Tanu Final Report

Final Year Dissertation on
Mergers & Acquisitions in Indian Banking Sector

and their impact on Financial Performance &
Shareholder’s Wealth of Acquiring Banks
Submitted By:
Tanu Bains
2K15/MBA/56
Under the Guidance of:
Prof. G.C. Maheshwari

Professor
DELHI SCHOOL OF MANAGEMENT

Delhi Technological University
Bawana Road, Delhi 110042
2017
I
CERTIFICATE FROM INSTITUTE
This is to certify that Final Year Dissertation on “Mergers & Acquisitions in Indian
Banking Sector and their impact on Financial Performance & Shareholder’s wealth of
acquiring banks” is a bona fide work carried out by Ms. Tanu Bains of MBA 2015-17
Batch and submitted to Delhi School of Management, Delhi Technological University in
partial fulfillment of the requirement for the award of degree of Masters of Business
Administration.
Signature of Guide Signature of Head (DSM)
Place: Seal of Head
Date:
II
DECLARATION
I, Tanu Bains, student of MBA 2015-17 of Delhi School of Management, Delhi

Technological University, hereby declare that Final Year Dissertation on “Mergers &
Acquisitions in Indian Banking Sector and their impact on Financial Performance &
Shareholder’s value of acquiring banks” submitted in partial fulfilment of Degree of
Masters of Business Administration is the original work conducted by me.
The information and data given in the report is authentic to the best of my knowledge.
This report is not being submitted to any other University for award of any Degree, Diploma
and Fellowship.
Tanu Bains
Place:
Date:
III
ACKNOWLEDGEMENT
To undertake such an interesting project and to accomplish the same, one needs quite a lot of
guidance and support. The time that I spent during the research, was a wonderful experience
in itself and it is a great pleasure and honor for me to take this opportunity to thank all those
who have helped me in completing this project.
I would like to express my deep sense of gratitude to my Project Mentor Prof. G.C.
Maheshwari whose support and guidance helped me in converting my conception into
visualization and also for his continuous guidance throughout the project. I am very much
thankful to Dr. Rajan Yadav, Professor and HOD, Delhi School of Management, Delhi
Technological University who has been a profound source of inspiration.
Last, but not least, I will be failing if I do not thank all those who helped me either directly
or indirectly in the successful completion of my research work. While I am greatly indebted
to all those mentioned above, I submit my sole responsibility for any limitation in this work.
IV
ABSTRACT
This dissertation is a study on the objectives of mergers and acquisitions in India, as to why
organizations & firms get into this inorganic mode of expansion. However the focus has been
asserted on studying the financial performance and Shareholder‟s value of the acquiring
entities and comparing their performance before and after the merger. To conduct a uniform
research and arrive at an accurate conclusion, the research has been made restricted to only
Indian companies. Furthermore, in Indian context, Banking Sector is chosen for the study.
The report examines the impact of Mergers and Acquisitions on performance of banks in
India. The impact on performance of the acquiring banks involved has been analyzed on the
basis of two perspectives: i) Operating Performance of acquiring banks, ii) Profitability
position of the acquiring banks and iii) Parameters affecting Shareholder‟s Value. For this
purpose, 3 Indian Banking Sector M&A cases has been taken into consideration.
With this study, I have tried to test a hypothesis that whether Mergers & Acquisitions change
or improve Financial Performance and Shareholder‟s value of the acquiring banks or not. In
order to test the hypotheses and to fulfill the objectives of the study, secondary research
methods have been used.
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TABLE OF CONTENTS
Chapter Title Page no.
Chapter 1 Introduction Page 1-7
1.1 Problem of the study

1.2 Significance & Importance of the study
1.3 Research Methodology
1.4 Plan of the study
Chapter 2 M&A in Indian context Page 8-10
2.1 M&A Strategy

2.2 M&A in Indian Banking sector
2.3 Why Banking sector is chosen for the study?
Chapter 3 Literature Review Page 11-20
3.1 Types of Mergers

3.2 Motives behind mergers of banks
3.3 Target group of banks for M&A
3.4 Mergers & Acquisitions: Legal Framework
3.4.1 Companies Act, 2013
3.4.2 Income Tax Act, 1961
3.4.3 Competition Act, 2002
3.4.4 SEBI Guidelines
3.5 Major aspects of SEBI guidelines
3.6 Causes of merger failures
Chapter 4 Analysis, Discussions & Recommendations Page 21-52
4.1 Introduction to the case

4.2 Data Collection
4.3 Data analysis & findings
4.4 Conclusion & Recommendations
4.5 Limitations of the study
Appendix 1 Page 53
Appendix 2 Page 54-56
VI
CHAPTER 1
INTRODUCTION
In present scenario, the major objective of any firm is to earn maximum profits and create
shareholder‟s wealth. One can achieve growth with the introduction of changes in products
and services or by launching altogether new products and services. Internal growth can be
achieved by making new products come into existence & external growth can be achieved by
opting for strategies like mergers and acquisitions. As an external growth strategy, M&A has
achieved tremendous popularity in almost all sectors because of increase in the levels of
privatization, globalization and liberalization in many countries across the world. Mergers
and acquisitions have become one of the important mediums in expanding product portfolios,
entering new markets, and acquiring technology, gaining access to research and development
and gaining access to resources which can make a company able enough to compete on a
global scale. But there have been relevant examples where mergers and acquisitions are
solely used to build company‟s repo i.e. for non-value maximizing purposes.
1.1 Problem of the study
Consolidation has gained a grip around the world in the industries ranging from automobile,
banking, aviation, oil & gas to telecom and the most talked about consolidation strategy is
Mergers & Acquisitions. A lot of researchers have investigated, on the context of economics
and strategic management, the kind of benefits which can be derived out of mergers to the
acquiring and Target Company, the customers and the society at large. Shareholder‟s wealth
maximization is one of the most discussed & researched topics in mergers and acquisitions.
As soon as the news of a merger start making headlines, price of the shares immediately get
affected months before the actual merger deal. This can bring in positive as well as negative
impacts on the shareholder‟s wealth. However it is important to note that mergers and
acquisitions do not always create value for shareholders. Many mergers and acquisitions have
failed as well. Failure deteriorates the wealth of the shareholders when the integration process
for mergers and acquisitions does not work in an optimum flow. The major question arises
that whether the involvement of firms in merger and acquisition activity adds any value to its
shareholder‟s wealth or not. Although the world has witnessed that firms are heavily using
M&A as a strategy to become competitive, still some in-depth analysis is necessary to find
real impact on the value of the firm. It has implications for companies as well that whether
M&A is adding some value to its shareholders or not. The issue of the impact of M&A on the
value of the firm has been one of the prime concerns for researchers across the globe. Since
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the prime objective of a firm to maximize the benefit of the shareholders or the value of the
firm which gets reflected through the share price of the firm, it is logical to relate the merger
activity to the share price of the firm.
1.2 Significance & Importance of the study

M&As are irreplaceable vital tools for growing product portfolios, entering new markets,
gaining new advancements and building new era of associations with the power and assets to
achieve global competitiveness. Mergers and acquisitions have been emerging as an
important way through which organizations across the globe can achieve economies of scale,
remove inefficient management, or manage the economic shocks and India is no exception to
this. Undoubtedly, it is one of the very famous growth strategies followed by organizations
across the globe but apart from positive changes, there are certain negative impacts on the
performance of the acquiring companies as well which with the help of this study, I have
tried to highlight.
1.3 Research Methodology

Research methodology is a process which is used to collect information and data for the
purpose of making business decisions & hence reaching the set targets. It is a science of
understanding how research is to be carried out. Essentially, the procedure by which
researchers go about their work of describing, explaining and predicting phenomena comes
under research methodology. It can also be defined as the study of ways by which knowledge
and relevant information is gained. While working on the Research Methodology, it is
important to focus on the reasons/logics behind choosing a particular method in the context of
research study apart from listing down the research methods only. Further after this,
explaining why a particular method is being used is equally mandatory as it gives results
which are capable of being evaluated either by the researcher or others. The research must
answer the following questions:
 Why a particular research study has been undertaken?

 How the Research problem has been defined?
 Why a particular hypothesis has been formulated and how it has been chosen?
 Why a particular technique of data analysis is used? How the data is collected?
 How the collected data were interpreted?
 What was the conclusion? Finally what was the solution for the Research problem?
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Some of the general research methodologies used by the researchers round the globe are:
1. Descriptive Research
Survey or fact finding enquires of various kinds. It describes the actual prevailing state of
affairs, existing currently. Otherwise it is conjointly called ex-post facts, which means
existing position of facts or issues. Here the variable influencing the research has no control
over the other variables in the research. E.g. Frequency of shopping, customer preference etc.
2. Correlative Research
This research goes on to discover the existing relationship or interdependence between two or
more aspects or variable and is also known as comparative study. It investigates relationship
between variables. E.g.: Sum of humour and job satisfaction (related variable).
3. Exploratory Research
This kind of research is generally undertaken to find a new area or an unknown result. It is
based on the Inquiry Mode. It is of two types:
a. Quantitative Research: This research includes aspects which may be quantified or

expressed in terms of quantity & hence is also known as structured Research. The objectives,
design, sample and all the other factors influencing the research are to be pre determined
primarily by the researcher. The analysis drawback and the solution both are necessarily
expressed in terms of amount and so statistical and economic analysis is tailored during this
style of Research.
b. Qualitative Research: It is also known as unstructured research. This research deals with
the aspects related to quality. E.g.: Behaviour science. Apart from the mentioned ones, other
types of Research are, Conceptual Research, which is related to some abstract idea or theory.
It is used by philosophers or thinkers for developing new concepts & innovations. The other
type is Empirical research (based on experiments or experience). The result obtained by
adapting Empirical Research is considered to be most powerful.
Research Problem
While conducting a research, it is important to know about the problem area beforehand
because a problem which is well defined is half solved. Determining problem area helps in
penning down plans which can be used to conduct the research work in an appropriate &
relevant manner. The problem area which the research is supposed to test is related to that of
mergers and acquisitions. In this report, the objective is to investigate whether mergers and
3
acquisitions have an impact on the financial performance of the acquiring banks or not and
also does it create wealth for the shareholders or work against them. This problem is being
derived from the fact that there have been emerging mergers and acquisitions cases where the
wealth has been created only for the acquiring firms and only few examples talk about wealth
creation for the target firms. Similarly, mergers and acquisitions have sometimes benefitted
the shareholders of only the target company and vice versa.
Research Design
To the researcher, research design is a very first and the most useful step in the entire
research process. There are three types of research design which have been listed down
below:
1. Exploratory Research Design

2. Descriptive Research Design
3. Causal Research Design
Research Objective Appropriate Design
To extract the background information and story Exploratory Research Design

behind it, to have clarification on the problem area
and to establish detailed analysis.
To investigate and describe and measure Descriptive Research Design
phenomena at a particular point in time
To determine causality, to make if-then decisions Causal Research Design

and define experimental relationships
Table 1.1 How to match Research Objective and Research Design
For this study, Descriptive Research Design has been used. The main purpose of choosing
descriptive style of research design is so that the data collected is secondary in nature. Also it
is very concise and structured which makes analysis factual and simple. For this purpose, 3
cases of M&A in Indian Banking Sector have been chosen for analysis and to meet the
objectives of this study.
Sampling
The main decision which the researcher has to take while pursuing any research is whether to
go with census or sample research. For Census, each element which is part of the research
4
study is investigated whereas for Sample few elements which represent the entire research
area are investigated. Practically census is something which is not easy to conduct since it is
time consuming and suppose even if each and every element is investigated then also the time
might be lost which doesn‟t help to reach to the conclusion. Sample is where only certain
and not all elements are studied which form a representative of all the other elements. The
process of sampling involves identifying and selecting certain elements which would
represent the entire population under study. The major objective or purpose behind choosing
samples is to represent the similar characteristics of the entire population set. To save time
and efforts on the part of the researcher and yet help to generalize the findings for the entire
set in an appropriate manner is the real advantage of using sampling process.
1. Defining the Target Population:

The target population for any survey includes the whole set of units for which the survey data
is to be used to make inferences. Thus, the target population defines those units for which the
findings of the survey are meant to generalize. For this research on mergers and acquisitions,
the target population is all those banks which underwent M&A deal during the post-financial
sector reform period i.e. 1993-94.
2. Defining the Sampling Technique used:

There are two important generally used techniques of Sampling: Probability sampling
technique and Non Probability sampling technique.
 Probability Sampling Technique: Probability sampling relies on the idea that each
member of a population has an equal likelihood of getting selected. Simple Random
Sampling, Stratified Random Sampling, Systematic Sampling, Cluster Random
Sampling and Multi-stage Random Sampling are types of Probability Sampling. For
this dissertation, I am not using Probability Sampling technique since the amount of
banks mergers happened within the Indian context over the years is high. Secondly it
would be very time consuming to list down each and every merger & further
analyzing them will be a tricky task.
 Non-Probability Sampling Technique: Non-Probability sampling is a sampling

technique where the samples are gathered in a process that does not give all the
individuals in the population equal chances of getting selected. A major advantage
with non-probability sampling is that, compared to probability sampling, it‟s very cost
5
and time-efficient. Judgmental Sampling, Quota Sampling, Snowball Sampling are
types of Non-Probability Sampling. For this study, I have chosen one of the Non-
Probability Sampling techniques i.e. Judgmental Sampling where researcher selects
units to be sampled based on his/her knowledge and professional judgment.
3. Defining the Sample Size

Sample size determination is the process of choosing the number of observations to be
included in a statistical sample. The sample for this study is 3. I have chosen three different
cases of Banks Mergers in India after the financial reform period. So the total number of
banks, the performance of which would be analyzed with this report, becomes three. The
table given below depicts the name of the banks and some related information about the
merger.
S.No. Name of the Acquiring Bank Target Bank Date of Merger

1. HDFC Bank Centurion Bank of Punjab 23- 05-2008
2. ICICI Bank Bank of Rajasthan 18-05-2010
3. Kotak Mahindra Bank ING Vyasa Bank 01-04-2015
Table 1.2 Five Samples chosen for this Dissertation
Defining the Research Problem
Data Collection
Evaluation of Data
Recommendations
Reaching Conclusions
Figure 1.3 Research Methodology Steps
6
1.4 Plan of the study
Objectives of the Study
This study aims to fulfill the following objectives:
1. To analyze the pre and post-merger Financial Performance of the acquiring banks which
underwent M&A deal during the post-financial sector reform period.
2. To identify the changes in parameters affecting Shareholder‟s value after announcement of

Mergers/acquisitions decision and hence the impact on Shareholder‟s Value.
Hypotheses of the Study

To reach the objectives of the study mentioned above, the following hypotheses conditions
were formulated and tested:
Null Hypotheses H1: There is no difference in the financial performance of the acquiring
banks before and after merger.
Alternative Hypotheses H1: There is difference in the financial performance of the acquiring
Null Hypotheses H2: There is no difference in the Shareholder‟s Value of the acquiring banks
before and after merger.
Alternative Hypotheses H2: There is difference in the Shareholder‟s Value of the acquiring
7
CHAPTER 2
M&A IN INDIAN CONTEXT
2.1 M&A Strategy
2.1.1 Firm Diversification
In most cases, firms enter into mergers with firms which functions in the same connected line
of business than to enter into businesses in which the firm lacks experience. Companies
entering into mergers with diversified firms or firms which don‟t functions in same connected
line of business can explore many advantages which may not be available otherwise.
Diversification is a process of performing operations into different industries and to get
diversified in such a way which can helps in influencing value of the firm and enhancing
shareholder‟s value. Firms generally think of choosing diversification for two reasons:
Firstly, to diversify the risk across the various sectors in which it operates. Secondly, the
capital markets would welcome the multi functional activities which the firm is carrying out
through the diversification route which would result in growth and profitability of the firm.
However it is important to keep in mind that danger lies in mergers and acquisitions because
this way a firm has to conduct its own test of strength and weaknesses before trying its luck
in other industries and markets.
2.1.2 Cross-Border Mergers & Acquisitions

Internationalization is also one of the important strategies which firms are adopting now days.
As the name suggests, it means to carry out the operations in foreign countries but not by
actually going there. Generally, a parent company having got headquarters in one country but
feels like taking over or merging with some other big company which is based out in foreign
goes for cross border M&A strategy. Domestic mergers are however easier to execute since it
involves familiarization of both the companies, the laws, procedures and other such factors
but in case of international mergers various complexities exist. With an objective to save
time, which is generally required to set up operation at a foreign country, firms enter into
cross border mergers. A lot of time and money can be saved by building up its own
infrastructure and supply chain. Various studies have shown that cross border acquisitions
have resulted into positive impacts for the shareholders.
2.2 M&A in Indian Banking Sector

The banking industry is an important field where mergers and acquisitions generally do make
enormous financial gains. Banks are now constrained to rethink their business and devise new
8
strategies since it can lead to changes in the expectation of the corporate customers. It can be
said that the Indian banking sector is restricting itself from the strategy of M&A, mainly
driven by pervasive trends such as deregulation, disintermediation, technological progress,
innovation and severe competition. To increase focused cost advantage, consolidation of
operations in the form of M&A is one of the powerful methodologies broadly received by the
investors. Mergers in the context of banks generally take place to achieve following purposes:
1. Expansion or diversification
2. Advancement of technology
3. Loss incurring bank merges with healthy bank for revival
4. Healthy bank merges with another healthy bank to gain financially stronger and stable
position, to meet competitive pressures
5. Growth in profits
6. Increase in market share, etc.
S.No. Name of the Acquiring Bank Target Bank Date of Merger

(dd-mm-yyyy)
1. Punjab National Bank New Bank of India 04-09-1993
2. Bank of India Bank of Karad Ltd. 1993-1994
3. State Bank of India Kashinath Seth Bank 1995-1996
4. Bank of Baroda Bareilly Corp. Bank Ltd. 03-06-1999
5. HDFC Bank Ltd. Times Bank Ltd. 26-02-2000
6. ICICI Bank Bank of Mathura March 2001
7. Bank of Baroda Banaras State Bank Ltd 20-07-2002
8. Punjab National Bank Nedungadi Bank Ltd. 01-02-2003
9. Oriental Bank of Commerce Global Trust Bank Ltd. 24-07-2004
10. IDBI Ltd. United Western Bank Ltd. 02-04-2005
11. The Federal Bank Ltd. The Ganesh Bank of Kurd Ltd. 02-09-2006
12. ICICI Bank Sangli Bank Ltd. 19-04-2007
13. HDFC Bank Centurion Bank of Punjab 23-05-2008
14. ICICI Bank Bank of Rajasthan 13-08-2010
15. Kotak Mahindra Bank ING Vyasa Bank 01-04-2015
Figure 2.1: Schedule of M & A deals of Indian Banks- Post Reform Period
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Banks allocate resources and control internal processes by effectively managing their
employees, facilities, expenses, sources and uses of funds and work in the direction to
maximize the number of earning assets and hence the total income. M&A strategy is not new
to the Indian banking sector. In India, financial sector reforms have been undertaken during
1993-94, after which financial institutions especially banks underwent major transformational
change on a large scale. Banks show distinct fascination in amplifying their operations,
augmenting their system operations by assimilating ICT standards and strategies. Many
mergers have been witnessed by the Banking sector over the years and that has substantially
given a rise to competition in the market.
2.3 Why Banking sector is chosen for the study?

The banking industry is an important field where mergers and acquisitions generally do make
enormous financial gains. Banking system, in any country, serves as the baseline of any
economy and thus helping out citizens and entities. Apart from this, many famous M&A
cases have been occurred in the Indian history which I personally believed would be
interesting to research on.
10
CHAPTER 3
LITERATURE REVIEW
In this period of intense and turbulent change, developing fast technological advances and
ever expanding globalization, mixes additionally empower associations to pick up
adaptability, use capabilities, share assets, and create opportunities that generally would be
unfathomable. M&As are irreplaceable vital tools for growing product portfolios, entering
new markets, gaining new advancements and building new era of associations with the power
and assets to achieve global competitiveness. Mergers and acquisitions have been emerging
as an important way through which organizations across the globe can achieve economies of
scale, remove inefficient management, or manage the economic shocks and India is no
exception to this. Many use terms „mergers‟ and „acquisitions‟ interchangeably. But, there
exist clear differences which help in determining whether a strategy can be considered as a
merger or an acquisition. Firms coming together to merge to achieve common objectives by
sharing assets & resources are considered as firms being part of a Merger. Firms combine
with owners of individual firms becoming joint owners of the new formed entity. This
happens in mergers. An acquisition, on the other hand, takes place when a company is
interested in taking up the ownership rights, assets, legal subsidiaries etc. of the other
company. For this, purchase of company‟s assets or stocks is done.
Essentially, the aftereffect of deregulation and other monetary drivers of budgetary division
mix have made an exceptional influx of mergers and acquisitions (M&As) in the banking
industry. The weight of rivalry has pushed banks into scanning for approaches to enlarge
their topographical reach and range of products, with a perspective of accomplishing
economies of scale & scope and enhancing their productivity through rebuilding and
consolidation activities resulting in a flux of M&A activity. The effects of consolidation on
banks and the banking sector as a whole have been extensively researched by many.
3.1 Types of Mergers

Mergers are generally of three types: horizontal, conglomerate and vertical mergers. These
types differ from each other in terms of their effects on the corporate performance.
3.1.1 Horizontal Mergers

A horizontal merger represents a merger of firms engaged in the same line of business (i.e.)
producing the same goods or offering the same services. A horizontal merger can take any of
the following forms:
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a) Complementary merger: Under this form a merger between organizations that has
demonstrated expertise in various fields occur. Example: Bank ABC which is proficient in
money market operations mergers with Bank XYZ renowned for treasury operations.
b) Competitive merger: This is a merger between organizations that share common field of
expertise. This type of merger may even create apple monopolistic situation that field. For
example, when two manufacturing organizations that are market leaders in Forex businesses
merge into a single entity and hence eliminate all competition.
c) Geographical merger: In this, merger between organizations having presence in two
different regions takes place. Example: Manufacturing company XYZ having presence in
northern region merges with Manufacturing Company ABC that has strong presence in
southern region to increase the market share.
3.1.2 Vertical Mergers

A vertical merger is the meeting up of organizations at various stages or levels of a similar
product or service. It represents a merger of firm drawn in at various phases of production in
an industry manufacturing distinctive products yet having customer provider relationship
wherein the product of one organization is utilized as crude material by the other
organization. For e.g. a consumer durable manufacturer acquiring a consumer durable dealer
3.1.3 Conglomerate Mergers

