In the Reserve Bank of India s (RBI) First Bi-monthly

Transcription

1 Mergers and Acquisitions of Banks in Post-Reform India T R Bishnoi, Sofia Devi A major perspective of the Reserve Bank of India s banking policy is to encourage competition, consolidate and restructure the system for financial stability. Mergers and acquisitions have emerged as one of the common methods of consolidation, restructuring and strengthening of banks. There are several theoretical justifications to analyse the M&A activities, like change in management, change in control, substantial acquisition, consolidation of the firms, merger or buyout of subsidiaries for size and efficiency, etc. The objective here is to examine the performance of banks after mergers. The hypothesis that there is no significant improvement after mergers is accepted in majority of cases there are a few exceptions though. Therefore, the strategy of M&A to consolidate banks for purposes of efficiency seems flawed. Future banking policy must take note of this empirical reality and long-drawn experience of the past two decades. In the Reserve Bank of India s (RBI) First Bi-monthly Monetary Policy Statement, , Raghuram Rajan (2014) reviewed the progress on various developmental programmes and also set out new regulatory measures. On strengthening the banking structure, the second of five pillars, he mentioned the High Level Advisory Committee, chaired by Bimal Jalan. The committee submitted its recommendations in February 2014 to RBI on the licensing of new banks. RBI has started working on the framework for on-tap licensing as well as differentiated bank licences. The intent is to expand the variety and efficiency of players in the banking system while maintaining financial stability. The Reserve Bank will also be open to banking mergers, provided competition and stability are not compromised (Rajan 2014). Mergers and acquisitions (M&A) have been one of the measures of consolidation, restructuring and strengthening of banks. M&A in the banking sector seeks to enlarge the size of banks to tap economies of scale, or prevent bank failure. Motives of bank mergers and amalgamations vary from change of ownership to enhancing size for efficiency gains. Thus, M&A in Indian banking needs to be examined in the context of the changing banking scenario and global economic environment. This study examines RBI s policy of M&A of banks from the perspective of efficient banking structure. In Section 1, we discuss, in brief, theory of M&A. In Section 2, we describe the regulatory framework of M&A in India. Section 3 carries a review of literature, followed by a Section 4 on trends in M&A. In Section 5, we analyse M&A. The next section concludes with a short summary. Our grateful thanks to the referee for expert comments and suggestions for improvements in the paper. T R Bishnoi (trbishnoi@yahoo.com) is Reserve Bank of India Chair Professor, Faculty of Commerce, The MS University of Baroda, Vadodara. Sofia Devi (sofeedevi@gmail.com) teaches economics at The MS University of Baroda, Vadodara Theory of Mergers and Acquisitions There are several theoretical arguments to analyse M&A activities. According to Marris (1964), and Manne (1965), the takeover threat is a process to discipline managers who deviate from profit maximisation. Grossman and Hart (1981) argue that a takeover is a result of undervaluation of a company in the stock market. Linter (1971), Levy and Sarnat (1970), and Lewellen (1971) have looked at takeovers and mergers as ways to diversify the business risks of a firm by operating in different areas without going through the initial stages involved in starting a new company. Hay and Morris (1991: 686) have classified the motives behind mergers and takeovers by firms into the transactions and the type of markets. The transactions can be subdivided into four categories: agreed merger, contested takeovers,

2 divestment and management buyouts. Viewed from the perspective of markets, mergers can be classified into three categories: horizontal mergers, vertical mergers and conglomerate mergers. A horizontal merger is between two or more companies that compete in the same business and geographical market. A vertical merger is a combination of two or more firms involved in different stages of production or distribution of the same product, and can be either forward or backward merger. A conglomerate merger is a combination of firms engaged in unrelated lines of business activity. The type of M&A also dictates the acquisition logic, the framework for the evaluation of targets, the acquisition target profile and the post-acquisition integration. The objectives of the firms that opt for mergers may be attributed to: (i) change in management, (ii) change in control, (iii) substantial acquisition, (iv) consolidation of the firms, (v) merger or buyout of subsidiaries for size and efficiency, etc. The present study analyses the performance of banks that went in for mergers during and after the financial sector reforms. The main emphasis is to see whether M&As in bank sector have contributed to overall growth, and economies of scale and efficiency of the banks. 