REGIONAL RUAL BANKS IN KARNTKA

“Transforming the Indian Banking Sector through Mergers and
Acquisitions:” A Study with Special Reference to Regional Rural
Banks in Karnataka
Synopsis for Thesis Submitted to the University of Mysore for the Degree of
Doctor of Philosophy in Commerce
Submitted by
JAYAPRASAD. D
Research Scholar
Under the Guidance of:
DR. M. KUMARASWAMY, M.Com, Ph.D.,
Faculty, DOS in Commerce,
University of Mysore, Post Graduate Centre
Hemagangothri, Hassan- 573220
DEPARTMENT OF STUDIES IN COMMERCE
MANASAGANGOTHRI, UNIVERSITY OF MYSORE
MYSURU- 570006
JULY- 2015

Introduction:
Due to globalization Indian public sector banks have been facing keen competition
from the Private Sector and Foreign banks as well. As is well known, survival of the fittest is
the core theme in the global market today. Sustenance and growth of public sector banking
is very essential for a balanced and effective economic development. Increased competition
has made this a challenging task.
It is imperative that there is an urgent need to strengthen the weak public sector
banks. To strengthen the public sector banks, the Ministry of Finance, Government of India
and Reserve Bank of India have introduced various strategies such as support through
deposit investment and credit guarantee corporation of India, direct aids given by the
government as per the recommendation of various committees, turnaround strategy for weak
public sector banks, direct investment on the public sector bank securities by the Central
government etc,. However have all been failures? It is in this situation, ‘Mergers and
Acquisition’ is seen as a favored strategy in the banking sector.

A merger is a combination of two or more organizations into a
single organization. This combination may be either through absorption or
consolidation. In an absorption, one organization absorbs another
organizations, whereas under consolidation two or more organizations
combine to form a new organization. In legal parlance, mergers and
amalgamations are synonymous. Merger that takes place between two
organizations in the same line of business becomes horizontal merger. On
the other hand a vertical merger is one in which the buyer expands
backwards and merges with the organizations supplying raw material or
expands forward in the direction of the ultimate consumer. When the
merging companies are in totally unrelated lines of business, it becomes a
conglomerate merger.

Merger has defined under the ITA but has been covered under the
term 'amalgamation' as defined in section 2(1B) of the Act. To encourage
restructuring, merger and demerger has been given a special treatment in
the Income-tax Act since the beginning. The Finance Act, 1999 clarified
many issues relating to Business Reorganizations thereby facilitating and
making business restructuring tax neutral. As per the Finance Ministry this
has been done to accelerate internal liberalization. Certain provisions
applicable to mergers/demergers are as under: Definition of
Amalgamation/Merger -Section 2(1B). Amalgamation means merger of
either one or more companies with another company or merger of two or
more companies to form one company.

Motives behind Consolidation:
1. Economies of scale: This refers to the fact that the combined company can often reduce
duplicate departments or operations, lowering the costs of the company relative to the
same revenue stream, thus increasing profit.
2. Reduce intra and inter companies’ competitions: To avoid intra and inter banks
competition in the domestic economy and to strengthen their competitive potential to face
the open market competition in the global market.
3. Increased revenue/Increased Market Share: This motive assumes that the company will
be absorbing a major competitor and thus increase its power (by capturing increased
market share) to set prices.
4. Cross selling: bank buying a stock broker could then sell its banking products to the
stock broker's customers, while the broker can sign up the bank's customers for brokerage
accounts. Alternatively a manufacturer can acquire and sell complementary products.

5. Synergy: Better use of complementary resources. Deployed the surplus human resource for
diversified new banking non fund bases services.
6. Taxes: A profitable company can buy a loss maker to use the target's loss as their advantage by
reducing their tax liability. In the United States and many other countries, rules are in place to limit the
ability of profitable companies to "shop" for loss making companies, limiting the tax motive of an
acquiring company.
7. Geographical or other diversification: This is designed to smooth the earnings results of a
company, which over The long term smoothen the stock price of a company, giving conservative
investors more confidence in investing in the company. However, this does not always deliver value to
shareholders.
8. Resource transfer: resources are unevenly distributed across firms (Barney, 1991) and the
interaction of target and acquiring firm resources can create value through either overcoming
information asymmetry or by combining scarce resources.
9. Increased Market share which can increase market power: In an oligopoly market, increased
market share generally allows companies to raise prices. It may be noted that while this may be in the
shareholders' interest, it often raises antitrust concerns, and may not be in the public interest.