Conglomerate mergers occur when two firms are not related to each other in terms of value
chain but still sign the merger deal on the belief that the merged entity will be able to have
the better know-how and expertise to allocate the resources & run the business as compared
to the independent firms. The principle intention behind the formation of a conglomerate is
risk diversification as the effective performers adjust the gravely performing subsidiaries of
the group. For e.g. a watch manufacturing company acquiring a cement manufacturer
company.
3.2 Motives behind Mergers of Banks

The principle rationale of a merger is that the value of the combined entity is expected to be
greater than the sum of the independent values of the merging entities. It is possible to
categorize the motivations into four dimensions.
 Cost benefits in the form of economic of scale, Organizational efficiency, Funding
costs & Risk diversification
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 Revenue benefits in the form of economic of scale, enhancing monopoly rents.
 Economic benefits such as mergers after crises or after the upswing of the business
cycle.
 Other motives such as private managerial benefits, defense against take-over etc.
In the context of Indian Banks, following can be some of the reasons for Mergers &
Acquisitions of Indian Banks.
1. Growth with External Efforts: The competition in the banking sector has increased due to
liberalization in the economy and hence a need for mega banks has arisen, which can
intensely compete for market share. The race to win more market share & presence makes the
powerful banks have been entering into the M&A market to look for banks which can be
considered as target banks for M&A deal. All this is done solely for the purpose of growing
fast because opting for the internal growth strategies is a time taking process.
2. Deregulation: With the advancement of passage obstructions, numerous private banks
appeared. This has made banks to look for weak banks or banks with good enough market
reach which are ready to enter in the M&A deals so as to tackle the severe global
competitiveness.
3. Technology: The older banks which cannot compete in the area of technological
superiority generally decide to go for mergers with technologically advanced new banks.
4. New Products/Services: With the help of their technology, new generation private sector
banks which have launched innovative products/services may attract many old generation
banks for merger because of their incapacity to face innovation related challenges.
5. Customer Base: Again, for capacity utilization, new generation private sector banks need
huge customer base which generally requires time and effort. This is the reason why banks
are looking for target banks with good customer base. Once there is a good customer base,
the acquiring banks can play their cards really well by cross selling i.e. selling other banking
products like car loans, Housing loans, consumer loans, etc. to the customers.
6. Merger of Weak Banks: The Banking sector in India according to which weak banks are
merging with healthy banks so that they can save the interest of their customers of the weak
banks. Narasimhan Committee–II discouraged this practice. Khan Group suggested that weak
Developmental Financial Institutions (DFIs) may be allowed to merge with the healthy
banks.
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3.3 Target Group of Banks for M&A
There are four categories of banks which are considered interested in M&A strategy in a big
way.
Group 1: For the First Group, there are banks which have survived on government's nurturing
with the thousands of crores of recapitalization bonds over the past decade. To become strong
and acquire widespread reach, these banks are now keen to take over other banks.
Group 2: In the Second Group, two types of banks are there. Strong public sector banks with
large domestic presence (like State Bank of India) which want to acquire a bank with an
overseas presence so as to make global presence come under one type. The other type of
banks wants to increase their domestic presence. For instance, Bank of Baroda presence in
western India has started with looking out for opportunities in the north, east and south.
Group 3: In the Third Group, are banks headed by CEOs who were denied opportunities to
head big banks and hence have taken the initiative to acquire other banks so as to prove their
leadership qualities.
Group 4: Weak and small banks which need to be taken over by larger to remain viable
comes under Fourth Group.
3.4 Mergers & Acquisitions: Legal Framework

Merger and Acquisition activities must conform to the existing legal regime, which provides
the legal framework to undertake M&A activities. In India, legal systems have been under
review and are being reformulated periodically in order to match with the emerging corporate
scenario in India. The legal procedures of the regulations of the various Acts to be adopted in
M&A activities are discussed below.
3.4.1 Companies Act, 2013

The first major regulation is the Companies Act. It gives the general framework for M&A.
Section 230 to 240 of Companies Act, 2013 talks about the provisions on Compromises,
Arrangements and Amalgamations, which covers compromise or arrangements, mergers and
amalgamations, Corporate Debt Restructuring, demergers, fast track mergers for small
companies, cross border mergers, takeovers, amalgamation of companies in public interest
etc.
Section 230-231: When a compromise or arrangement is proposed between a company and

its creditors or any class of them; or between a company and its members or any class of
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them, the Tribunal may, on the application of the company or of any creditor or member of
the company or in the case of a company which is being wound up, of the liquidator, order a
meeting of the creditors or class of creditors, or of the members or class of members, as the
case may be, to be called, held and conducted in such manner as the Tribunal directs.
Section 232: This section gives Tribunal the power to call meeting of creditors or members,
with respect to merger or amalgamation of companies, sanctioning of schemes, transfer of
property or liabilities. It takes into account demerging as well.
Section 233: This section deals with fast track mergers which is the amalgamation of small
companies. According to section 2(85), small company means a company, other than a public
company whose paid-up share capital does not exceed fifty lakh rupees or such higher
amount as may be prescribed which shall not be more than five crore rupees or whose
turnover as per its last profit and loss account does not exceed two crore rupees or such
higher amount as may be prescribed which shall not be more than twenty crore rupees.
Section 234: This section deals with cross border mergers which refers to the merger or
amalgamation with a foreign company. The term foreign company means any company or
body corporate incorporated outside India whether having a place of business in India or not.
Section 235: This section deals with acquisition of shares of dissenting shareholders. It
discusses the manner of acquisition of shares of shareholders dissenting from the scheme or
contract approved by the majority shareholders holding not less than nine tenth in value of
the shares, whose transfer is involved. It includes notice to dissenting shareholders,
application to dissenting shareholders, to tribunal, deposit of consideration received by the
transferor company in a separate bank account etc.
Section 236: This section discusses the manner of notification by the acquirer (majority) to
the company, offer to minority for burying their shares, deposit an amount equal to the value
of shares to be acquired, valuation of shares by registered valuer etc.
Section 237: This section deals with power of central government to provide for
amalgamation of companies in public interest, continuation of legal proceedings.
Section 238: This section deals with the registration of offer for schemes which involves
transfer of shares. For this, an appeal shall lie to the Tribunal against an order of the Registrar
refusing to register any circular under the sub-section (1). The director, who issues a circular
that has not been presented for registration shall be punishable with fine which shall not be
less than twenty-five thousand rupees but which may extend to five lakh rupees.
Section 239: This section includes the rules related to preservation of books and papers of
amalgamated companies. The books and papers of a company which has been amalgamated
15
with, or whose shares have been acquired by, another company shall not be disposed off
without the prior permission of the Central Government and before granting such permission,
Government may appoint a person to examine the books and papers or any of them for the
purpose of ascertaining whether they contain any evidence of the commission of an offence
in connection with the promotion or formation, or the management of the affairs, of the
transferor company or its amalgamation or the acquisition of its shares.
Section 240: This section deals with liability of officers in respect of offences committed
prior to merger, amalgamation etc.
3.4.2 Income Tax Act, 1961

Tax planning is one of the important components in M&A activities. Income tax and stamp
duty- the two taxations, can put an impact on the M&A activities. The important issues are
given below. One of the motives for mergers is the saving that comes under Section 72A of
Income Tax Act. It is interesting to know that for amalgamation of a weak company with a
healthy and profitable, one can take advantage of the carry forward losses. The mandatory
pre-requisites are:
 The amalgamating company should not be financing viably due to reasons of its
liabilities, losses and other relevant factors immediately before such amalgamation.
 Amalgamation is in public interest.
 Any other conditions of the central government to ensure that the benefit under this
section is restricted to amalgamations, which enable rehabilitation or revival of the
business of the amalgamating company.
The major section affecting M&A activities is Section 73A of Income Tax Act. Section 72A
of the Act has provisions related to carry-forward and set-off of accumulated losses and
unabsorbed depreciation allowances for amalgamation cases. Guidelines for approval of
amalgamation under Section 72A of Income Tax, 1961 have been issued. Other sections
which are important from the context of M&A are discussed below.
Section 47(iv) According to this section of Income Tax act, any transfer of a capital asset by
a subsidiary company to the holding company is not treated as transfer if the whole of the
share capital of the subsidiary company is held by the holding company or the holding
company is an Indian company.
Section 47A According to this, if at any time before the expiry of eight years from the date of
transfer by the assets to the subsidiary, such capital assets are converted or treated by the
16
subsidiary as stock in trade or the parent company ceases hold the whole of the share capital
of the subsidiary, the profits or gains arising from such transfer not taxed earlier will be
taxed. The gains are deemed to be income for the year previous to the one in which the
transfer took place.
Section 50 According to this, an excess arising from the sale of depreciable capital asset
gives rise to short-term capital gains. In case if parent company transfers the plant at an
advanced stage of completion and has not claimed any depreciation, this becomes a short-
term under Section 50.
Section 47(vi) states that transfer of capital assets by the amalgamating company to the
amalgamated company is allowed. The pre-requisite is that the amalgamated company should
be an Indian company.
3.4.3 Competition Act, 2002

The Act regulates the various forms of business combinations through Competition
Commission of India. The term 'combination' for the purposes of the Competition Act is
defined in section-5 of the Act, to include any acquisition of shares, voting rights, control or
assets or merger or amalgamation of enterprises, where the parties to the acquisition, merger
or amalgamation satisfy the prescribed monetary thresholds in relation to the size of the
acquired enterprise and the combined size of the acquiring and acquired enterprises with
regard to the assets and turnover of such enterprises.
Under this Act, no person or enterprise can enter into a combination, in the form of an
acquisition, merger or amalgamation, which leads to or can lead to an adverse effect on
competition in the relevant market. Such a combination must be considered void. Enterprises
planning to enter into a combination can give notice to the Commission, and this notification
is voluntary. All combinations do not call for scrutiny unless the resulting combination
exceeds the threshold limits in terms of assets or turnover as mentioned by the Competition
Commission of India. The Commission while regulating a combination shall consider the
following factors:-
• Actual and potential competition through imports;
• Level of entry barriers into the market;
• Extent of combination in the market;
• Degree of countervailing power in the market;
• Possibility of the combination to significantly increase prices or profits;
• Level of effective competition likely to sustain in a market;
17
• Availability of substitutes before and after the combination;
• Market share of the parties to the combination individually and as a combination;
• Possibility of the combination to remove the vigorous and effective competitor or
competition in the market;
• Nature and extent of vertical integration in the market;
• Nature and extent of innovation;
• Whether the benefits of the combinations outweigh the adverse impact of the combination.
3.4.4 SEBI Guidelines

The Securities and Exchange Board of India has issued detailed guidelines for regulating
acquisition of shares and takeovers of listed companies. The important guidelines are
discussed below:
Notification: The acquirer should pre-inform the target company and the concerned stock
exchanges as soon as its holding touches 5 percent of the voting capital of the target
company.
Trigger Point for Public Offer: No sooner the holding of the acquirer crosses 15 percent of
the voting capital of the target company. It is mandatory to make an offer to purchase a
minimum of 20 percent of the voting capital form the remaining shareholders through a
public announcement.
Offer Price: The offer price shall not be less than the highest of the following: negotiated
price, average of the weekly high and low for the last 26 months.
Contents of the Public Announcement: The public announcement shall provide information
about the number of shares proposed to be acquired, the minimum offer price object of
acquisition, dated by which letter will be posted, and date of opening and closure of offer.
The purpose of SEBI guidelines is to impart takeover deals, ensure huge amount of disclosure
through public announcement and offer document, and protect the interests of shareholders.
3.5 Major aspects of SEBI guidelines