2 Regulatory Framework in India The Banking Regulation Act (BRA), 1949 provides the regulatory framework for M&A in India s banking sector. The act provides for two types of amalgamations: (i) voluntary, and (ii) compulsory. RBI has the discretionary power to approve the voluntary amalgamation of two banking companies under Section 44(A) of the BRA. Compulsory amalgamations are induced or forced by RBI under Section 45 of the BRA, in public interest or in the interest of the depositors of a distressed bank, or to secure proper management of a banking company, or in the interest of the banking system. In this regard, the amalgamation will become effective on the date indicated in the notification issued by the government. The act does not require obtaining RBI approval in case of voluntary mergers or acquisitions of financial businesses by banking institutions. Guidelines regarding the process of merger proposal, determination of swap ratios, disclosures, buying/selling norms of shares before and during the process of merger are laid down by RBI for voluntary mergers involving banking companies, as well as between non-banking and banking companies. Till 1960, amalgamations of banks took place on voluntary basis under Section 44A of the BRA as there was no other provision for the purpose. Though there was urgent need to strengthen the banking system by eliminating the small and weak banks, the result of voluntary bank amalgamation was very poor and discouraging. In view of this, RBI acquired statutory powers through an amendment in the BRA in 1960 for reconstruction or compulsory amalgamation of banks. Since then, amalgamations were on voluntary basis with RBI approval (Section 44A of BRA) wherever possible, and compulsion whenever necessary (Section 45 of BRA). Section 45 of the act lays down conditions under which a bank can be reconstructed or amalgamated compulsorily by RBI, in consultation with the central government. SPECIAL ARTICLE This section notes banks that are weak, unsound, or not properly managed can be merged with those that are on a sound footing. RBI s policy is to encourage amalgamation to protect the interest of depositors in particular and strengthen the banking structure in the area in general. RBI also encourages banking integration through the transfer of assets and liabilities of small and unsound, weak and small units into fewer and strong banking units. Section 36AE of the BRA gives central government power it requires a consent report from RBI to acquire any banking unit in the interest of the depositors, in the interest of banking policy, or for the better provision of credit to any particular section of the community (nationalisation of banks). Thus, 14 big banks were nationalised in 1969 to strengthen public sector undertaking (PSU) dominance. It is assumed that all these processes contribute towards an efficient and optimal banking structure. Thus, the restructuring and consolidation through strategy of M&A is a continuous process to improve the working of Indian banking and steer it towards optimal structure in terms of size distribution, ownership and organisational diversity. 3 Literature Survey Various studies on the effect of bank mergers on performance have been conducted in many countries. Cost benefit analyses showed bank M&A produced mixed results. Different tools and banking parameters were used by analysts for measuring bank performance. Some studies found that mergers can potentially lower costs and increase profit efficiency (Shaffer 1993; Akhavein et al 1997), while others concluded that mergers have not resulted in any significant improvement in efficiency (Berger and Humphrey 1994; Rhoades 1993). A study by Rhoades (1993) found that horizontal (in-market) mergers during did not improve total cost efficiency. In an earlier study, Alhadeff and Alhadeff (1955) examined bank mergers of 208 United States (US)-based banks between January 1953 and mid They analysed the causes of the mergers and attempted to determine their significance for the ongoing merger movement. Bank-by-bank basis data shows that management issues and matters pertaining to cost and profit ratios, branch banking, growth rates, legislation, antitrust laws, and market structures were behind the mergers. The study shows that large- and middle-size banks acquired considerably small banks during the period. Rhoades and Yeats (1974) analysed a stratified random sample of 600 US commercial banks over Theirs was an attempt to update the findings of Alhadeff and Alhadeff (1955). They wanted to see if Alhadeff and Alhadeff s major conclusion still holds, and also to determine the impact of mergers on growth. The findings supported the hypothesis that large banks grow less than the system as a whole. The regressions fitted for bank consolidation yielded unambiguous results and concluded that deconsolidation occurred in the banking industry over Peristiani (1997) investigated the effect of bank mergers on the efficiency and financial performance of merger survivors. This study utilised translog flexible functional form to estimate the cost structure of banks and derive measures of Economic & Political Weekly EPW SEPTEMBER 12, 2015 vol L no 37 51