Mergers and Acquisition in Banking:
Mergers and Acquisitions is not a new strategy in the Indian
banking sector. It dates back to the beginning of banking in India. In 1921
the Bank of Bengal, the Bank of Bombay and the Bank of Madras were
merged to form the Imperial Bank of India, which subsequently was
converted as the State Bank of India in 1955 when the Government took
over control of its operations. Today, Mergers and Acquisitions is a term
which is hardly used in the banking industry as business deals, but
perceived as a strong strategy which can be trusted upon for long run
survival and sustenance. It is always taken in a negative sense instead of
considering it as a business potential.

In the past, whenever the Government felt that a commercial
bank had become weak, either financially or managerially, a decision
was taken to merge it with some strong bank. Some examples of such
mergers include Hindustan Commercial Bank and New Bank of India
with Punjab National Bank and Laksmi Commercial Bank with Canara
Bank, Nedugundi banks with Punjab National Bank, Bank of Muscat
with Centurion bank, GTB with Oriental Bank of Commerce and the
proposal of the associate banks with SBI. These steps are an attempt to
consolidate and strengthen the financial position and to increase the
market share of Indian banking.

History of Karnataka State:
Karnataka was earlier called as Karunadu (elevated land) in ancient times. The course of
Karnataka's history and culture takes us back to pre-historic times. The earliest find of the Stone Age
period in India was a hand axe at Lingasugur in Raichur district. The Ashoka rock edicts found in the
State indicate that major parts of Northern Karnataka were under the Mauryas. Chandragupta Maurya,
the great Indian emperor abdicated the throne and embraced Jainism at Shravanabelagola. Adding new
dimensions to the cultural and spiritual ethos of the land, many great dynasties left their imprint upon
the aesthetic development of Karnataka's art forms. Prominent among them were the Chalukyas, the
Hoysalas and the mighty Vijayanagara Empire.
Hyder Ali and his valiant son Tipu Sultan are notable figures in the history of the land. They
expanded the Mysore kingdom on an unprecedented scale and by their resistance against the British,
became personages of world fame. Tipu Sultan "Tiger of Karnataka" was killed in 1799 A.D., and the
Mysore throne was handed over to the Wodeyar the whole of Karnataka came under the control of the
British in the beginning of the 19th century. The new state was named as new Mysore and the Maharaja
of Mysore was appointed Governor by Independent India. This unified state was renamed as Karnataka
on November 1, 1973.

Karnataka is one of the economically more progressive states in India with
a GSDP (Gross State Domestic Product) of 9.2percent for the year 2012-2013. The
total GDP of Karnataka in 2006-2007 was about Rs. 1940.09 billion ($ 46.19
billion). With an overall GDP growth of 56.2Percent and a per capita GDP growth
of 43.9percent in the last decade, Karnataka surpassed all other states in India in
terms of economic growth and pushed Karnataka's per capita income in Indian
Rupee terms to the sixth place. Till September 2006, Karnataka had received a
Foreign Direct Investment of Rs. 78.097 billion ($ 1.7255 billion) for the fiscal
year 2012-13, placing it in third place among the states of India. At the end of
2004, the unemployment rate in Karnataka was 4.94percent compared to the
national rate of 5.99percent. For the fiscal year 2012-13, Karnataka's inflation rate
was 4.4percent, which was lower than the national average.

Regional Rural Banks in Karnataka:
Regional Rural Banks have been in existence for around four decades in the Indian financial
scene. Inception of regional rural banks (RRBs) can be seen as a unique experiment as well as
experience in improving the efficacy of rural credit delivery mechanism in India. With joint share
holding by Central Government, the concerned State Government and the sponsoring bank, an effort
was made to integrate commercial banking within the broad policy thrust towards social banking
keeping in view the local peculiarities. The genesis of the RRBs can be traced to the need for a stronger
institutional arrangement for providing rural credit. The Narsimham committee conceptualized the
creation of RRBs in 1975 as a new set of regionally oriented rural banks, which would combine the
local feel and familiarity of rural problems characteristic of cooperatives with the professionalism and
large resource base of commercial banks. Subsequently, the RRBs were set up through the promulgation
of RRB Act1 of 1976. Their equity is held by the Central Government, concerned State Government
and the Sponsor Bank in the proportion of 50:15:35. RRBs were supposed to evolve as specialized rural
financial institutions for developing the rural economy by providing credit to small and marginal
farmers, agricultural labourers, artisans and small entrepreneurs.