1. To amplify the definition of acquirer and persons acting in concert, to cover both direct as
well as indirect Acquisitions. The definition of control was modified to protect the
shareholders‟ interest.
18
2. Mandatory public offer is triggered off when the threshold limit of 10 percent is crossed
and there is a change in control.
3. For the purpose of consolidation of holdings, acquirers holding not less than 10 percent but
not more than 51 percent are allowed creeping Acquisition upon 2 percent that has to be in a
transparent manner, through a public tender offer.
4. An acquirer, including persons presently in control of the company should make a public
offer, to acquire a minimum of 20 percent in case, the conditions for mandatory public offer
are valid.
5. SEBI would not be involved in the pricing of the offer, pricing will be based on negotiated
price, average of high and low price for 26 weeks period, before the date of the public
announcement, highest price paid by the acquirer for any preferential offers.
6. The concept of chain principle has introduced making it mandatory for a public offer to be
made, to shareholders of each company when several companies are acquired through
requisition of one company.
7. Disclosure requirements has been strengthened, requiring, disclosure of additional details
of financial arrangements for implementing the offer and future plans of the acquirer for the
target company. Non- exercise of due diligence will also lead to penalties.
8. A conditional offer has been allowed, subject to either a minimum mandatory acceptance
of 20 percent with differential pricing; or with a deposit of 50 percent of the value offer in
cash in the escrow, in cases where the bidder does not want to be saddled with the 20 percent
Acquisition.
9. Finally, the board of the target company during the offer period is precluded from
inducting any person belonging to the acquirer or transfer shares in his name until all the
formalities relating to the offer are completed. Under the revised takeover code, a mandatory
public offer of 20 percent purchase will be targeted off, when the threshold limit of 10
percent equity holding is crossed. Those in control can however, purchase 2 percent of share
per annum, as long as their total holding is below 20 percent.
3.6 Causes of Merger Failures

There could be many causes of non-successful mergers and acquisitions. The failure of a
merger can be a result of poor management decisions or maybe due to overconfident
decisions. It is a possibility that there could be personal reasons due to which managers tend
to enter into such activities and hence ignore intentionally/unintentionally the primary motive
of mergers i.e. creating shareholder‟s value. But sometimes, even the decisions made with
19
good intentions can also backfire due to lack of strategically aware management reasons.
These factors are summarized by the following points.
1. Overpayment: Overpayment which is a common cause of failure for mergers generally

arises due to greediness or the urge for expansion. Overpayment, most of the times, has
disastrous consequences. It leads to expectations of higher profitability which is not possible
always and hence can lead to poor decisions. Excessive goodwill as a result of overpaying
reduces the profitability of the firm and further the shareholder‟s value.
2. Integration issues: Few business marriages are made in heaven but the decisions can still
be made correct. For this, the merging companies involved should follow cooperation.
Business cultures, traditions, work ethics, etc. should be flexible and in rhythm to each other
apart from cooperation between the entities. Administrative problems do arise most of the
times in a merger which often nullifies the advantages of the merger. For current scenario, it
has become necessary to identify the right kind of people who can see the merger through and
predict what is required. Due to lack of these qualities, mergers often do not produce the set
results and objectives.
3. Personal motives of Executives: Managers often enter into mergers solely to satisfy and
fulfill their personal goals like fame, name, higher compensation etc. Due to this, they ignore
the fact that they should to look at the strategic benefits of the merger that whether the
organization as a whole will gets benefits from the merger or not. These executives enter into
mergers for the purpose of seeking prestige and satisfying their executive ego, eventually
leading to failure of mergers.
4. Selecting the Target: Choosing an appropriate target firm is an extremely challenging task.
Executives should be able to select the target that fits perfectly with the organization‟s
strategic and financial motives. Often the lack of motivation and interest on the part of
executives leads to irrelevant & inappropriate target selection which further leads to failure of
mergers.
5. Strategic Issues: Ideally, strategic benefits should be the primary motive of any merger.
However, managers sometimes tend to overshadow this golden rule. Inappropriate strategic
planning and execution leads to various problems.
20
CHAPTER 4
ANALYSIS, DISCUSSION AND RECOMMENDATIONS
4.1 Introduction to the case
In order to fulfil the objectives of the study, financial analysis has been chosen to interpret the
financial performance and shareholder‟s value of the acquiring banks. The financial institutes
periodically publish the financial statements so as to help many especially the investors to
understand its profitability and financial health. The two basic financial statements provided
by any company are the Balance Sheet and the Profit & Loss Statement. The first tells about
the assets and liabilities while the other gives information regarding the earnings. If one
wants to know about the financial position of a company on a particular date then balance
sheet should be looked for. The balance sheet provides information as on the last day of the
accounting year. The profit & loss statement, also known as the income statement, gives
details about the revenue earned, the cost incurred and the resulting gains & losses made by
the company for one complete accounting year. The profit after tax (PAT) divided by the
number of shares gives the earning per share (EPS) which is a figure in which most investors
are interested.
For this dissertation, I will be focusing on financial ratios which would be obtained from the
Financial Statements of the banks. An attempt has been made in this chapter to evaluate the
performance of acquiring banks based on comparing key financial position indications before
and after acquisition period of 2 years. As mentioned earlier in this report, two hypotheses
have been tested which are:
Null Hypotheses H1: There is no difference in the financial performance of the acquiring
Null Hypotheses H2: There is no difference in the Shareholder‟s Value of the acquiring
banks.
To test these hypotheses, operational performance & profitability position has been
calculated with the help of following ratios:
To check Operational performance

1. Working Capital Turnover Ratio: Sales/Working Capital. The working capital turnover
ratio measures how the levels up to which the working capital has been utilized to fulfill or
21
support the sales targets. The working capital turnover ratio is majorly used by the companies
to understand the relationship between the money spent on funding operations and the
income which is generated from these operations. The higher the working capital turnover,
the better because it means that the bank is generating a lot of income compared to the money
it spends to fund the sales..
2. Total Asset Turnover Ratio: Net Sales/Total Assets. The ability of a company to utilize its
assets to efficiently generate sales is measured by Total asset turnover ratio. A company with
a high total asset turnover ratio is considered efficient in generating monetary value by using
its assets. The ratio considers all assets i.e. current and fixed.
3. Fixed Asset Ratio: Sales/Fixed Assets. The fixed-asset turnover ratio measures a banks‟
ability to generate net income from fixed-asset investments - specifically property net of
depreciation. A higher fixed-asset turnover ratio shows that the banks have been more
effective in using the investment in fixed assets to generate revenues .
To check Profitability Position

1. Gross Profit Margin: Gross Profit/Sales. Gross profit margin is used to assess the
profitability of a firm's core activities, excluding fixed costs. It indicates the relationship
between net revenue from income (banks) and the cost of expenses to generate the income. A
high gross profit margin indicates that a business can make reasonable net earnings as long as
it keeps overhead cost in control.
2. Operating Profit Margin: EBIT/Sales. The Operating Profit Margin measures what
proportion of a company's revenue is left over, before taxes and alternative indirect costs
(such as rent, bonus, interest, etc.), once paying for variable costs of production as wages,
raw materials (interest on deposits in the case of banks), etc. Operating profit margin
indicates the extent of profitability of the company‟s (bank‟s) operations. If the margin
decreases, then the company‟s (bank‟s) profitability is declining.
3. Net Profit Margin: PAT/Sales. The Net Profit Margin is mostly used for internal
comparisons by organizations. A low profit margin indicates a low margin of safety which
indicates higher risk situation i.e. a decline in sales which (income in the case of non-
manufacturing companies) can erase profits and result in a net loss. Profit margin is an
indicator of a company's ability to control costs.
22
4. Return on Equity: PAT/Shareholder‟s Equity. This ratio can also be called as Return on
Equity (ROE). This relation reveals what quantity profit a funding firm generates with the
money that the equity shareholders have invested with. RONW is a measure for judging the
returns that shareholder gets on his investment.
5. Return on Capital Employed: EBIT/Total Capital Employed. The Return on Capital

Employed ratio (ROCE) tells how much profit is being earned from the investments the
shareholders have made in their company. The ROCE is used in finance as a measure of the
returns that a company is realizing from its capital employed. More commonly it is used for
assessing whether a business generates enough returns to pay for its cost of capital or not.
To Understand Shareholder‟s Value

1. Earnings per Share: Net profit availability to equity shareholders/ Number of equity shares.
The portion of a firm‟s profit which is allocated to each outstanding share of common stock is
known as Earnings per share. A company with high earnings per share ratio is considered
capable of generating a significant dividend for investors, or it may generate the funds back
into its business for more growth.
2. Dividend Payout Ratio: Dividend per share/Earnings per share. The dividend payout
quantitative relation provides a sign of what quantity cash an organization is returning to
shareholders, versus what quantity cash it's keeping accessible to reinvest in growth, pay off
debt or boost money reserves.
3. Share Price: Share price is the maximum amount someone is ready to give for the share of
or the minimum amount that it can be bought for. A company‟s worth is determined by its
market capitalization which is share price multiplied by number of shares. If the share price
of a company is high, it signifies high strength & good health of the company as a whole.
4. Rate of return: (Dividend+ Share Price change)/ Share price at the beginning of year. It is
the annual return that the investors get on their amount invested. Rate of return is positive for
gain & negative for loss incurred by the company.
Also t-test has been used to tell the hypothesis statistically. The t-test is one kind of
inferential statistics. It is used to determine whether or not there is a major distinction
between the means of two groups. A t-test is used when we wish to compare two means. In
this study the null hypothesis would be that there is no difference in the financial
performance & shareholder‟s value after the merger while the alternate hypothesis would be
23
yes, there is a statistically significant difference. T-test has been performed using Analysis
ToolPak available on MS-Excel. If absolute value of t-Stat is larger than t-Critical value then
the null hypothesis can be rejected and results are considered as statistically significant.
4.2 Data collection

For the 3 merger cases discussed in the previous chapter, only secondary data has been
collected in order to test both the hypotheses discussed earlier. The relevant data has been
taken from the bank‟s annual reports, BSE and NSE websites apart from using research
papers & websites like businessstanddard.com; moneycontrol.com for information analysis &
collection. Secondary data on performance for merged banks was extracted for 2 year before
and after (short run performance) the merger.
CASE 1: HDFC Bank and Centurion Bank of Punjab Merger

Promoted in 1995 by Housing Development Finance Corporation (HDFC) which is India's
one of the leading housing finance companies, HDFC Bank is one of India's premier banks
providing a wide range of financial products and services. HDFC Bank Board on February
25, 2008 approved the acquisition of Centurion Bank of Punjab (CBoP) for Rs 9,510 crore in
one amongst the important & largest mergers with in the financial sector of India. Centurion
Bank of Punjab is one of the leading new generation non-public sector banks in Asian nation
- India. The bank serves individual customers, small and medium businesses and huge firms
with a full range of monetary products and services for finance, disposition and
recommendation on financial planning.
Synergy from the merger:

1. CBoP shareholders got one share of HDFC Bank for each 29 shares command by them.
The merger reinforced HDFC Bank's distribution network within the northern and the
southern regions of India. CBoP had near 170 branches in the north and approx 140 branches
in the south. CBoP had a targeted presence within the Indian states of Punjab and Kerala. The
combined entity therefore was imagined to have a network of 1148 branches.
2. Positives from the merger are that HDFC Bank was able to increase its footfall and metro
presence. Secondly HDFC Bank gained a far better cost to income relation attributable to
better cost efficiencies and value management.
Since merger occurred in Year 2008-09, so the years considered for pre merger analysis of
HDFC Bank would be Year 2006-07 & Year 2007-08. Similarly, for post-merger analysis,
24
Year 2009-10 &Year 2010-11 have been chosen. To test Null Hypotheses H1: There is no
difference in the financial performance of the acquiring bank before & after merger,
information related to operating ratios & profitability position was collected as given in the
table below.
Financial Performance Pre Merger Period Merger Post Merger Period
Parameters Period
2006-07 2007-08 2008-09 2009-10 2010-11
Operating Profit Margin 10.39 9.88 8.69 11.98 -2.05

Net Profit Margin 14.07 13.25 11.68 15.23 19.70
Return on Equity 17.73 13.83 15.31 13.69 15.47
Return on Capital Employed 1.184 1.251 1.224 1.325 1.415
Total Assets Turnover 0.075 0.076 0.089 0.072 0.072
Fixed Assets Turnover 7.12 8.61 9.55 7.64 9.23
Table 4.1 Operating performance of HDFC Bank Pre and Post Merger period
To test Null Hypotheses H2: There is no difference in Shareholder‟s value of the acquiring
bank before and after merger, information related to the same is given in the table below.
Pre Merger Period Merger Post Merger

Valuation Parameters Period Period
2006-07 2007-08 2008-09 2009-10 2010-11

Earnings Per Share 36.29 46.22 52.85 67.56 85.00
Dividend Payout 7.00 8.50 10.00 12.00 16.50
Share price 206.40 293.44 202.60 398.00 479.18
Rate of return 0.233 0.444 -0.318 0.798 0.233
Table 4.2 Shareholder‟s Value measurement parameters of HDFC Bank Pre and Post Merger
CASE 2: ICICI Bank and Bank of Rajasthan merger
25
Private sector lender Bank of Rajasthan on 18 th May 2010 agreed to merge with ICICI Bank,
India‟s second largest private sector lender. Since year 2008, this acquisition was the first
consolidation of country‟s crowded banking sector. The banks signed their merger through an
all-share deal, valued at about 30.41 billion rupees. ICICI Bank offered BoR 188.42 rupees
per share; a premium of 89% to the small lender‟s closing price on the previous day. ICICI
offered smaller bank‟s controlling shareholders 25 shares in ICICI for 118 shares of BOR.
Synergy from the merger:

The deal gave ICICI a valid presence in the northwestern desert state of Rajasthan, valued the
small bank at about 2.9 times its book value, compared with an Indian Banking sector
average of 1.84. Bank of Rajasthan had a network of 463 branches & a loan book of 77.81
billion rupees. The merging entities i.e. ICICI Bank and Bank of Rajasthan have strategic
similarities and connectedness that thus led to cost synergy creation.
ICICI Bank would be Year 2007-08 & Year 2008-09. Similarly, for post-merger analysis,
Year 2010-11 &Year 2011-12 have been chosen. To test Null Hypotheses H1: There is no
difference in the financial performance of the acquiring bank before & after merger,
information related to operating ratios & profitability position was collected as given in the
table below.

Parameters Period
2007-08 2008-09 2009-10 2010-11 2011-12
Operating Profit Margin 10.10 10.32 7.28 -5.76 -3.09
Return on Equity 8.94 7.58 7.79 9.35 10.70
Working Capital Turnover 0.012 0.013 0.015 0.017 0.019
Table 4.3 Financial performance of ICICI Bank Pre and Post Merger period
26
Pre Merger Period Merger Post Merger Period
Valuation Parameters Period
2007-08 2008-09 2009-10 2010-11 2011-12

Dividend Payout 0.27 0.32 0.33 0.30 0.29
Share price 212.00 77.56 194.16 194.16 191.52
Rate of return 0.120 -0.538 1.138 0.184 -0.086
Table 4.4 Shareholder‟s Value measurement parameters of ICICI Bank Pre and Post Merger
CASE 3: Kotak Mahindra Bank and ING Vysya Bank merger

ING Vysya Bank is a prestigious social unit name within the South Indian banking sector,
with a heritage of not but eight decades. Kotak Mahindra cluster has created its mark in
money services arena as a conglomerate addressing all customers‟ desires with one banner.
The dealings date for the merger was mounted as 1st April 2015. The deal created ING
cluster the second largest shareholder in Kotak Mahindra bank with a 6.4 percent stake. ING
Vysya shareholders received 725 shares in Kotak for each 1000 shares of ING Vysya. The
tacit value of the exchange relation is 790 for every ING Vysya share supported the common
damage of Kotak shares throughout one month to Nov 19, 2014, that may be a 16 percent
premium to a like measure of ING Vysya market value.
Synergy from the Merger:
1. At that point, ING Vysya was having robust client franchise for over eight decades, with a
national branch network of around 573 branches and deep presence in South India, notably in
Andhra Pradesh, Telengana and Karnataka. This shows that ING had a large customer base
across all the segments. The combined bank when the merger resulted in having 1214
branches, with a wide-spread pan-India network, obtaining each breadth and depth given the
robust geographic complementarities between Kotak and ING Vysya.
2. The bank‟s disposition unfolds across all sectors with a predominantly higher presence
within the small Medium Enterprises (SME) sector. When Vysya‟s SME and business
banking segments accounted for thirty eighth of its loan book, Kotak had a meager 8 percent
presence during this sector. Vysya‟s client base during this section was terribly immense. The
27
merger deal helped Kotak diversify its book and increase its presence within the SME
section.
Kotak Mahindra Bank would be Year 2013-14 & Year 2012-13. Similarly, for post-merger
analysis, Year 2015-16 has been chosen. To test Null Hypotheses H1: There is no difference
in the financial performance of the acquiring bank before & after merger, information related
to operating ratios & profitability position was collected as given in the table below.

Parameters Period
2012-13 2013-14 2014-15 2015-16 2016-17
Operating Profit Margin 2.48 1.17 -1.67 -3.18 -
Return on Equity 14.37 12.23 13.19 8.72 13.77
Working Capital Turnover -0.130 -0.352 -0.517 -0.342 -
Table 4.5 Financial performance of Kotak Mahindra Bank Pre and Post Merger period
Pre Merger Period Merger Post Merger

Valuation Parameters Period Period
2012-13 2013-14 2014-15 2015-16 2016-17
Dividend Payout 0.038 0.40 0.037 0.043 0.045
Share price 339.42 394.00 728.88 694.90 886.40
Rate of return 0.128 0.102 0.748 -0.057 0.232
Table 4.6 Shareholder‟s Value measurement parameters of Kotak Mahindra Bank Pre and
Post Merger
28
4.3 Data Analysis and Findings
Analysis of data is a step-process of inspecting, cleaning, transforming, and modelling data

with an objective of discovering useful information, suggesting conclusions, and supporting
decision-making. Data analysis has various approaches, including diverse techniques under a
variety of names, in different business, science, and social science domains. In statistical
applications, generally data analysis is divided into:
1. Descriptive data analysis (DDA),
2. Exploratory data analysis (EDA),
3. Confirmatory data analysis (CDA)
EDA focuses on exploring new features in the data and CDA on confirming or testing
existing hypotheses. Predictive analytics deals with statistical models for predictive
forecasting or classification, whereas text related analytics suggests statistical, linguistic, and
structural techniques to extract and classify information from textual sources, a species of
unstructured data. All are varieties of data analysis. For this dissertation, I have chosen CDA
approach. The hypotheses chosen have already been discussed in the earlier chapters in this
report. In the cases chosen for merger of banks in Indian context, I have used Confirmatory
Data Analysis approach so as to test the hypotheses in each case. Data analysis will be
completed by using financial information provided in the Section 4.2. Apart from this, I will
be using t-test to validate the hypotheses.
CASE 1: HDFC Bank and Centurion Bank of Punjab merger
Financial Performance Analysis of HDFC Bank pre and post merger
Operating Profit Margin

15 11.98
10.39 9.88
10 8.69
0
2006-07 2007-08 2008-09 2009-10 2010-11
-5 -2.05
Pre Merger Period Merger Period Post Merger Period
Figure 4.1 Operating profit margin of HDFC Bank

29
Figure 4.1 depicts the changes in operating profit margin of HDFC Bank over the years.
Since, Operating Profit Margin is a measurement of what proportion of revenue is left over,
before taxes and other indirect costs (such as rent, bonus, interest, etc.), after paying for
variable costs of production as wages, raw materials (interest on deposits in the case of
banks), etc, it can be seen clearly that for Year 2009-10 profitability of HDFC Bank increases
but after that it goes negative drastic fall in the profitability and leftover revenue of the bank
and can be considered as a negative impact of the merger.
Net Profit Margin

25
19.7
20
14.07 15.23
15 13.25
11.68
10
5
0
2006-07 2007-08 2008-09 2009-10 2010-11
Figure 4.2 Net profit margin of HDFC Bank
Figure 4.2 depicts the changes in Net profit Margin of HDFC Bank over the years. Since net
profit margin is a profitability measure, it can be seen clearly that after the merger HDFC
Bank has increased its profitability efficiently which shows increase in sales and high margin
of safety & hence reduction in net loss. So it can be said that after the merger, HDFC Bank
managed to control its cost usage.
Return on Equity
20 17.73
15.31 15.47
13.83 13.69
15
10
5
0
2006-07 2007-08 2008-09 2009-10 2010-11
Figure 4.3 Return on Equity of HDFC Bank
30
Figure 4.3 depicts the changes in Return on Equity of HDFC Bank over the years. This
relation reveals what quantity profit a funding firm generates with the money that the equity
shareholders have invested with. Since after the merger there is no significant changes in
ROE of HDFC Bank, so it can be said that the returns given to the shareholders or generated
for shareholders didn‟t get affected.
Return on Capital Employed

1.5 1.415
1.4 1.325
1.3 1.251 1.224
1.184
1.2
1.1
1
2006-07 2007-08 2008-09 2009-10 2010-11
Figure 4.4 Return on capital employed of HDFC Bank
Figure 4.4 depicts Return on Capital employed of HDFC Bank over the years. The Return on
Capital Employed ratio (ROCE) tells how much profit is being earned from the investments
the shareholders have made in their company. More commonly it is used for assessing
whether a business generates enough returns to pay for its cost of capital or not. Since after
the merger, clearly, ROCE can be seen increasing so it is not wrong to say that the bank has
been efficiently utilizing the capital employed to generate more returns.
Total assets turnover ratio

0.1 0.089
0.075 0.076 0.072 0.072
0.08
0.06
0.04
0.02
0
2006-07 2007-08 2008-09 2009-10 2010-11
Figure 4.5 Total assets turnover ratio of HDFC Bank
31
Figure 4.5 depicts Total assets turnover ratio of HDFC Bank over the years. The total assets
turnover relation measures the flexibility of a corporation to use its assets with efficiency to
generate sales. Since HDFC Bank‟s Total assets turnover doesn‟t represent any relevant
increase or decrease post merger, it can be said that the usage of assets in making money
didn‟t get affected after merger.
Fixed Assets Turnover

15
8.61 9.55 9.23
10 7.12 7.64
5
0
2006-07 2007-08 2008-09 2009-10 2010-11
Figure 4.6 Fixed Assets turnover ratio of HDFC Bank