3 efficiency. Empirical findings indicated that X-efficiency was fairly constant across all other sizes, except for large banks. In contrast, scale efficiency was more variable across the different size groups. Therefore, it appeared that during the 1980s, mergers were not beneficial to banks in terms of X-efficiency. Focarelli et al (2002) analysed all the M&A as separate events among Italian banks during Profitability for mergers increased because of the efficient use of capital, although the increase in income from services is offset by the higher staff costs. For acquisitions, the increase in profitability for the acquired banks was linked to the improvement in the quality of their loan portfolio. Their findings are consistent with the hypothesis that expanding revenues from financial services is a strategic objective for the mergers. Kalhöfer and Badreldin (2010) analysed the performance of Egyptian banks that had undergone M&A during The study concluded that M&A did not show a clear effect on the profitability of banks in the Egyptian banking sector. However, there were minor positive effects on the credit risk position. So studies have reached varied conclusions. While some are of the view that mergers add value to the performance of the banks and firms, others show that mergers retard growth, reduce profitability, and affect the credit risk position of the merger banks. The current study is an attempt to analyse the mergers of banks in India from the early 1990s, when the financial sector reforms began, till There are very few studies on bank mergers in India. Further, the study covers all the public sector banks that went in for mergers since 1991, and each merger case has been studied. 4 Trends in India From 1960 to June 1982, 20 voluntary amalgamations, 49 compulsory mergers, 18 mergers with State Bank of India (SBI) and its associates, and 130 transfers of assets and liabilities were completed. Prior to 1969, the Indian banking system was very weak and dominated by small unviable banks owned by business houses. So, in 1960, RBI was empowered to bring compulsory mergers and 52 integrations. In the post-1960 period, there were large numbers of compulsory mergers (particularly 30 in 1961) and integrations (transfer of assets/liabilities; 62 in 1964). The elimination of weak banks helped boost economic efficiency and financial integrity, leading to an improved banking structure. It is to be noted that RBI policy is quite objective in that it allows the development of small and large banks simultaneously, as small and large banks are equally efficient. The M&A activities in Indian banking are directed towards consolidating the system to attain optimal structure for the banking units: rationalise, decentralise, reallocate and reorganise. Table 1 shows the list of banks merged after the bank nationalisation in 1969, till the financial sector reforms in the early 1990s. Twelve cases of mergers were found during the period. From Table 1, it can be observed that consolidation of banks was carried out by RBI before the reforms period to amalgamate unviable units. All the merging banks are public sector banks. The main motive is to strengthen the banking sector through compulsory amalgamation in order to weed out unviable banks by liquidation, or by the taking of assets of the non-functioning banks by other banks. Table 1: Banks Amalgamated since Nationalisation of Banks in India, Sr No Date of Merger Merging Bank Merged With Motive of Merger Type of Merger 1 08/11/1969 Bank of Bihar State Bank of India Restructuring of Weak Bank Compulsory 2 20/02/1970 National Bank of Lahore State Bank of India Restructuring of Weak Bank Compulsory 3 29/07/1985 Miraj State Bank Union Bank of India Restructuring of Weak Bank Compulsory 4 24/08/1985 Lakshmi Commercial Bank Canara Bank Restructuring of Weak Bank Compulsory 5 26/08/1985 Bank of Cochin State Bank of India Restructuring of Weak Bank Compulsory 6 19/12/1986 Hindustan Commercial Bank Punjab National Bank Restructuring of Weak Bank Compulsory 7 13/05/1988 Traders Bank Bank of Baroda Restructuring of Weak Bank Compulsory 8 31/10/1989 United Industrial Bank Allahabad Bank Restructuring of Weak Bank Compulsory 9 20/02/1990 Bank of Tamilnadu Indian Overseas Bank Restructuring of Weak Bank Compulsory 10 20/02/1990 Bank of Thanjavur Indian Bank Restructuring of Weak Bank Compulsory 11 20/02/1990 Parur Central Bank Bank of India Restructuring of Weak Bank Compulsory 12 29/08/1990 Purbanchal Bank Central Bank of India Restructuring of Weak Bank Compulsory Source: Report on Trend and Progress of Banking in India, Reserve Bank of India, various issues. Table 2: Mergers, Amalgamations in Indian Commercial Banks from 1991 to 2010 Sr No Date of Merger Merging Bank Merged With Motive of Merger Type of Merger 1 04/09/1993 