Over the years, the RRBs, which are often viewed as the small man’s bank,
have taken deep roots and have become a sort of inseparable part of the rural credit
structure . They have played a key role in rural institutional financing in terms of
geographical coverage, clientele outreach and business volume as also contribution to
development of the rural economy. A remarkable feature of their performance over the
past three decades has been the massive expansion of their retail network in rural areas.
From a modest beginning of 6 RRBs with 17 branches covering 12 districts in
December 1975, the numbers have come down to 3 of RRBs with 1645 branches
working all 3o districts across the state in March 2015.. RRBs have a large branch
network in the rural area forming around 43 per cent of the total rural branches of
commercial banks. The rural orientation of RRBs is formidable with rural and semi
urban branches constituting over 97 per cent of their branch network. The growth in
urban branch network has enabled the RRBs to expand banking activities in the
unbanked areas and providing banking services both in rural and urban areas.

Merger and Acquisition strategy – RRB’s in Karnataka
In the year 2004 government appointed, a committee under the Chairmanship of A.V
Sardesai revisited the issue of restructuring the RRBs (Sardesai Committee, 2005). The Sardesai
committee held that ‘to improve the operational viability of RRBs and take advantage of the economies
of scale, the route of merger/amalgamation of RRBs may be considered taking into account the views of
the various stakeholders’. Merger of RRBs with the sponsor bank is not provided in the RRB Act 1976.
Mergers, even if allowed, would not be a desirable way of restructuring. The Committee was of the
view that merging a RRB with its sponsor bank would go against the very spirit of setting up of RRBs
as local entities and for providing credit primarily to weaker sections. Having discussed various options
for restructuring, the Committee was of the view that ‘a change in sponsor banks may, in some cases
help in improving the performance of RRBs. A change in sponsorship may, inter alia; improve the
competitiveness, work culture, management and efficiency of the concerned RRBs’. Against this
backdrop, a number of issues need empirical probing. Such as, which are the RRBs that need focus and
whether for them the sponsor bank has really to be made accountable.

Before the first phase of consolidation started in 2005, the number of RRBs was
196. “Today, many RRBs have less than 50 branches. They can never be viable, as
technology adoption costs are very high. We want to ensure they are of a reasonable size so
that they have economies of scale,” said a Finance Ministry official. About two months
earlier, the Ministry had written to all commercial banks, dividing these into seven groups.
Each group comprised a large bank as a coordinator for two to three small banks on issues
such as human resources, e-governance, internal audit, fraud detection and recovery. Senior
bankers said both moves of the merger of RRBs and setting up bank pools would make it
easier for the government to consolidate commercial banks. Though Finance Ministry
officials said the government wouldn’t force banks to merge, large coordinating banks
frequenting small banks in their pool has led to rumors of consolidation in banking
circles.“The groups were formed keeping the CBS (Core Banking Solution) platform in
mind. The merger of RRBs also happened within the same CBS group. All these measures
enable consolidation of commercial public sector banks,” said a senior banker to Business
Standard.

The first phase of consolidation saw the number of RRBs falling from 196 in
2005 to 82 by the end of March 2012. Here, consolidation was carried out by merging
different RRBs within a state with their respective sponsoring banks. In the second
phase which started it was fiscal and the strategy was to amalgamate RRBs operating in
geographical that are contiguous even if they were sponsored by different public sector
banks. The newly amalgamated RRB would then come under the sponsorship of a
major bank operating in the state/region. RRBs have around 18,000 branches across the
country in rural areas and small towns, and their total business was Rs.3.25 lakh crore
in 2011-12, posting a net profit of Rs. 1, 900 crore. VK Bannigol, Joint Secretary, All
India Regional Rural Bank Employees Association, said the association has proposed to
the Finance Ministry about setting up an independent RRB in each state, which would
act as the local head office to a centralized National Rural Bank of India. The national
body can then take decisions for the local RRBs.

Table No. 01
Status of the Regional Rural Banks in Karnataka before first phase of Mergers and Acquisition
Sl no Name of the Banks
Year of
Establishment
Districts
Covered
1 Tungabhadra Grameena Bank 20-01-1976 Raichur-Bellary
2 Malaprabha Grameena Bank 16-08-1976 Dharwad-Belgum
3 Cauvery Grameena Baank 02-10-1976 Mysore-Hassan
4 Krishna Grameena Bank 1-12-1978 Bidar
5 Chitradurga Geameena Bank 05-08-1981
Chitradurga-
Tumkur
6 Kalpatharu Grameena Bank 31-03-1982 Bangalore(Rural)
7 Kolar Grameen Bank 16-02-1983 Kolar
8 Bijapur Grameean Bank 31-03-1983 Bijapur
9
Chikkamagalauru-Grameena
Bank
28-04-1984
Chikkamagaluru-
Coorg
10 Sahayadri Grameena Bank 06-09-1984 Shimoga
11 Netravathi Grameena Bank 11-10-1984 South Canara
12 Varadha Grameena Bank 12-10-1984 North Canara
13 Vishveshwariah Grameena Bank 27-03-1985 Mandya
Source: State Focus paper, Karnataka and NABARD Annual Reports.