Figure 4.6 depicts fixed assets turnover ratio of HDFC Bank over the years. The fixed-asset
turnover relation measures a banks‟ ability to get profits from fixed-asset investments. Since
HDFC Bank has shown a fairly good ratio after the merger, it can be said that the bank has
been more efficient in using the investment in fixed assets to generate revenues but it is not
due to merger.
Analysis of parameters affecting Shareholder‟s value of HDFC Bank pre and post merger
90 85
80 Earnings per share
67.56
70
60 52.85
50 46.22
40 36.29
30
20
10
0
2006-07 2007-08 2008-09 2009-10 2010-11
Figure 4.7 Earnings per share of HDFC Bank
32
Figure 4.7 depicts Earnings per share of HDFC Bank over the years. Earnings per share is the
portion of a company's profit allocated to each outstanding share of common stock. As it can
be seen clearly that post merger over the years HDFC Bank‟s EPS has increased so it can be
said that HDFC Bank was capable of generating a significant dividend for investors, or it may
plow the funds back into its business for more growth and hence managed to increase
shareholder‟s value post merger.
Dividend Payout
20 16.5
15 12
10
10 8.5
7
5
0
2006-07 2007-08 2008-09 2009-10 2010-11
Figure 4.8 Dividend Payout of HDFC Bank
Figure 4.8 depicts Dividend Payout of HDFC Bank over the years. The dividend payout
debt or boost money reserves. Since post merger, over the years, Dividend Payout of HDFC
Bank has increased so it can be said that the bank managed to return a good amount to its
shareholders post merger. Also it is true that just on the basis of good Dividend payout it can
be rightly said that HDFC Bank was earning huge profits post merger.
Share price
600 479.18
500 398
400 293.44
300 206.4 202.6
200
100
0
2006-07 2007-08 2008-09 2009-10 2010-11
Figure 4.9 Share price of HDFC Bank
33
Figure 4.9 depicts Share price of HDFC Bank over the years. Share price is the maximum
amount someone is ready to give for the share of or the minimum amount that it can be
bought for. If the share price of a company is high, it signifies high strength & good health of
the company as a whole. Clearly for HDFC Bank, the share price is increasing after merger
which shows that merger has a positive impact on the bank.
Rate of return
1
0.798
0.8
0.6
0.444
0.4
0.233 0.233
0.2
0
2006-07 2007-08 2008-09 2009-10 2010-11
-0.2
-0.4 -0.318
Figure 4.10 Rate of return of HDFC Bank

Figure 4.10 shows the rate of return of HDFC Bank. It is the annual return that the investors
get on their amount invested. Rate of return is positive for gain & negative for loss incurred
by the company. Post merger, there is no significant change in the rate of return for HDFC
bank. It has been continuously increasing and falling back.
Now in order to test the hypotheses and to justify the results discussed above based on the
financials of the bank, t-test has been used to conclude whether the results are statistically
significant or not. Table 4.7 shows the mean, standard deviation, calculated t-value and
significance of the perception of the selected bank in pre and post-merger context for changes
in financial performance measurement. For HDFC bank the test of difference of mean was
found to be not significant i.e. calculated t-value is less than tabulated t-value at 5% level of
significance for Operating profit margin, Return on Equity. Else it got significant result for
other performance indicators.
Null Hypotheses H1: There is no difference in the financial performance of HDFC bank pre
and post merger. Now since the t-test has shown significant results for most of the financial
34
performance indicators, the null hypotheses H1 can be rejected & hence the alternative
hypotheses that yes, there is difference in the financial performance of HDFC bank post
merger is accepted.
Mean S.D. t- value Result
OPM Pre merger 10.13 0.360 0.736506 Not

Significant
Post merger 4.96 9.91
NPM Pre merger 13.66 0.579 -1.67452 Significant
ROE Pre merger 15.78 2.75 0.559832 Not

Significant
ROCE Pre merger 1.21 0.049 -2.63117 Significant
TAT Pre merger 0.075 0.047 7 Significant
FAT Pre merger 7.86 1.053 -0.52317 Significant
Table 4.7 t-test for financial performance of HDFC Bank
Table 4.8 shows the mean, standard deviation, calculated t-value and significance of the
perception of the HDFC bank in pre and post-merger context for changes in shareholder‟s
value measurement. For HDFC bank the test of difference of mean was found to be
significant i.e. calculated t-value is greater than tabulated t-value at 5% level of significance
for all the parameters.
35
Null Hypotheses H2: There is no difference in the Shareholder‟s value of HDFC bank pre
and post merger. Now since the t-test has shown significant results for most of the parameters
affecting shareholder‟s value, the hypotheses H2 can be rejected & accepts alternative
hypotheses that yes, there is difference in the shareholder‟s value of HDFC bank post merger.
Mean S.D. t-value Result

EPS Pre merger 21.64 20.71 -0.23934 Significant
Dividend Pre merger 7.75 0.255 -2.74064 Significant
Payout Post merger 14.25 3.181
Share price Pre merger 249.92 3787.981 -3.17035 Significant
Post merger 438.59 3295.096
ROR Pre merger 0.3385 0.02261 -0.58695 Non
Post merger 0.5155 0.15961 Significant
Table 4.8 t-test for Shareholder‟s value of HDFC Bank
CASE 2: ICICI Bank and Bank of Rajasthan merger
Financial Performance Analysis of ICICI Bank pre and post merger

12 10.32
10.1
10
8 7.28
6
4
2
0
-2 2007-08 2008-09 2009-10 2010-11 2011-12
-4 Pre Merger Period Merger Period Post Merger Period
-3.09
-6
-5.76
-8
Figure 4.11 Operating Profit margin of ICICI Bank
36
Figure 4.11 depicts the changes in operating profit margin of ICICI Bank over the years.
Since, Operating Profit Margin is a measurement of what proportion of revenue is left over,
before taxes and other indirect costs (such as rent, bonus, interest, etc.), after paying for
banks), etc, it can be seen clearly that after the merger period profitability of ICICI Bank
decreased to negative and can be considered as a negative impact of the merger.
Net Profit Margin

25 19.83 19.27
20
15 12.79
10.54 9.67
10
5
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.12 Net profit margin of ICICI Bank

Figure 4.12 depicts the changes in Net profit Margin of ICICI Bank over the years. Since net
profit margin is a profitability measure, it can be seen clearly that after the merger ICICI
Bank has increased its profitability efficiently which shows increase in sales and high margin
of safety & hence reduction in net loss. So it can be said that after the merger, ICICI Bank
managed to control its cost usage very efficiently.
Return on Equity
12 10.7
8.94 9.35
10 7.79
7.58
8
6
4
2
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.13 Return on Equity of ICICI Bank
Figure 4.13 depicts the changes in Return on Equity of ICICI Bank over the years. This
relation reveals what quantity profit a funding firm generates with the money that the equity
37
shareholders have invested with. Since after the merger there is clearly a positive significant
change in ROE of ICICI Bank, so it can be said that the returns given to the shareholders or
generated for shareholders did get affected post merger.

10 7.63
8 5.86
6 4.79
3.45 3.49
4
2
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.14 Return on capital employed of ICICI Bank
Figure 4.14 depicts Return on Capital employed of ICICI Bank over the years. The Return on
Capital Employed ratio (ROCE) tells how much profit is being earned from the investments
the shareholders have made in their company. More commonly it is used for assessing
whether a business generates enough returns to pay for its cost of capital or not. Since after
the merger, clearly, ROCE can be seen increasing so it is not wrong to say that the bank has
been efficiently utilizing the capital employed to generate more returns.
Working Capital Turnover

0.019
0.02 0.017
0.015
0.015 0.012 0.013
0.01
0.005
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.15 Working capital turnover of ICICI Bank
Figure 4.15 depicts the working capital turnover of ICICI Bank over the years. The working
capital turnover ratio is used to analyze the relationship between the money used to fund
operations and the income generated from these operations. Since after the merger, WCT od
ICICI Bank has increased, it shows that bank focused on generating more income as
38
compared to the money spent. But still the figure is less and the bank should focus on
increasing the WCT to prevent itself from bad debts.
Total Assets Turnover

0.014 0.013
0.012
0.012 0.011
0.01
0.01 0.009
0.008
0.006
0.004
0.002
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.16 Total assets turnover of ICICI Bank
Figure 4.16 depicts Total assets turnover ratio of ICICI Bank over the years. The total assets
turnover relation measures the flexibility of a corporation to use its assets with efficiency to
generate sales. Since ICICI Bank‟s Total assets turnover represent little increase post merger,
it can be said that the usage of assets in making money did get affected after merger. But the
bank‟s total turnover ratio was still less as compared to others so it could not have been
considered effective enough.

1.5 1.4
1.252
1.011 1.085
0.988
1
0.5
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.17 Fixed assets turnover of ICICI Bank
Figure 4.17 depicts fixed assets turnover ratio of ICICI Bank over the years. The fixed-asset
turnover relation measures a banks‟ ability to get profits from fixed-asset investments. Since
ICICI Bank has shown a fairly good ratio after the merger, it can be said that the bank has
39
been more efficient in using the investment in fixed assets to generate revenues but it is not
due to merger.
Analysis of parameters affecting Shareholder‟s value of ICICI Bank pre and post merger
Earnings Per Share

60 56.11
50 45.27
39.39 36.14
40 33.76
30
20
10
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.18 Earnings per share of ICICI bank
Figure 4.18 depicts Earnings per share of ICICI Bank over the years. Earnings per share is the
portion of a company's profit allocated to each outstanding share of common stock. As it can
be seen clearly that post merger over the years ICICI Bank‟s EPS has increased so it can be
said that ICICI Bank was capable of generating a significant dividend for investors, or it may
plow the funds back into its business for more growth and hence managed to increase
Dividend Payout
0.32 0.33
0.35 0.3 0.29
0.3 0.27
0.25
0.2
0.15
0.1
0.05
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.19 Dividend Payout of ICICI Bank
Figure 4.19 depicts Dividend Payout of ICICI Bank over the years. The dividend payout
40
debt or boost money reserves. Since post merger, over the years, Dividend Payout of ICIC
Bank has not any significant increase or decrease so it can be said that the bank managed to
return a fair amount to its shareholders and nothing changed post merger.
Share price
250
212
194.16 194.16 191.52
200
150
100 77.56
50
0
2007-08 2008-09 2009-10 2010-11 2011-12
Figure 4.20 Share price of ICICI Bank
Figure 4.20 depicts Share price of ICICI Bank over the years. Share price is the maximum
amount someone is ready to give for the share of or the minimum amount that it can be
bought for. If the share price of a company is high, it signifies high strength & good health of
the company as a whole. Clearly for the Bank, the share price has remained almost constant
after the merger and hence showing no significant impact of the merger.
Rate of return
1.5
1.138
1
0.5
0.12 0.184
0
2007-08 2008-09 2009-10 2010-11 2011-12
-0.086
-0.5
Pre Merger Period
-0.538 Merger Period Post Merger Period
-1
Figure 4.21 Rate of return of ICICI Bank
41
Figure 4.21 shows the rate of return of ICICI Bank. It is the annual return that the investors
get on their amount invested. Rate of return is positive for gain & negative for loss incurred
by the company. Post merger, there is decrease in the rate of return for bank. It has been
continuously falling showing no satisfactory amount of returns given to shareholders.
significant or not.
Mean S.D. t- value Result
OPM Pre merger 10.21 0.155 10.9255 Significant
Post merger -4.42 1.887
NPM Pre merger 10.10 0.615 -18.2574 Significant
ROE Pre merger 8.26 0.961 -1.84212 Not