New Bank of India Punjab National Bank Restructuring of Weak Bank Compulsory 2 01/01/1996 Kashi Nath Seth Bank State Bank of India Restructuring of Weak Bank Compulsory 3 08/04/1997 Bari Doab Bank Oriental Bank of Commerce Restructuring of Weak Bank Compulsory 4 08/04/1997 Punjab Co-operative Bank Oriental Bank of Commerce Restructuring of Weak Bank Compulsory 5 03/06/1999 Bareilly Corporation Bank Bank of Baroda For Economies of Scale & Scope Voluntary 6 22/12/1999 Sikkim Bank Union Bank of India Restructuring of Weak Bank Compulsory 7 26/02/2000 Times Bank HDFC Bank For Economies of Scale & Scope Voluntary 8 10/03/2001 Bank of Madura ICICI Bank For Economies of Scale & Scope Voluntary 9 30/03/2002 ICICI ICICI Bank Universal Banking Voluntary 10 20/06/2002 Benares State Bank Bank of Baroda Restructuring of Weak Bank Compulsory 11 01/02/2003 Nedungadi Bank Punjab National Bank Restructuring of Weak Bank Compulsory 12 25/06/2004 South Gujarat Local Area Bank Bank of Baroda Restructuring of Weak Bank Compulsory 13 14/08/2004 Global Trust Bank Oriental Bank of Commerce Restructuring of Weak Bank Compulsory 14 02/04/2005 IDBI IDBI Bank For Economies of Scale & Scope Voluntary 15 01/10/2005 Bank of Punjab Centurion Bank For Economies of Scale & Scope Voluntary 16 02/09/2006 Ganesh Bank of Kurundwad Federal Bank Restructuring of Weak Bank Compulsory 17 03/10/2006 United Western Bank IDBI Bank Restructuring of Weak Bank Compulsory 18 31/03/2007 Bharat Overseas Bank Indian Overseas Bank For Economies of Scale & Scope Voluntary 19 19/04/2007 Sangli Bank ICICI Bank For Economies of Scale & Scope Voluntary 20 29/08/2007 Lord Krishna Bank Centurion Bank of Punjab For Economies of Scale & Scope Voluntary 21 23/05/2008 Centurion Bank of Punjab HDFC Bank For Economies of Scale & Scope Voluntary 22 12/08/2010 The Bank of Rajasthan ICICI Bank For Economies of Scale & Scope Voluntary Source: Report on Trend and Progress of Banking in India, Reserve Bank of India, various issues.

4 Table 2 (p 52) shows the list of banks that went in for mergers during Twenty-two banks underwent mergers, of which the number of compulsory mergers was 11 and the remaining 11 mergers were voluntary. A special case of a voluntary merger is that of ICICI Bank, where the motive was reverse merger, a case of universal banking. In other words, since the financial reforms, banks in India used M&A as a long-term strategy in their restructuring processes. Hypotheses The main objective is to examine whether the performance of banks has increased after mergers. Accordingly, the following hypotheses are formulated for the current study: H 0 : There is no significant change in the performance of banks after mergers. H 1 : There are significant changes in the performance of banks after mergers. Methodology The performance of the banks is analysed in terms of financial ratios such as profitability ratios, solvency ratios, efficiency and earning capacity of banks, and growth rate of total assets. These factors as well as the specific measures used to represent them are defined in Table 3. These indicators are used to identify whether mergers have any improvement or bearing on the performance of the banks. Table 3: Definitions of Performance Ratios Used in Analysis of Merged Banks Ratio Definition Profitability indicators Measure overall performance (i) Return on assets (ROA) Ratio of profit after tax to total assets (ii) Return on equity (ROE) Ratio of net profit to average shareholders equity Solvency indicator Measure the bank s ability to meet its obligations relative to its exposure to risk (i) Capital adequacy Ratio of tier I & tier II capital to capital ratio (CAR) weighted assets Efficiency indicators Measure the bank s ability to generate income, pay expenses and measure the productivity of employees (i) Spread Net interest income as a percentage of total assets (ii) Operating cost/total Total operating expenses as a percentage assets (OC/TA) of total assets (iii) Profit per employee Ratio of net profit to the number of employees Growth indicator Measure the bank s changes in assets (i) Asset growth rate Change in book value of total asset as a percentage of book value of total assets in the previous year 5 Analytical Framework A comparison of the post-merger and pre-merger performance allows measuring of the impact of the mergers. The financial data for each bank are collected for six years, three years before the merger and three years after the merger. The financial data for the year in which the merger occurred is omitted under the study. Only seven public sector banks and two new private sector banks have been identified for this study. The public sector banks are Bank of Baroda, IDBI Bank, Indian Overseas Bank, Oriental Bank of Commerce, Punjab National Bank, SBI and Union Bank of India. ICICI Bank and HDFC Bank are the two private sector banks. The analysis is carried out based on the frequency of occurrence of mergers over the period under study. Merger analysis of three banks was carried out for a SPECIAL ARTICLE single merger