performance of the Punjab National Bank have been improved after the merger and was affected positively, the reaction comes out in terms of Net Profit Margin ,Return on Capital Employed, Return on Equity and Debt Equity Ratio. But in the case of the Centurion Bank of Punjab with the HDFC Bank, the financial ratios were not positively affected by merger and show no relation between pre and post merger performance and may required due time for showing profitability. Finally the Indian Banking Sector has used Merger and Acquisitions (M&As) as a tool to expand and global recognition. Sick bank survived after merger, enhanced branch network, rural reach, increase market share and improve infrastructure all achieved through Merger and Acquisitions (M&As). For the level of high competition this strategy is also appearing as a mode of survival in the present market.

9-CONCLUSION AND FUTURE DIMENSIONS
Merger and Acquisition is the useful tool for growth and expansion in the Indian banking sector. It is helpful for survival of weak banks by merging into larger bank. This study shows the impact of M&As in the Indian banking sector and researcher took two cases for the study as sample and examine that merger led to a profitable situation or not. For this a comparison between pre and post merger performance in terms of gross profit margin, net profit margin, operating profit margin, return on capital employed, return on equity, and debt equity ratio. The combined performance of both bank (three years before) merger and the performance of acquiring bank (after three years) merger have compared. In case I the merger of Nedungadi bank and PNB net

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profitability, return on capital employed, return on equity and debt equity ratio and case II the return on equity, debt equity ratio and gross profit margin has shows the improvement after the merger, and for the purpose and objective of the study investigator apply independent t-test for analyzing the pre and post merger performance of the banks. And results suggest that after the merger the efficiency and performance of banks have increased. The most important is that to generate higher net profits after the merger in order to justify the decision of merger undertaken by the management to the shareholders. Researcher suggests, for future research in this area could be the study of impact of merger only on acquiring banks by comparing pre and post merger performance and take more banks to a larger sample concerning a longer time period for the study which would have given better result. References Aharon David Y, Gavious Ilanit & Yosefa Rami (2010), “Stock Market Bubble Effects on Mergers and Acquisitions”, The Quarterly Review Of Economics and Finance, 50, 456– 470. Retrieved From http://Web2.Ono.Ac.Il/Shauserpublish/Files/1.Pdf. Anand Manoj & Singh Jagandeep (2008), “Impact of Merger Announcements on Shareholder‘sWealth Evidence from Indian Private Sector Banks”, Vikalpa, Volume 33, No 1 January - March Retrieved from Http://Papers.Ssrn.Com/Sol3/Papers.Cfm?Abstract_Id=977119&Rec=1&Srcabs=163507 7. Bhaskar A Uday, Ratnam C.S Venkata & Bhal Kanika T (2009), “Role of Communication and HR Integration: A Study of a Bank Merger”, Retrieved From Http://Www.IleraOnline.Org/15thworldcongress/Files/Papers/Track_1/Poster/Cs1w_13_Bhaskar.Pdf. Goyal Dr. K.A. & Joshi Vijay (2011), “Mergers in Banking Industry of India: Some Emerging Issues”, Asian Journal of Business and Management Sciences, Issn: 2047-2528, Vol. 1 No. 2, [157-165], Retrieved From Www.Ajbms.Org/Articlepdf/Ajbms,1231.Pdf. Hijzen Alexander, Gorg Holger & Manchin Miriam (2008), “Cross-Border Mergers and Acquisitions and The Role Of Trade Costs”, European Economic Review, 52, 849–866, Retrieved From Http://Www.Me.Titech.Ac.Jp/~Wata_Lab/Pdf/13-E.Pdf. Kuriakose Sony & Gireesh Kumar G. S (2010), “Assessing the Strategic and Financial Similarities of Merged Banks: Evidence from Voluntary Amalgamations in Indian Banking Sector”, Sci. & Soc, 8(1) 49-62, Retrieved From Http://Ieg.Ignou.Ac.In/Wiki/Images/B/B4/Science_And_Society.Pdf. Kuriakose Sony, Raju M.S. Senam & Narasimham N V. (2009), “Voluntary Amalgamations in Indian Banking Sector: Valuation Practices and Adequacy of Swap Ratios”, Retrieved From Http://Papers.Ssrn.Com/Sol3/Papers.Cfm?Abstract_Id=1653698. Lehto Eero & Bockerman Petri (2008), “Analyzing The Employment Effects Of Mergers And Acquisitions”, Journal Of Economic Behavior & Organization, 68, 112–124, Retrieved From Http://Www.Petribockerman.Fi/Lehto&Bockerman_Ana_2008.Pdf.

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Mantravadi Pramod & Reddy A Vidyadhar. (2007), “Relative Size In Mergers And Operating Performance: Indian Experience”, Economic and Political Weekly, September 29, Retrieved From Http://Papers.Ssrn.Com/Sol3/Papers.Cfm?Abstract_Id=1082787. Mehta Jay & Kakani Ram Kumar. (2006), “Motives for Mergers and Acquisitions in the Indian Banking Sector – A Note on Opportunities & Imperatives”, SPJCM Working Paper: 0613, Retrieved From Http://Papers.Ssrn.Com/Sol3/Papers.Cfm?Abstract_Id=1008717. Müslümov Alövsat. (2002), “The Financial Analysis of Post merger Performance of Surviving Firms”, Yapi Kredi Economic Review, Vol. 13(1), Retrieved from Http://Papers.Ssrn.Com/Sol3/Papers.Cfm?Abstract_Id=890063. R. Srivassan, Chattopadhyay Gaurav & Sharma Arvind (2009), “Merger and Acquisition in the Indian Banking Sector-Strategic and Financial Implications”, IIMB Management Review, October, Retrieved From Http://Tejas-Iimb.Org/Articles/01.Php. Schiereck Dirk, Grüb Christof Sigl & Unverhau Jan (2009), “Investment Bank Reputation and Shareholder Wealth Effects in Mergers and Acquisitions”, Research In International Business and Finance, 23, 257–273, Retrieved from Http://Www.Sciencedirect.Com/Science/Article/Pii/S027553190800041x. Sinha Pankaj & Gupta Sushant. (2011), “Mergers and Acquisitions: A Pre-Post Analysis for the Indian Financial Services Sector”, Retrieved From mpra.Ub.Uni-Muenchen.De/31253/1/Mpra_Paper_31253.Pdf.

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