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  1. By: Tanupriya Singh 22SMG1R19 Bank mergers in India: An implicative analysis
  2. What is Merger and Amalgamation? •A merger occurs when two or more companies/entities combine to form either a new company or an existing company that absorbs the other target companies. • For example, the consolidation of two entities, Tata Steel and the UK-based Corus Group, with the resulting entity being Tata Steel. •Amalgamation is a type of merger in which two or more businesses combine to form a completely new entity/company. • For example, combination of two entities Mittal Steel and Arcelor have formed a new entity, ArcelorMittal
  3. How is Merger and Amalgamation initiated? • Any two public sector banking entities may initiate merger talks, but the merger scheme must be finalised by the government in consultation with the central bank and voted on in Parliament. • The scheme may be modified or rejected by Parliament. Parliamentary approval is also required in the case of a merger between a public sector bank and a private bank. • Most bank mergers have resulted from the central bank's efforts to safeguard the financial system and depositors' funds. • Mergers anticipate that weak banks will sell assets, cut costs, and close loss-making branches.
  4. Banking merger history Bank Of Bengal Renamed from bank of calcutta 1809 State bank Of India Post independence in 1955 Bank of Madras Imperial Bank Of India IBI(1921) Bank Of Bombay 1840 1843
  5. ● The Banking Regulation Act of 1949 specifies the procedures for bank consolidation. ● The idea of bank mergers has been floating around since 1998, when the M. Narasimham Committee recommended to the government that banks be merged into a three-tiered structure — 1. Three large banks with an international presence at top 2. Eight to ten national banks 3. Large number of regional and local banks. ● In 2014, the PJ Nayak Committee recommended that the government privatise or merge some PSBs. ● The government approved the "merger" of SBI's five associate banks and Bharatiya Mahila Bank (BMB) with SBI in 2017. ● In 2017, the government formed an Alternative Mechanism Panel, led by the Minister of Finance and Corporate Affairs, to investigate merger proposals of public sector banks. Historical Perspective
  6. ● The period is called pre nationalization period because in 1969 the government nationalized 14 private banks. ● As many as 46 mergers took place mostly of private banks to revive the poorly performing banks. Merger and nationalisation during 1961-69 The period from 1969-1991 • The period was called post nationalization period .It saw 6 private banks being nationalised in 1980. • In this period 13 banks got merged. Mostly these were private public bank mergers.
  7. PSB Merger timeline in India SBI 2017 Bank Of Baroda 2019 Punjab national bank Oriental Bank of Commerce United Bank of India 2021 Union Bank of India Andhra Bank Corporation Bank 2021 State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of Mysore State Bank of Patiala State Bank of Travencore Bharatiya Mahila Bank Dena Bank Vijaya Bank Canara Bank Syndicate Bank Indian Bank Allahabad Bank
  8. Consolidation of 27 PSB’s into 12
  9. Business implications in terms of money PCR: provision covering ratio Common Equity Tier 1 capital (CET1) is the highest quality of regulatory capital, as it absorbs losses immediately when they occur. Capital to Risk (Weighted) Assets Ratio (CRAR). In other words, it is the ratio of a bank's capital to its risk-weighted assets and current liabilities.
  10. Advantages of bank mergers Better global competition and low cost Merged banks Increased geographical coverage Uniform wages Minimisation of risk
  11. Disadvantages of bank mergers Having bad loans, bad books and stressed accounts Smaller banks Confusion for customers Loans All the weaknesses of non performing banks transferred Big bank Lack of options Reduced compettion Bigger bank is in more stress NPA
  12. Problematic Areas Credit cards 25% Mortgages 15% Loans 27% Investments 85%
  13. Conclusions Customer Base Major acquisitions have strategic implications because they leave little scope for trial and error and are difficult to reverse Approval the probability of a rejected approval is very low but the consequences of the failure are significant Employees Causes employees to leave and result in poor employee motivation levels. Risk risks involved are much more than financial in scope. A failed merger can disrupt work processes, diminish customer confidence, damage the company’s reputation,
  14. Shoot Questions if any!
  15. References Websites   nal/banking-sector.html        Directors-Report/Oriental-Bankof-Commerce/500315  acquisitions-reports/asia-march-2009.jhtml