case study. These banks are Indian Overseas Bank, SBI and Union Bank of India. HDFC Bank, IDBI Bank, Oriental Bank of Commerce and Punjab National Bank were studied for two merger cases. Bank of Baroda was studied for three mergers, and ICICI Bank for four mergers. Detailed information of each bank s M&A is provided in Table 2. The financial indicators used are profitability, solvency, and efficiency. The average values of the selected financial parameters for the periods T-3, T-2, and T-1 are compared with its average values at T+1, T+2 and T+3 for each bank. In the next step, a paired Student s t-test is performed to check the statistical significance of the two means of pre- and postmerger periods. The formula of the paired sample t-test is given by: N i=1 (x o x 1 ) N...(1) t = σ N where, X 0 = pre-merger performance of the bank(s) X 1 = post-merger performance of the bank(s) N= number of parameters used in the sample σ = the standard deviation (SD) of the distribution of the change in performance of the merging banks. By using Formula (1), pre-merger and post-merger performance of the individual merging bank is measured for each of the performance indicators. Performance of Banks The results of the descriptive t-test for all the merging banks are shown individually in the Appendix (Tables A1 to A9, p 56 58). The tables are sequenced in alphabetical order rather than in chronological order of the year of merger. Bank of Baroda Table A1 reports the results of the paired t-test during pre- and post-merger period for the Bank of Baroda. There are three cases of mergers pertaining to Bank of Baroda. Of these three cases, two are compulsory mergers and one voluntary. The sole case of voluntary merger pertaining to the Bank of Baroda is that of Bareilly Corporation Bank Ltd merging with it The result of the paired t-test for each merger case is depicted in Table A1. The results of the paired sample t-test in the first case indicated that only one performance indicator, namely, Spread is found to be significant at the 5% level. All other performance indicators do not produce significant t-values. The second merger case is that of a compulsory merger pertaining to the Bank of Baroda and Benares State Bank merging with it in Results of the paired t-test show that only three performance indicators, namely, return on assets (ROA), return on equity (ROE), and profit per employee are statistically significant at the 5% level. No significance is found in the other performance indicators. The third case of merger with Bank of Baroda occurred in 2004, when South Gujarat Local Area Bank was compulsorily merged with it. The t-test result revealed that none of the performance indicators, except the ROE, was found statistically Economic & Political Weekly EPW SEPTEMBER 12, 2015 vol L no 37 53

5 significant, even though the mean values are somewhat improved in the post-merger period for certain indicators. In short, in all of the three cases some of the performance indicators are statistically significant, whereas others do not show statistical significance. Ratios like ROA, ROE, Spread and profit per employee are the indicators that show statistical significance, while capital adequacy ratio (CAR), operating cost/total assets (OC/TA), and asset growth show no significance in any of the cases. HDFC Bank Two cases of mergers are analysed for HDFC. Both are voluntary mergers. The first case is that of Times Bank merging with it in Table A2 shows the results of the paired t-test for both the merger cases. In the first case, the result of the paired sample t-test shows that none of the indicators are statistically significant. The second case is that of Centurion Bank of Punjab merging with it in Even though most of the indicators show improvement in the post-merger period, none of them was found to be statistically significant. To sum up, in both the merger cases some improvement is observed in the mean values of some performance indicators. But none of them are statistically significant. ICICI Bank The four merger cases pertaining to ICICI Bank were voluntary mergers (Table A3). The first case was that of Bank of Madura in The paired sample t-test shows that none of the indicators is statistically significant. The second case was in 2002 when ICICI merged with ICICI Bank. Since this merger took place within a year, no radical changes were found in the comparison of mean values for the two periods. The sample paired t-test shows that the performance indicators ROA and ROE are statistically significant at the 5% level. No significance was found in any of the other indicators. The third case was in 2007 when Sangli Bank merged with ICICI Bank. Contradictory results were found in this case as against the results of earlier merger. None of the indicators, except CAR and Spread, was found statistically significant at the 5% level. The fourth case was the merger of Bank of Rajasthan with ICICI Bank in Since data is limited to 2012, analysis was carried out only for two years in each period. Except the ROA, none of the