Significant
ROCE Pre merger 3.47 0.028 -3.69962 Significant
WCT Pre merger 0.0125 0.045 -4.91935 Not

Significant
FAT Pre merger 0.999 0.016 -1.53876 Not

Significant
TAT Pre merger 0.0095 5E-07 -4.24264 Significant
Post merger 0.0125 5E-07
Table 4.9 Table 4.7 t-test for financial performance of ICICI Bank
42
perception of the selected bank in pre and post-merger context for changes in financial
performance measurement. For ICICI bank the test of difference of mean was found to be not
significant i.e. calculated t-value is less than tabulated t-value at 5% level of significance for
Return on Equity, Working capital turnover, Fixed Asset turnover. Else it got significant
result for other performance indicators.
Null Hypotheses H1: There is no difference in the financial performance of ICICI bank pre
and post merger. Now since the t-test has shown significant results for most of the financial
performance indicators, the hypotheses H1 can be rejected & hence the alternative
hypotheses that yes, there is difference in the financial performance of ICICI bank post
merger is accepted.
Dividend Pre merger 0.295 0.035 2.18E Not
Payout Post merger 0.095 0.023 Significant
Share price Pre merger 144.78 9037.057 -0.91694 Not
Post merger 208.31 563.8082 significant
ROR Pre merger 0.325 0.08405 1.124455 Significant
Table 4.10 t-test for Shareholder‟s value of ICICI Bank
perception of the ICICI bank in pre and post-merger context for changes in shareholder‟s
value measurement. For ICICI bank the test of difference of mean was found to be significant
i.e. calculated t-value is greater than tabulated t-value at 5% level of significance for EPS but
not for Dividend payout. Looking at the high mean value differences during post & pre
merger period for ICICI bank, it can be considered that there is significant changes in the
Null Hypotheses H2: There is no difference in the Shareholder‟s value of ICICI bank pre and
post merger. Now since the t-test has shown significant results for EPS affecting
shareholder‟s value but not for dividend payout, the hypotheses H2 cannot be rejected on the
43
basis of just one parameter. This leads to conclusion that yes maybe there is difference in the
shareholder‟s value of HDFC bank post merger. (Looking at the EPS figure).
CASE 3: Kotak Mahindra Bank and ING Vysya Bank merger
Financial Performance Analysis of Kotak Mahindra Bank pre and post merger

4
2.48
2 1.17
0
0
2012-13 2013-14 2014-15 2015-16 2016-17
-2
Pre Merger Period Merger Period
-1.67 Post Merger Period
-4 -3.18
Figure 4.22 Operating Profit margin of Kotak Mahindra Bank
Figure 4.22 depicts the changes in operating profit margin of Kotak Mahindra Bank over the
years. Since, Operating Profit Margin is a measurement of what proportion of revenue is left
over, before taxes and other indirect costs (such as rent, bonus, interest, etc.), after paying for
banks), etc, it can be seen clearly that after the merger period profitability of the Bank
drastically decreased to negative and can be considered as a negative impact of the merger.
Net Profit Margin

25
19.19 19.28
20 16.91 17.13
15 12.75
10
5
0
2012-13 2013-14 2014-15 2015-16 2016-17
Figure 4.23 Net profit margin of Kotak Mahindra bank
44
Figure 4.23 depicts the changes in Net profit Margin of Kotak Mahindra Bank over the years.
Since net profit margin is a profitability measure, it can be seen clearly that after the merger
Kotak Mahindra Bank has not significantly increased its profitability efficiently which shows
no relevant increase or decrease in sales or high/low margin of safety.
Return on Equity
16 14.37 13.77
13.19
14 12.23
12
10 8.72
8
6
4
2
0
2012-13 2013-14 2014-15 2015-16 2016-17
Figure 4.24 Return on equity of Kotak Mahindra bank
Figure 4.24 depicts the changes in Return on Equity of Kotak Mahindra Bank over the years.
This relation reveals what quantity profit a funding firm generates with the money that the
equity shareholders have invested with. Since after the merger there is slight negative change
in ROE of the Bank, so it can be said that the returns given to the shareholders or generated
for shareholders did get affected post merger. Though in 2016-1, the bank tried to improve
the ratio which balances out the decrease of the previous year.

15 11.78
9.59
10 8.4 7.965
5.47
5
0
2012-13 2013-14 2014-15 2015-16 2016-17
Figure 4.25 Return on capital employed of Kotak Mahindra bank
Figure 4.25 depicts Return on Capital employed of Kotak Mahindra Bank over the years. The
Return on Capital Employed ratio (ROCE) tells how much profit is being earned from the
45
investments the shareholders have made in their company. More commonly it is used for
assessing whether a business generates enough returns to pay for its cost of capital or not.
Since after the merger, clearly, ROCE can be seen decreasing so it is not wrong to say that
the bank has fully not been efficiently utilizing the capital employed to generate more returns.
Working Capital Turnover

0
0
2012-13 2013-14 2014-15 2015-16 2016-17
-0.1
Pre Merger Period
-0.13 Merger Period Post Merger Period
-0.2
-0.3
-0.4 -0.352 -0.342
-0.5
-0.517
-0.6
Figure 4.26 Working capital turnover of Kotak Mahindra Bank

Figure 4.26 depicts the working capital turnover of Kotak Mahindra Bank over the years. The
working capital turnover ratio is used to analyze the relationship between the money used to
fund operations and the income generated from these operations. Since after the merger,
WCT of Bank has still remained negative, it shows that bank should keenly focus on
generating more income as compared to the money spent. The figure is negative which
signifies bad debts and obsolete inventory. Post merger, no significant changes can be seen.
Total Assets Turnover

0.03 0.028 0.028
0.026
0.025 0.023
0.02 0.017
0.015
0.01
0.005
0
2012-13 2013-14 2014-15 2015-16 2016-17
Figure 4.27 Total assets turnover of Kotak Mahindra bank
Figure 4.27 depicts Total assets turnover ratio of Kotak Mahindra Bank over the years. The
total assets turnover relation measures the flexibility of a corporation to use its assets with
46
efficiency to generate sales. Since the Bank‟s Total assets turnover represent no relevant
increase or decrease post merger, it can be said that the usage of assets in making money
didn‟t get affected after merger. But the bank‟s total turnover ratio was still less as compared
to others so it could not have been considered effective enough.

4.71
5
4 3.218
3 2.22 2.52 2.22
2
1
0
2012-13 2013-14 2014-15 2015-16 2016-17
Figure 4.28 Fixed Assets turnover ratio of Kotak Mahindra Bank
Figure 4.28 depicts fixed assets turnover ratio of Kotak Mahindra Bank over the years. The
fixed-asset turnover relation measures a banks‟ ability to get profits from fixed-asset
investments. Since the Bank has not shown any significant increase or decrease after the
merger, it can be said that the bank has been efficient in using the investment in fixed assets
to generate revenues but it is not due to merger.
Analysis of parameters affecting Shareholder‟s value of Kotak Mahindra Bank pre and post
merger
Earnings Per Share

30 24.2
18.31 19.62 18.57
20 11.42
10
0
2012-13 2013-14 2014-15 2015-16 2016-17
Figure 4.29 Earnings per share of Kotak Mahindra Bank
Figure 4.29 depicts Earnings per share of Kotak Mahindra Bank over the years. Earnings per
share is the portion of a company's profit allocated to each outstanding share of common
stock. As it can be seen clearly that post merger over the years Bank‟s EPS has decreased so
47
it can be said that Kotak Mahindra Bank has been not successfully able of generating more
dividend for investors, hence not managed to significantly increase or decrease shareholder‟s
value post merger.
Dividend Payout
0.5 0.4
0.4
0.3
0.2
0.1 0.038 0.037 0.043 0.045
0
2012-13 2013-14 2014-15 2015-16 2016-17
Figure 4.30 Dividend payout of Kotak Mahindra bank
Figure 4.30 depicts Dividend Payout of Kotak Mahindra Bank over the years. The dividend
payout quantitative relation provides a sign of what quantity cash an organization is returning
to shareholders, versus what quantity cash it's keeping accessible to reinvest in growth, pay
off debt or boost money reserves. Since post merger, over the years, Dividend Payout of
Bank has not any significant increase or decrease so it can be said that the bank managed to
return a fair amount to its shareholders and nothing changed post merger.
Share price
1000 886.4
800 728.88 694.9
600
339.42 394
400
200
0
2012-13 2013-14 2014-15 2015-16 2016-17
Figure 4.31 Share price of Kotak Mahindra Bank
Figure 4.31 depicts Share price of Kotak Mahindra Bank over the years. Share price is the
maximum amount someone is ready to give for the share of or the minimum amount that it
can be bought for. If the share price of a company is high, it signifies high strength & good
48
health of the company as a whole. Clearly for the Bank, the share price has increased after the
merger depicting positive impact.
Rate of return
0.8 0.748
0.6
0.4
0.232
0.2 0.128 0.102
0
2012-13 2013-14 2014-15 2015-16 2016-17
-0.057
-0.2
Figure 4.32 Rate of return of Kotak Mahindra Bank

Figure 4.32 shows the rate of return of Kotak Mahindra Bank. It is the annual return that the
investors get on their amount invested. Rate of return is positive for gain & negative for loss
incurred by the company. Post merger, there is decrease in the rate of return for the bank. It
has been continuously falling showing no satisfactory amount of returns given to
shareholders.
significant or not.
perception of the selected bank in pre and post-merger context for changes in financial
performance measurement. For Kotak Mahindra bank the test of difference of mean was
found to be significant i.e. calculated t-value is greater than tabulated t-value at 5% level of
significance for Return on Equity, ROCE, and Operational Profit Margin. Else it got not
significant result for other performance indicators.
Null Hypotheses H1: There is no difference in the financial performance of Kotak Mahindra
bank pre and post merger. Now since the t-test has shown significant results for most of the
financial performance indicators, the hypotheses H1 can be rejected which leads to
49
conclusion that yes, there is difference in the financial performance of Kotak Mahindra bank
post merger. An alternative hypothesis is selected.