Table No. 02
Status of the Regional Rural Banks in Karnataka after second phase Mergers and Acquisition
Sl No Name of the Banks
Sponsor s
Bank
Year of
Establish
ment
Number of
Districts
Covered
Number
of
Branches
1 Krishna Grameena
Bank
State Bank of
India
1-12-1978 2 109
2
Chikkamangalur
and Kodagu
Grameena Bank
Corporation
Bank
28-04-
1984
2 47
3
Vishveswaraiah
Grameena Bank
Vijaya Bank
27-03-
1985
1 27
4
Karnataka Vikas
Grameena Bank
Syndicate
Bank
12-09-
2005
9 407
5
Pragathi Grameena
Bank
Canara Bank
12-09-
2005
7 360
6
Cauvery Kalpatharu
Grameena Bank
State Bank of
Mysore
24-05-
2006
8 203
Sources: State Focus paper, Karnataka and NABARD Annual Reports.
Note: * Date of Amalgamation

Table No.03
Present Status of Regional Rural Banks in Karnataka: as on 31-03-2015
Sl
Sl No
Name of the
Banks
Sponsor s
Banks
Year of
Establishment
No of
District
Covered
Number of
Branches
1
Kaveri
Grameena Bank
State Bank of
Mysore
01-12-2012 10 450
2
Karnataka Vikas
Grameena Bank
Syndicate
Bank
12-09-2005 09 545
3
Prgathi Krishna
Grammena
Bank
Canara Bank 23-08-2013 11 645
As on 31st march, 2015 as per recommendation of the various committees
RRBs were merged. In Karnataka also 13 regional banks rural were mergers
and new three regional rural banks were operating in Karnataka at present.

REVIEW OF LITERATURE:
Literature survey used was strongly based to the research on
transformation of the banking sector and a study of Regional Rural Banks
through mergers and acquisitions in Karnataka.
The researcher has attempted to review some of the commission and
committee reports.
1. Monopolies Enquiry Commission Report (1969) The Commission
observed that, merger and acquisition, which often provides the way to
monopoly, have been comparatively few in India. Horizontal merger and
acquisitions are often an essential mode to improve efficiency and to
achieve economies of scale, while vertical mergers and acquisitions may
help cut costs. They are also of the opinion that the merger and acquisition
is harmful to public interest.

2. Sachar Committee Report (1977). In August, 1977, the Government of India
appointed a Committee under the chairmanship of Justice of Rajinder Sachar to
review the Companies Act, 1956, and the Monopolies and Restrictive Trade
Practices Act, 1969. The committee suggested that since amalgamation and
reconstruction had become a reality of life and powers of regulating these should be
given to the District court in the case of small companies. However, in the case of
the companies registered under the MRTP Act, no change was suggested in the
existing procedure.
3. Committee on Restructuring of RRBs (Bhandari Committee, 1994)Apart from
identifying 49 RRBs for comprehensive restructuring, the committee made wide
ranging recommendations relating, inter-alia, to the appointment of Chairman /
CEO, delineation of roles and responsibilities of supervising agencies of RRBs, staff
matters, improving returns on SLR and non-SLR investments and improving funds
management, augmentation of share capital, expansion of the scope of business
avenues, deregulation of interest and rationalization of branch licensing policy.

• Special emphasis was laid on skills of up-gradation of the staff of RRBs.
• Professionals and not politicians to be nominated on the Boards of RRBs.
• Greater devolution of decision making powers to the Boards of RRBs in the matters
of business development and staff matters.
4. Committee on Revamping of RRBs (BASU Committee, 1996)
1. Apart from identifying 68 RRBs for restructuring under the Second Phase,the Base
Committee made certain recommendations on operational matters as well.
Introduction of Prudential Norms for RRBs with suitable modifications,
Subsidizing RRBs to the extent of the cost of DICCGCI premium in respect of
loans below Rs.25000/- or allowing RRBs to pass on this cost to the borrower, were
some recommendations.
2. Introduction of a Floating Rate Mechanism linked to the coupon rates for improving
yields on SLR investments of RRBs.
3. Need to redefine the role of shareholders of RRBs more precisely.