performance indicators were found statistically significant. In all the four merger cases, the results are different. IDBI Bank Two cases of mergers were studied for IDBI Bank, one in 2005 and another in 2006 (Table A4). The merger in 2005 was a voluntary merger of IDBI with the bank. The merger in 2006 was a compulsory merger of United Western Bank with IDBI. Results of the paired t-test show that only ROA is statistically significant. No significance is found in the rest of the performance indicators. Similar results are observed in the second merger. The mean values of all the performance indicators, except CAR, 54 are poor in the post-merger period. And, regarding the t-test result, none of the indicators are significant. To sum up, in both the merger cases, the performance of the bank is poor even though OC/TA ratio and profit per employee improved for the bank in the voluntary merger. Indian Overseas Bank The sole voluntary merger with Oriental Bank of Commerce occurred when Bharat Overseas Bank merged with it (Table A5). Even though it was a voluntary merger, most performance indicators show the merger had poor results. The sample paired t-test indicated that, except Spread, none of the performance indicators were statistically significant. Oriental Bank of Commerce Two merger cases were analysed for Oriental Bank of Commerce; both are compulsory mergers (Table A6). Results of the sample paired t-test for all the performance indicators in the first case reported that only two performance indicator variables, namely, Spread and OC/TA were significant at the 5% level. No statistical significance is found in the remaining five performance measuring variables. For the second merger case, the performance of the indicators gives similar results as the first merger case. The paired t-test result indicated that none of the indicators is statistically significant. Punjab National Bank Two merger cases were studied for Punjab National Bank. Both the cases are compulsory mergers (Table A7). No statistical significance is found in any of the indicators in the first case. The performance of the bank in the second merger case is somewhat different. In the second merger case, two parameters, namely, OC/TA and profit per employee are found to be significant at the 5% level. And, the rest of the parameters did not have any significant t-values. State Bank of India One merger case was analysed for the SBI. In 1996 Kashi Nath Seth Bank was compulsorily merged with SBI (Table A8). The paired sample t-test for all the performance parameters was found not significant in either of the parameters used for the performance analysis. Union Bank of India One merger case was analysed for Union Bank of India, the compulsory merger of Sikkim Bank (Table A9) with it in None of the parameters was found significant for any of the performance indicator variables. Reasons for Statistically Insignificant Ratios Profitability Ratios: From the individual table for each merged bank, it can be observed that the profitability measures, ROA and ROE, did improve after some of the

6 mergers. However, mean values of these ratios did not improve for all banks. The squeeze on profitability has been driven from the expenditure side, like the increase in interest costs of deposits, growing functional diversification of banks, rapid growth in the wages and salary of staff, and accelerated promotions, etc. An increase in profitability ratios of some banks is substantial enough to offset the fall in ROA and ROE of other banks. Solvency Ratio: All the merged banks fulfilled the regulatory CAR requirement of the 9% level. This signified that the merged banks successfully managed to meet the increased requirement under the new regulatory framework. In other words, banks could absorb the unexpected losses easily and manage their reduced cost of funding, which ultimately improved their profitability. However, the average CAR for some banks declined in the post-merger period and these banks needed recapitalisation with fresh funds in order to cope with the new environment of mergers. The insignificant coefficients of the profitability parameters and solvency ratios had an impact on the growth performance in terms of the asset growth rates of the firms. For example, the growth rate of the total assets declined after mergers for one of the merging banks (Punjab National Bank). Other Ratios: Non-performing assets (NPA) have been the major track in varying importance for each bank s performance. Besides, slow adoption of technology across banking functions and branches has delayed the approval of bigger benefits. Business restructuring and manpower restructuring imposed the additional cost in some of the banks covered here. 6 Summary and Conclusions Table 4 provides bank-wise statistically significant ratio of each performance indicator, pre- and post-merger from 1991 to In all the nine merging banks, with a total of 18 cases of mergers, each of the indicators shows different statistical significance in different merger cases. Table 4 shows the