Re-Engineering of Banking Sector Through Merger & Acquisition (with Reference to Selected New Private Sector Banks in Chennai)

Abstract:     
Merger and acquisition of Indian banking has occupied an important place amongst the personnel and policy-makers of banking system in recent years, as a sequel to economic reforms to bring in equilibrium and stability in the banking industry. Whether it is merger and acquisition in the free markets or consolidation in the international markets, the underlying objective is similar. Mergers have been considered as a possible avenue for improving the structure and efficiency of the banking industry.

Merger is that the value of the combined entities is expected to be greater than the sum of the independent values of the merging entities to reap the following benefits, cost benefits economies of scale, organizational efficiency, funding, costs and risks diversification, revenue benefits - economies of scale, enhancing monopoly rents, and economic conditions - mergers after business crisis or after the upswing of the business cycle to initiate strategies. Other consideration private managerial benefits, defense against takeover. Further, there is variety of reasons to induce merger proposals. Some of them are synergy, tax considerations, economies of scale in operations, diversification. Merger taking place in India are in line with the trend of consolidation that has characterized the financial services industry and, in particular, the banking industry. The world over, banks have been merging at a furious pace, driven by the urge to gain synergies in their operation, derive economies of scale and offer one-stop facilities to a more demanding clientele.

The financial and strategic management aspect of merger is to be analyzed from several angles and the study evaluated financial implications before and after mergers in the banking industry. Further, the reaction of security prices to announcement of M & A decisions are also studied. Survival is the ultimate objective of any organization and Mergers and Acquisitions is one form of survival strategy the predominant factors which create target and source banks for the M&A, were also not discussed in the literature works.

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