4. Broad-basing the selection of Chairmen of RRBs.
5. Some of the RRBs might not be able to respond positively to the 'Stand Alone'
Approach or any other revamping strategy; liquidation of such RRBs might be
the only solution.
6. Reserve Bank of India (1996), Report of the Committee on Revamping of RRBs,
(Basu Committee). Reserve Bank of India (1997),
7. Expert Group on RRBs (Thingalaya Committee, 1997)
8. Categorization of RRBs as per their viability status and size to provide
appropriate policy treatment to them.
9. Very weak RRBs to be viewed separately and possibility of their liquidation be
recognized. They might be merged with neighbouring RRBs.
10. Special package for RRBs in the North-Eastern Sector.

11. RRBs to be permitted to open branches at centers having high business
potential.
12. Adequate autonomy to Board of Directors for decisions on all matters relating
to business without having to refer to apex authorities.
13. Delegation of authorities as per the size and viability status of RRBs.
14. Strengthening of Internal Inspection System and set-up in RRBs and
introduction of Vigilance Cells. Realistic RRB - specific staff review and
recruitment policy. Role overlap between RBI, NABARD and Sponsor Banks
to be avoided.

5. Committee on Manpower Norms in RRBs (Agrawal Committee, 2000)
Norms for staffing in RRBs to be pegged at 4.20 per unit, (HO/ Area Office
/Branch being treated as one unit each), with relaxation for RRBs in the North-Eastern
Region and hilly and desert areas. Additional manpower to be available only for RRBs
with CD Ratio exceeding 60percent ratio and NPAs lower than the industry average by
5percent Points.
1. Staffing set-up of head office of RRBs was suggested in four categories separately for
RRBs with branches up to 50, those up to 100 branches, those with up to 150 branches
and those having more than 150 branches.
2. Area Offices for every 25 branches with its location in the field.
3. One scale up-gradation of the posts of Chairman, General Manager and Area Managers
/ Senior Managers.
4. Manpower surplus / shortages to be managed by deputation of staff from surplus RRBs
to deficit RRBs, by opening new branches / closure of unviable branches,
computerization, outsourcing, redeployment of staff etc.
5. RRB-staff with due experience to be considered for the post of General Manager.
6. Abolition of clerical cadre over a period of time by converting the staff into multi-
purpose workers.
7. RRBs to achieve computerization in Head Office, Area Office and at least 50percent of
its branches in 5 year period.
8. Report of Manpower Committee norms in RRBs (2) (2000), Daya Publications, New
Delhi.

Review of Doctoral Thesis
A number of scholars have carried out research work on corporate restructuring through
mergers and acquisition, in banking. However, the research works carried out in India
are very few as compared to that of The U.S and The U.K.
1. The valuation of international mergers and acquisitions of financial firms, abnormal
returns acquiring share holders of the financial firms participating in International
mergers and acquisitions are hypothesizing to be statically different from those arising
out of domestic acquisition, according to the thesis work of Rita Biswas, (1990)
“International mergers and acquisitions of financial firms”
2. Panchali Jinesh Natverial (1994), worked on an enquiry into selected corporate
takeover, as the buying of one company (the ‘target’) by another. An acquisition may
be friendly or hostile. In the former case, the companies cooperate in negotiations; in
the latter case, the takeover target is unwilling to be bought or the target's board has no
prior knowledge of the offer.
3. Rajbir Singh (1996), in his research, says that mergers and acquisition refers to the
aspect of corporate strategy, corporate finance and management, its dealing with the
buying, selling and combining of different companies that can aid, finance, or help a
growing company in a given industry growing rapidly without having to create another
business entity.
4. Parvathi N (1998), feels that the process with the amendment of the Act supports
mergers and acquisition in the Indian economy and proper guidelines and supervision
of the process is much needed in the area.
5. Kotaru Ravi Shankar (1998), reveals that Indian companies can increase their
strengths to face the global competitions by takeover strategy.

6. Beena P.L. (2000), in an analysis of the changing structure of Indian oligopoly”, the researcher
found out that, mergers and amalgamation processes in the Indian companies effectively manage
the competition and organize themselves in the monopoly market environment.
7. Paturkar Ashutosh Arvindrao (2002), stressed companies should gear themselves up to a find place
in the global pharmaceutical industry through mergers and acquisition process and strengthen their
financial base.
8. The researcher has brought out the synergic benefits availed of in horizontal mergers in India in his
research work Choudhary Sachin (2003), which stresses on the synergic effects mainly through
use of financial parameters period (1900-2000.)
9. Khaisa Amarjeet Singh (2003) is the researcher who has made a comparative study of mergers and
acquisition between private and public sector undertakings in India during 1992-2001 suggesting
the companies selected had good experience in the process and increased their performance.
10. Gopalakrishna K.S. (2005) has studied the impact of corporate restructuring on the shareholders of
acquiring and acquired companies in India which gradually. Slightly decrease the shareholder’s
value in the beginning and gains movement.