summary statistics of statistically significant ratios for the merging banks. The first indicator, ROA, is found statistically significant in one merger with the Bank of Baroda and two mergers with ICICI Bank. The second indicator, ROE, was found to be statistically significant in two cases pertaining to Bank of Baroda and one case pertaining to ICICI Bank. Among the CAR, profit per employee and asset growth indicators, statistical significance was recorded for three cases: ICICI Bank, Bank of Baroda and Punjab National Bank. In case of the indicator Spread, statistical significance ratios were observed for Bank of Baroda, ICICI Bank, Indian Overseas Bank and Oriental Bank of Commerce. Only two banks, Oriental Bank of Commerce and Punjab National Bank, show statistical significance with respect to OC/TA ratio. As is evident from Table 4, each indicator has different statistical significance for each of the merging banks. Spread shows the maximum number of statistical significance covering four out of the nine merging banks. Other indicators have a limited significance. The other statistically significant indicators are ROA and ROE, in case of Bank of Baroda and ICICI Bank, respectively. Although M&A may be theoretically important, but impact on profitability, capital, and growth rate is not significant. Generally the strategies focus on long-term gains, and not short-term objectives. Hence, the null hypothesis (H 0 ) that there is no significant improvement after mergers is accepted in majority of the merger cases, with few exceptions as reported in Table 4. Further when results are classified for compulsory merger cases and voluntary merger cases separately, there is no difference as more or less equal number of significant ratios are seen for both categories. This indicates that in the Indian banking sector merging banks seem to be of very small size relative to the size of the bank merged with so as to make the impact insignificant, irrespective of the type of merger, compulsory or voluntary. Even when we look at performance of a bank in the control period (normal years without M&A transactions), results of this study remain unchanged. 1 In conclusion the strategy of M&A to consolidate the banks citing efficiency as the reason is doubtful. Future banking policy must take note of this empirical reality and the longdrawn experience of the years since the financial reforms. Table 4: Summary of Descriptive Statistics Statistically Significant Ratios Only Acquiring Bank ROA ROE CAR Spread OC/TA Profit Per Employee Asset Growth Compulsory Merger Cases BOB (case2) significant significant X X X significant X BOB (case3) X significant X X X X X OBC (case1) X X X significant significant X X PNB (case2) X X X X significant significant X Voluntary Merger Cases BOB (case1) X X X significant X X X ICICI (case2) significant significant X X X X X ICICI (case3) X X significant significant X X X ICICI (case4) significant X X X X X X IDBI (case1) Significant X X X X X X IOB X X X significant X X X Source: Appendix, Tables A1 to A9. Economic & Political Weekly EPW SEPTEMBER 12, 2015 vol L no 37 55

7 note 1 Estimates of the control period are available with the authors. REFERENCES Akhavein, J D, Allen N Berger and David B Humphrey (1997): The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function, Finance and Economics Discussion Series, Paper No , Federal Reserve Board, Washington DC. Alhadeff, C P and D A Alhadeff (1955): Recent Bank Mergers, The Quarterly Journal of Economics, Vol 69, No 4, pp Berger, Allen N and David Humphrey (1994): Bank Scale Economies, Mergers, Concentration, and Efficiency: The US Experience, Working Paper No 94 25, Wharton Financial Institutions Center, Philadelphia. Focarelli, D, F Panetta and C Salleo (2002): Why Do Banks Merge?, Journal of Money, Credit and Banking, Vol 34, No 4, pp Grossman, S J and O D Hart (1981): The Allocational Role of Takeover Bids in Situations of Asymmetric Information, The Journal of Finance, Vol 36, No 2, pp Hay, D A and D J Morris (1991): Industrial Economics and Organization: Theory and Evidence, Oxford: Oxford University Press. Kalhöfer, C and A Badreldin (2010): The Effect of Mergers and Acquisitions on Bank Performance in Egypt, Journal of Economic Policy and Research, Vol 6, No 1, pp Levy, H and M Sarnat (1970): International Diversification of Investment Portfolios, American Economic Review, Vol 60, No 4, Lewellen, W (1971): A Pure Financial Rationale for the Conglomerate Merger, Journal of Finance, Vol 26, No 2, pp Linter, J (1971): Expectations, Mergers and Equilibrium in Purely Competitive Securities Markets, American Economic Review, Vol 61, No 2, pp Manne, H G (1965): Mergers and the Market for Corporate Control, Journal of Political Economy, Vol 73, No 2, pp Marris, R (1964): The Economic Theory of Managerial Capitalism, London: Macmillan. Peristiani, S (1997): Do Mergers Improve the X-efficiency of US Banks? Evidence from the 1980s, Journal of Money, Credit and Banking, Vol 29, No 3, pp Rajan, Raghuram (2014): First Bi-monthly Monetary