Analyzing Mergers and Acquisitions
in Banking Sector in India in the
Last Ten Years
Concept of Mergers and acquisition
Merger: When two or more companies combine
together and form a single company which leads to
the survival of one company and the other losing
their corporate existence.
Acquisition: is the acquiring of ownership in the
property. It involves the acquiring of the shares,
assets and liabilities of a company by some other
company. The combining companies survives
Types of mergers:
1. Vertical merger: Combination of two companies which
are operating in the same industry but at different stages
of production or distribution system.
2. Horizontal merger: Rival companies competing in the
same industry tends to share the same product line and
thereby take the mutual benefits of stability and support
from each other.
3. Co-generic merger: The acquirer and targets are related
through basic technologies, production processes and
4. Conglomerate merger: It involve firms engaged in
unrelated type of business activities.
Types of acquisition:
1. Hostile acquisition: When the target company is
reluctant or strongly oppose the takeover or acquisition
it is known as hostile takeover.
2. Friendly acquisition: It occurs when target company
managers and board of directors agree to a merger or
acquisition by another company.
Mergers and acquisition in banking sector
M&A in banking sector of India mainly aims at
following objectives and reasons:-
1. To increase the area of operation.
2. To enhance the market and dealing.
3. To introduce changes in the functioning and
4. To acquire adequate financial and/or
managerial resources for survival or growth or
5. Economic growth of the country
HDFC bank acquires Centurion bank of Punjab (May 2008)
Intent: For HDFC bank, this provided the oppurtunity to add
scale, geography (northern and southern states). For CBoP HDFC
bank would exploit its underutilized branch network.
Benefits: the deal created an entity with an asset size of
Rs1,09,718crores (7th largest in India) and improved distribution
with 1,148 branches and 2,358 ATM’s.
Drawbacks: The merged entity couldn’t lend home loans given the
conflict of interest with parent HDFC and may even sell down
CBoP’s home-loan book to it.
Bank of Baroda Acquires South Gujarat local area Bank (June ‘04)
Intent: SGLAB had suffered net losses in consecutive years and
witnessed a significant decline in its capital and reserves. RBI passed a
moratorium for the time period of six months and decided that all
seven branches of SGLAB functions as branches of bank of baroda.
Benefits: The clients of SGLAB were effectively transeffered to BoB,
deriving the advantage of dealing with a more secure and bigger
bank. It also contributed in strengthening its position in gujrat.
Drawbacks: the merger of the two banks caused a lot of financial and
managerial work, which created a sort of jeopardy.
United western bank merger with IDBI (October 2006)
Intent: likely to add value to the latter over the long term
and to help IDBI (industrial development bank of India) to
expand its retail presence. To introduce the synergies to the
Benefits: IDBI’s is helped to diversify its credit profile. IDBI
also got exposure to agriculture credit. It also facilitates in
the inrease in the workforce.
Drawbacks: the merger was a forced merger and thus has
its negative consequences. It lead to unemployement just
after the merger took place.
Oriental bank of commerce acquires Global trust bank Ltd
Intent: For Oriental bank of commerce there was an apparent
synergy post-merger as the weakness of global trust bank had
been bad assets and the OBC lay in recovery. Also helped
significantly in increasing the area of operation.
Benefit: OBC gained from the 104 branches and 276 ATM’s of
GTB, a workforce of 1400 employees and one million customer.
The merger also filled up OBC’s lacuna – Computerization and
Drawbacks: The merger resulted in a low CAR for OBC, which
was detrimental to solvency.
• Mergers and acquisition are of utter importance for the
development and growth of the countries economy.
• It aims towards business restructuring and increasing
competitiveness and shareholders value via increased
• It introduces synergies in the companies which get merged
or undergo acquisition.
• It aims towards improving efficiencies, lowering costs and
• It provide various opportunities, benefits in different terms