A review of some of the important research thesis carried outside India has been
presented as below:
11. Goldberg, Lawrence G.’s (1972), studied finds that, there are changes in concentration of
the acquiring company due to conglomerations. He has proved that Goldberg, Lawrence
G, 1972, Chicago University, Chicago, USA.
12. Jiang, Bin (1998), the author, observes that the acquirer is more likely to choose a
contingent fee contract if the deal is larger, and if the deal is a tender offer. However, the
acquirer is less likely to use contingent fee if the payment of consideration is cash rather
than stock, or if the acquirer is a financial investor, or if the acquirer has previous
acquisition experience and such experience was successful.
13. Hayward, Mathew Lisle Alister (1999) catalogues the acquisition experience of 20
acquirers from 6 industries taken from 1985 to 1995 to study this proposition. The
researcher concluded that result acquires experience for a better acquisition performance
when: 1) they are managed by the CEO with a longer tenure at the firm, 2)there are
moderate temporal intervals since their prior acquisitions.3) They have previously
undertaken acquisitions of different sizes, 4) they make small, prior acquisition mistakes
and 5) They do not have investment banking advisors.
14. “The global bank mergers wave: Implications for developing countries”, a project work
undertaken by Gary A. Dymski,(2002) mentions that mergers and acquisition have
become the primary means of bank expansion especially for the banking firms seeking
commanding heights in global markets.

Review of articles:
1. Mantravadi Pramod and Reddy A. Vidyadhar (2007), evaluated the impact of merger on the
operating performance of acquiring firms in different industries by using pre and post financial ratio to
examine the effect of merger on firms. They selected all mergers involved in public limited and traded
companies in India between 1991 and 2003, the result which suggested that there was little variation in
terms of impact as operating performance after mergers. In different industries in India, particularly the
banking and finance industry, it had a slightly positive impact of 20 Mantravadi, Pramod and Reddy, A
Vidyadhar (2007), “Relative Size in Mergers and Operating Performance: Indian Experience” Economic
and Political Weekly. profitability on pharmaceutical, textiles and electrical equipment sector and showed
the marginal negative impact on operative performance. Some of the industries had a significant decline
both in terms of profitability and return on investment and assets after merger.
2. Manoj Anand and Jagandeep Singh (2008), analyzed five mergers (all private sector banks) in the
Indian banking sector to understand the nature of the returns to shareholders following merger
announcements employing the event study methodology. They observed that the merger announcements in
the Indian banking industry had positive and significant shareholder wealth effect both for the bidder and
the target banks. In summary, most studies failed to observe a positive association between merger activity
and gains in either operating performance or stockholder wealth across a wide variety of methodologies
and samples.
3. Professor Dilip Khankhoje and Dr. Milind Sathye (2008) have measured the variation in the
performance in terms of productive efficiency of RRBs in India and assessed whether the efficiency of
these institutions increased post-restructuring in 1993-94 or not.
4. R. Srivassan et al., (2009), gave their views on financial implications and problems occurring in
Merger and Acquisitions, and highlighted the cases for consolidation and discussed the synergy based
merger which emphasized that merger is for making large size of the firm but no guarantee to maximize
profitability on a sustained business as there is always the risk of improving performance after merger.

5. Egl Duksait and Rima Tamosiunien (2009), described the most common motives for companies decision
to participate in merger and acquisition transactions. The reason is growth, synergy, access to intangible
assets, diversification, horizontal and vertical integration and so on arises from the primary company’s
motive to grow. Most of the motivations fadvantage within their respective industries. However, it may be
that some of the motives identified, affect some industries more than others, and in that sense they can be
expected to be associated with a greater intensity of mergers and acquisitions in certain sectors rather than
others. or mergers and acquisition serve as means of reshaping competitive
6. Dr. M.Syed Ibrahim (2010), carried out a study on the topic ‘Performance Evaluation of Regional Rural
Banks in India’. In this study, it was concluded that RRBs in India showed a remarkable performance in
the post-merger period. As none of these studies analyzed the role of RRBs in the priority sector lending,
there was a need to carry out the present study.
7. Frank C. Evans et.al provided the tools to answer questions like “What is the company’s worth?” “How
much more would a strategic buyer pay to acquire it?” “What factors most affect the company’s stock
value?” “ What is the owner’s real return on investment and rate of return?” etc. The authors also provided
detailed guide for sellers and buyers to prepare for the sale and acquisition of a firm, spelling out how to
identity, qualify and quality of the synergies that increase value to strategic buyers.
8. Annette Risberg in her book on “Mergers and Acquisitions in Banking” remarks that mergers and
acquisitions remain one of the most common forms of growth, while presenting considerable challenges
for the banks and management involved. Mergers, acquisitions and joint ventures raise important issues for
the stakeholders in those firms such as customers, managers and employees. Moreover, they have wider
implications for the economy, including the level of competition and employment. The author book
divides the book into two main sections covering pre-mergers and acquisition and post mergers and
acquisition issues. These parts are each divided into a number of sections covering such issues as motives,
planning, integration, communication and employees' experiences.