Policy Statement, , press release, 1 April, Reserve Bank of India, BS_PressReleaseDisplay.aspx?prid= Rhoades, S A and A J Yeats (1974): Growth, Consolidation and Mergers in Banking, The Journal of Finance, Vol 29, No 5, pp Rhoades, Stephen A (1993): Efficiency Effects of Horizontal (in-market) Bank Mergers, Journal of Banking and Finance, Vol 17, Nos 2 3, pp Shaffer, S (1993): A Test of Competition in Canadian Banking, Journal of Money, Credit and Banking, Vol 25, No 1, pp Table A1: Descriptive Statistics of Paired t-test for Bank of Baroda Merger Case 1: Bareilly Corporation Bank with Bank of Baroda in 1999 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger * Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 2: Benares State Bank with Bank of Baroda in 2002 ROA Pre-merger * Significant Post-merger ROE Pre-merger * Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger * Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 3: South Gujarat Local Area Bank with Bank of Baroda in 2004 ROA Pre-merger Not Significant Post-merger ROE Pre-merger * Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Table A2: Descriptive Statistics of Paired t-test for HDFC Bank Merger Case 1: Times Bank with HDFC Bank in 2000 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 2: Centurion Bank of Punjab with HDFC Bank in 2008 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger

8 Table A3: Descriptive Statistics of Paired t-test for ICICI Bank Merger Case 1: Bank of Madura with ICICI Bank in 2001 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 2: ICICI with ICICI Bank in 2002 ROA Pre-merger * Significant Post-merger ROE Pre-merger * Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 3: Sangli Bank with ICICI Bank in 2007 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger * Significant Post-merger Spread Pre-merger * Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 4: Bank of Rajasthan with ICICI Bank in 2010 ROA Pre-merger * Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger of assets Post-merger 9.76 No calculation for growth of total assets since data is not available for , only mean is worked out. Table A4: Descriptive Statistics of Paired t-test for IDBI Bank Merger Case 1: IDBI with IDBI Bank in 2005 ROA Pre-merger * Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 2: United Western Bank with IDBI Bank in 2006 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Table A5: Descriptive Statistics of Paired t-test for Indian Overseas Bank Merger Case 1: Bharat Overseas Bank with Indian Overseas Bank in 2007 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger * Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Economic & Political Weekly EPW SEPTEMBER 12, 2015 vol L no 37 57

9 Table A6: Descriptive Statistics of Paired t-test for Oriental Bank of Commerce Merger Case 1: Punjab Co-operative Bank with Oriental Bank of Commerce in 1997 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger * Significant Post-merger OC/TA Pre-merger * Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 2: Global Trust Bank with Oriental Bank of Commerce in 2004 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Table A8: Descriptive Statistics of Paired t-test for State Bank of India Merger Case 1: Kashi Nath Seth Bank with State Bank of India in 1996 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Table A7: Descriptive Statistics of Paired t-test for Punjab National Bank Merger Case 1: New Bank of India with Punjab National Bank in 1993 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger 0.06 employee Post-merger 0.12 Growth rate Pre-merger Not Significant of assets Post-merger Merger Case 2: Nedungadi Bank with Punjab National Bank in 2003 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger * Significant Post-merger Profit per Pre-merger * Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Table A9: Descriptive Statistics of Paired t-test for Union Bank of India Merger Case 1: Sikkim Bank with Union Bank of India in 1999 ROA Pre-merger Not Significant Post-merger ROE Pre-merger Not Significant Post-merger CAR Pre-merger Not Significant Post-merger Spread Pre-merger Not Significant Post-merger OC/TA Pre-merger Not Significant Post-merger Profit per Pre-merger Not Significant employee Post-merger Growth rate Pre-merger Not Significant of assets Post-merger Review of Women s Studies April 25, 2015 Culture, Feminism, Globalisation Navigating a Field of Opposition: A Rereading of Debates on Caste and Gender In the Eye of International Feminism: Cold Sex Wars in Taiwan Risking Feminism?: Voices from the Classroom From the Streets to the Web: Looking at Feminist Activism on Social Media On Fire in Weibo: Feminist Online Activism in China The Selfie and the Slut: Bodies, Technology and Public Shame For copies write to: Circulation Manager, Economic and Political Weekly, , A to Z Industrial Estate, Ganpatrao Kadam Marg, Lower Parel, Mumbai circulation@epw.in Tejaswini Niranjana Nitya Vasudevan Naifei Ding Shilpa Phadke Sujatha Subramanian Holly Lixian Hou Nishant Shah 58