OPM Pre merger 1.825 1.78+i 7.64122 Significant
Post merger -3.18 0
NPM Pre merger 17.02 0.155 0.307 Not
ROE Pre merger 13.3 1.50 0.749355 Significant
ROCE Pre merger 8.99 0.841 1.652326 Significant
WCT Pre merger -0.241 0.156 0.90991 Not
Post merger -0.342 0 Significant
TAT Pre merger 3.465 1.760 0.559787 Not
FAT Pre merger 0.027 0.0014 2.2135 Not
Significant
Table 4.11 t-test for financial performance of Kotak Mahindra Bank
perception of the Kotak Mahindra bank in pre and post-merger context for changes in
shareholder‟s value measurement. For the bank, test of difference of mean was found to be
significant i.e. calculated t-value is greater than tabulated t-value at 5% level of significance
for EPS and also for Dividend payout. But both have changed drastically in negative
direction which is not so good for shareholders.
Null Hypotheses H2: There is no difference in the Shareholder‟s value of Kotak Mahindra
bank pre and post merger. Now since the t-test has shown significant results for EPS as well
as for Dividend payout affecting shareholder‟s value, the hypotheses H2 can be rejected. This
leads to conclusion that yes there is difference in the shareholder‟s value of bank post merger
and alternative hypotheses is selected.
50
Dividend Pre merger 0.219 0.255 0.966836 Significant
Payout Post merger 0.044 0.0014
Share price Pre merger 366.717 1489.88 -4.258 significant
Post merger 790.65 18336.13
ROR Pre merger 0.115 0.000338 0.619494 significant
Post merger 0.091 0.039762
Table 4.12 t-test for shareholder‟s value of Kotak Mahindra bank
4.4 Conclusion and Recommendations

In India, the banking industry is one of the rapidly growing industries. The sector has attained
a remarkable growth rate and also India has positioned itself as one of the most preferred
banking destinations for International Investors. After economic reforms, 1991, there have
been paradigm shift in Indian banking sectors. A relatively new route in Indian banking
industry has created a buzz through Mergers and Acquisitions. The present study undertaken
has examined the impact of Mergers & Acquisitions on performance of selected acquiring
banks in India. The impact of mergers on performance of the banks has been evaluated from
three prospective i) Operating Performance, ii) Profitability position and iii) Shareholder‟s
value.
Analysis of operating performance of acquiring banks emphasizes that, there is a significant

improvements or changes (negative or positive) in revenue generation by efficiently utilizing
total assets of selected banks. Therefore, it indicates that Mergers can help banks to achieve
operational performance but also can become a reason for downfall like in the case of Kotak
Mahindra bank merger with ING Vysya. While the analysis of profitability position of
acquiring banks yields mixed results but on an average the overall financial performance of
merged banks increased after the merger or post merger there exists significant changes in the
profitability position of the acquiring banks. So Merger may be thought of as a helpful
strategy so as to realize money performance. Further the analysis of parameters measuring the
shareholder‟s value of acquiring banks shown that, there is change in the shareholder‟s value
(not upto greater extent). There has been negative impact of the mergers on shareholder‟s
51
wealth like in case of Kotak Mahindra bank which showed fall in rate of return after merger.
Therefore from this result it can be said that, Merger is a preferable tool to achieve
shareholders wealth of banks in long term.
It is also suggested that Government of India and RBI should try to liberalize their policies in
connection with Mergers and Acquisitions to increase number of deals between the banks. A
successful merger involves not only thorough financial and strategic analysis, but also
planning related to cooperation between the two companies' preferences about the
implementation strategy for the merger. It is essential for managers of parent firms to decide
about the immediate benefits their firms can provide to the acquired firm and how this will
result in long term synergisms for both parties. The parent firm also should gently works with
the acquisition personnel, solicits their inputs, and includes them in decisions that affect
them. Providing clear, consistent, factual, sympathetic, and up-to-date information in various
ways will increase the coping abilities of employees, which will in turn increase their
productivity. This increased productivity will positively impact on219 the firm's performance
and create sustained competitive advantage by achieving the projected strategic fit and
synergies.
4.5 Limitations of the study

1. This study has been conducted in the banks and therefore the findings cannot be compared
and generalized against other industrial sectors.
2. All the limitations associated with various tools like Ratio analysis, Mean, Standard
deviation and T-Test, may affect the richness of this work.
52
APPENDIX 1
BIBLIOGRAPHY
Research Papers, Books & articles
1. Information related to corporate restructuring retrieved from:

https://www.icsi.edu/portals/0/CORPORATE%20RESTRUCTURING.pdf
2. Neelam Rani, Surendra S Yadav, P.K. Jain, 2015, Impact of Mergers and Acquisitions on
Shareholders‟ Wealth in the Short Run: An Event Study Approach
3. „Financial accounting for managers‟ by Sanjay Dhamija
3. Dr. (Smt). A.N.Tamragundi, Devarajappa S, Volume 13, January 2016, Impact of mergers
on Indian Banking Sector: A comparative study of Public and Private Sector merged Banks
4. M. Rajamani, Dr.P.R.Ramakrishnan, Volume 20, Issue 5, Ver. VI, May. 2015, A Study on
Impact of Merger of Centurion Bank of Punjab on the Financial Performance of HDFC Bank
5. Nidhi Nalwaya, Rahul Vyas, Volume V Issue VI, December 2012, Post-merger financial
performance analysis of ICICI Bank and erstwhile Bank of Rajasthan Ltd.
6. „Mergers, Acquisitions, and Corporate Restructurings‟ by Patrick A. Gaughan
7. Sony Kuriakose, M. S. Senam Raju, G. S. Gireesh Kumar:: SSRN ,ICICI Bank-Bank of

Rajasthan Merger: An Analysis of Strategic Features and Valuation
8. t-test information retrieved from: http://researchbasics.education.uconn.edu/t-test/
9. ICICI annual reports retrieved from: https://www.icicibank.com/managed-

assets/docs/investor/annual-reports
10. Kotak Mahindra bank annual reports retrieved from:

http://ir.kotak.com/financials/annual-report
11. HDFC Bank annual reports retrieved from:

http://www.hdfcbank.com/aboutus/cg/annual_rep orts.htm
12. Websites: www.nseindia.com, www.bseindia.com, www.moneycontrol.com,

www.businessstandard.com
53
APPENDIX 2
ANNEXURES
Annexure 1
HDFC Bank 2006-07 2007-08 2008-09 2009-10 2010-11
OPM OPM 10.39 9.88 8.69 11.98 -2.05
NPM NPM 14.07 13.25 11.68 15.23 19.70
ROE ROE 17.73 13.83 15.31 13.69 15.47
ROCE ROCE 1.184 1.251 1.224 1.325 1.415
TAT Net sales (in cr) 6889.02 10122.96 16314.02 16232.92 20043.34
Total assets (in cr) 91256.61 133176.6 183270.77 222458.5 277352.5
FAT Net sales (in cr) 6889.02 10122.96 16314.02 16232.92 20043.34
Fixed assets (in cr) 966.67 1175.09 1706.72 2122.81 2170.65
EPS EPS 36.29 46.22 52.85 67.56 85.00
Dividend DPS 7.00 8.50 10.00 12.00 16.50

Payout
EPS 36.29 46.22 52.85 67.65 85.00
Share Share Price 206.40 293.44 202.60 398.00 479.18

Price
ROR DPS 7.00 8.50 10.00 12.00 16.50
P1 (End Price) 206.40 293.44 202.60 398.00 479.18
P0 (Start Price) 173.00 209.00 311.80 227.99 402.00
Source: www.moneycontrol.com, Company Annual Reports
54
Annexure 2
ICICI Bank 2007-08 2008-09 2009-10 2010-11 2011-12
OPM OPM 10.10 10.32 7.28 -5.76 -3.09
NPM NPM 10.54 9.67 12.79 19.83 19.27
ROE ROE 8.94 7.58 7.79 9.35 10.70
ROCE EBIT (in cr) 5056 5117 5345 6761 8803
Capital (in cr) 1462.67 1463.28 1114.88 1151.82 1152.70
TAT Net sales (in cr) 4157.72 3758.13 4024.98 5151.37 6465.25
Total assets(in cr) 399795 379301 363400 406234 473647
FAT Net sales (in cr) 4157.72 3758.13 4024.98 5151.37 6465.25
Fixed assets (in cr) 4109 3802 3213 4744 4615
EPS EPS 39.39 33.76 36.14 45.27 56.11
Dividend DPS 11.00 11.00 12.00 14.00 16.50

Payout
EPS 39.39 33.76 36.14 45.27 56.11
Share Price Share Price 212.00 77.56 194.16 225.10 191.52
ROR DPS 11.00 11.00 12.00 14.00 16.50

P1 (End price) 212.00 77.56 194.16 225.10 191.52
P0 (Start price) 198.94 192.00 96.90 201.94 227.80
55
Annexure 3
Kotak Mahindra bank 2007-08 2008-09 2009-10 2010-11 2011-12
OPM OPM 2.48 1.17 -1.67 -3.18 --
NPM NPM 16.91 17.13 19.19 12.75 19.28
ROE ROE 14.37 12.23 13.19 8.72 13.77
ROCE ROCE 8.406 9.594 11.782 5.477 7.965
WCT Net sales (in cr) 2188 2465 3045 3459 4949.08
Working capital -16721.4 -6915.6 -5887.3 -10095.63 --
TAT Net sales (in cr) 2188 2465 3045 3459 4949.08
Total assets(in cr) 83693.6 87585.3 106012.07 192259.7 214589.9
FAT Net sales (in cr) 2188 2465 3045 3459 4949.08
Fixed assets (in cr) 464.42 1106.94 1206.71 1551.59 1537.63
EPS EPS 18.31 19.62 24.20 11.42 18.57
Dividend DPS 0.70 0.80 0.90 0.50 0.83

Payout
EPS 18.31 19.62 24.20 11.42 18.57
Share Price Share Price 339.42 394.00 728.88 694.90 886.40
ROR DPS 0.70 0.80 0.90 0.50 0.83

P1 (End price) 339.42 394.00 728.88 694.90 886.40
P0 (Start Price) 301.38 358.25 417.30 737.65 719.80
56

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Final Year Dissertation on

Mergers & Acquisitions in Indian Banking Sector

Under the Guidance of:

Prof. G.C. Maheshwari

DELHI SCHOOL OF MANAGEMENT

Signature of Guide Signature of Head (DSM)

Place: Seal of Head

I, Tanu Bains, student of MBA 2015-17 of Delhi School of Management, Delhi

Chapter Title Page no.

Chapter 1 Introduction Page 1-7

1.1 Problem of the study

Chapter 2 M&A in Indian context Page 8-10

2.1 M&A Strategy

Chapter 3 Literature Review Page 11-20

3.1 Types of Mergers

Chapter 4 Analysis, Discussions & Recommendations Page 21-52

4.1 Introduction to the case

Appendix 2 Page 54-56

1.1 Problem of the study

1.2 Significance & Importance of the study

1.3 Research Methodology

 Why a particular research study has been undertaken?

a. Quantitative Research: This research includes aspects which may be quantified or

1. Exploratory Research Design

Research Objective Appropriate Design

To extract the background information and story Exploratory Research Design

To determine causality, to make if-then decisions Causal Research Design

Table 1.1 How to match Research Objective and Research Design

1. Defining the Target Population:

2. Defining the Sampling Technique used:

 Non-Probability Sampling Technique: Non-Probability sampling is a sampling

3. Defining the Sample Size

S.No. Name of the Acquiring Bank Target Bank Date of Merger

Defining the Research Problem

Figure 1.3 Research Methodology Steps

2. To identify the changes in parameters affecting Shareholder‟s value after announcement of

Hypotheses of the Study

2.1 M&A Strategy

2.1.1 Firm Diversification

2.1.2 Cross-Border Mergers & Acquisitions

2.2 M&A in Indian Banking Sector

S.No. Name of the Acquiring Bank Target Bank Date of Merger

2.3 Why Banking sector is chosen for the study?

3.1 Types of Mergers

3.1.1 Horizontal Mergers

3.1.2 Vertical Mergers

3.1.3 Conglomerate Mergers

3.2 Motives behind Mergers of Banks

3.4 Mergers & Acquisitions: Legal Framework

3.4.1 Companies Act, 2013

Section 230-231: When a compromise or arrangement is proposed between a company and

3.4.2 Income Tax Act, 1961

3.4.3 Competition Act, 2002

3.4.4 SEBI Guidelines

3.5 Major aspects of SEBI guidelines

3.6 Causes of Merger Failures

1. Overpayment: Overpayment which is a common cause of failure for mergers generally

4.1 Introduction to the case

To check Operational performance

To check Profitability Position