9. Aharon David Y et al., (2010), analyzed the stock market bubble effect on Merger and
Acquisitions followed by the reduction of pre bubble it and subsequent bursting of the
bubble. Seems to have led to further consciousness by the investors and provides evidence
which suggests that during the euphoric bubble period investors take more risk. Merger of
banks through consolidation is the significant force of change took place in the Indian
Banking sector.
10. Sinha Pankaj and Gupta Sushant (2011), studied a pre and post analysis of firms and
concluded that it had positive effect as their profitability, through in most of the cases
deteriorated liquidity. After a period of few years of Merger and Acquisitions it came to the
point that companies able to leverage the synergies arising out of the Merger and Acquisition
that have not been able to manage their liquidity. The Study showed the comparison of pre
and post analysis of the firms. It also indicated the positive effects on the basis of some
financial parameters like Earnings before Interest and Tax (EBIT), Return on share holder
funds, Profit margin, Interest Coverage, Current Ratio and Cost Efficiency etc.
11. Goyal K. A. and Joshi Vijay (2011), in their paper, gave an overview on the Indian banking
industry and highlighted the changes that occurred in the banking sector post liberalization
and defined the Merger and Acquisitions (M & As) as per Accounting Standard-14. The need
of Merger and Acquisition in India has been examined under this study. It also gave the idea
of changes that occurred after M&As in the banking sector in terms of financial, human
resource and legal aspects. It also described the benefits to emerge out through M&As and
examined that M&As is a strategic tool for expanding their horizon and companies like the
ICICI Bank has used merger as their expansion strategy in the rural market to improve
customers base and market share. The sample of 17 Mergers of post liberalization
communication in M&As, are discussed. The study also enlightened the role of the media in
M&As.

Review of project reports, working papers:
1. Prof. Otto Sobek, CSc. Reports on “Bank mergers and acquisitions – their
essence and rationale”, mentions that from the past few years, professional
literature on banking has paid increased attention to mergers and acquisitions.
The banks savings and cuts in prices for services, and mergers are attended by
certain negative consequences and risks as well. Mergers necessarily lead to
changes in the organization of banks, causing a fall in the number of
employees. Newly established large banks may restrict competition and thus
breach the rules of economic competition. A well-known phenomenon is,
including Slovakia, that these banks often become too large to be allowed to
‘fail’, which may lead them to pursue a careless lending policy, relying on the
fact that they will be saved by the state or by international institutions. The
concentration of banking in a few institutions may also increase the likelihood
of a banking crisis. The risks involved in bank mergers were recently
emphasized by Alan Greenspan, Chairman of America’s Federal Reserve
System, when he spoke about the dangers of mega mergers in the banking
sector. Mergers and acquisitions have existed in market economies since at
least the last third of the 19th century and they quickly spread to the banking
industry: e.g. the number of banks in England decreased from 600 in 1820 to
55 in 1914. In the first half of the 20th century, the process slowed due to
antimonopoly legislation.

2. Kai Taraporevala James Winterbotham reports on “India Inc. High on
mergers and acquisitions”, that mergers and acquisition activity in the first
half of 2005 broke out of the flat trend seen since mid-2002. In the data
recorded, 277 deals were valued at Rs. 261.5 billion ($6 billion) between
January and June 2004. The year 2004 was a good period for corporate
finance, and the total deal value was more than twice (235 per cent) that in the
first half of 2004 (Rs 111.2 billion, $2.5 billion) and well ahead of the full year
total for 2004 (Rs 234.1 billion, $5.2 billion).
3. The average deal value was higher by 42 per cent at Rs 944 million ($21.7
million) compared to Rs 663 million ($14.7 million) in 2004. Strategic
investors dominated the deal flow in year 2005. M&A deals made up 88 per
cent by the value of all deals whereas private equity deals were only 12 per
cent, compared to 67 per cent and 33 per cent in the whole of 2004. However,
private equity majors such as Blackstone and Carlyle have established offices
in India and announced substantial investment plans.

