Comparative Analysis of Merger and Acqutiion

M&As in the Indian Banking Sector - Strategic and Financial Implications

Faculty Contributor: Srinivasan R., Associate Professor

Student Contributors: Gourav Chattopadhyay, Arvind Sharma

Like all business entities, banks want to safeguard against risks, as well as exploit available opportunities indicated by existing and expected trends. M&As in the banking sector have been on the rise in the recent past, both globally and in India. In this backdrop of emerging global and Indian trends in the banking sector, this article illuminates the key issues surrounding M&As in this sector with the focus on India. It seeks to explain the motives behind some M&As that have occurred in India post-2000, analyse the benefits and costs to both parties involved and the consequences for the merged entity. A look at the future of the Indian banking sector, and some key recommendations for banks, follow from this analysis.

The International banking scenario has shown major turmoil in the past few years in terms of mergers and acquisitions. Deregulation has been the main driver, through three major routes - dismantling of interest rate controls, removal of barriers between banks and other financial intermediaries, and lowering of entry barriers. It has lead to disintermediation, investors demanding higher returns, price competition, reduced margins, falling spreads and competition across geographies forcing banks to look for new ways to boost revenues. Consolidation has been a significant strategic tool for this and has become a worldwide phenomenon, driven by apparent advantages of scale-economies, geographical diversification, lower costs through branch and staff rationalization, cross-border expansion and market share concentration. The new Basel II norms have also led banks to consider M&As.

This article looks at some M&As that have happened post-2000 in India to understand the intent (of the targets and the acquirers), resulting synergies (both operational and...