4. William D. Jackson(2002), in this research reports for Congress, “Mergers and
Consolidation between Banking and Financial Services Firms: Trends and
Prospects”, says that competitive, legislative, and regulatory developments in
financial services in the United States have all contributed to significant
industry changes there. The landmark financial services legislation, the
Gramm-Leach-Bliley Act (P. L. 106-102, GLBA) is speeding up ongoing
changes in the United States financial services industry. Overall, it allows
providers flexibility in responding to economic trends. Global and especially
technological advances are likely to affect the financial services industry in
ways yet unforeseen. Such factors are part of the larger picture reflected in
recent mergers among large banking organizations in Europe, Japan, and the
United States, and expanding product lines of domestic financial institutions.
Mergers of very large banking organizations in Europe and Japan move the
size of single organizations to new heights.
5. Sunitha G. (2007), came out with a report that the mergers and acquisition
strategy is a useful one to consolidate the public sector banks both in size and
quality to face the competition in the global market. Her study explains how
the Punjab National Banks benefited from the market share, size of the
banking operation, and diversification of banking services from the process
with Nedungadi banks.

6. Indus View special reports (2006), on Indian mergers and acquisition where in
Indian companies. are now shopping abroad more than the foreign companies
and buying stake in Indian companies are. The number of outbound cross
border deals has been 147 with a value of $15.72 billion during January-
October 2006, compared to 62 inbound cross border deals worth $4.67 billion.
Of course, the deal value tilted in favours of outbound deals because of the
acquisition by India’s Tata Steel Ltd of The U.K.’s top steel maker Corus Group
Plc, a company more than three times its size for $8 billion. The total value of
all M&A deals including domestic and cross border deals reached $24.41 billion
in the first ten months of 2006, compared to $16.3 billion in the whole year of
2005. With two months still left, India is set to cross the mark of $25 billion
M&A deals. Even if the remaining months add $2 billion more to the final tally
for 2006, the total annual deal size would be in the range of $26 billion-$27
billion.

RESEARCH GAP
The literature survey revealed major work has been done on mergers and
acquisitions in the Indian Banking Sector, Merger and Acquisition in Public
Sector Banks and merger experience of Foreign banks have been investigated,
whereas transforming of Regional Rural Banks through Mergers and
Acquisition has not been given due importance. The present study would go on
to investigate the detail of transformation of the Indian banking sector through
Merger and Acquisitions in Regional Rural banks with greater focus on the
Indian banking sector in the post liberalization regime. The study will also
discuss the pre and the post merger performance of banks. An attempt is made
to predict the future of the ongoing Merger and Acquisitions on the basis of
financial performance focusing mainly on Regional Rural Banks in Karnataka.

STATEMENT OF THE PROBLEM
Industries, no-matter manufacturing or services have been contributing
heavily to the growth of the economy of the country. The growth is easily measured
with the help of GDP. But globalized industries are facing problems including
competition not only from indigenous once but also countries overseas. To
strengthen financial systems has been one of the central issues facing emerging
markets and developing economies. This is because sound financial systems serve
as an important channel for achieving economic growth through the mobilization of
financial savings, putting them to productive use and transforming various risks. In
the era of competition it is the prime duty of all the banks to have sustenance growth
and development. It so happened that most of the Regional Rural Banks could not
cope with the needs of the challenges. This in turn causes serious concern in the
balanced economic development of the rural economy. As a result sustenance and
growth becomes the major problems for the Regional Rural Banks which were and
are reeling under perpetuating losses due to their scale of operation. Since
disinvestment policy was transformed with a humanistic approach, the Ministry of
Finance started dwelling upon restructure of the Indian banking system through
mergers and acquisition, as the restructuring strategy would enable the weak
regional rural banks to be taken over by the strong banks and transform the rural
banking operation, Regional Rural Banks play a very big role for rural economic
development, to enable a stronger and bigger part to retain the Indian banking
system where in mergers and acquisition will be very essential.

Some of the questions through which the present research will pursue a way to
answer them, are:
1. Is the mergers and acquisition strategy viable at a large scale in the Regional Rural
Banks in Karnataka? If yes, what are the advantages for large scale mergers and
acquisition to RRBs?
2. Are there any changes in performance of RRBs in Karnataka, after mergers and
acquisitions?
3. Has merger and acquisition strategy transformed the Indian banking sector? If yes,
what are the major changes that have taken place?
4. Does merger and acquisition transform the quality of regional rural banking services?
5. How has mergers and acquisition in RRBs impacted social banking?
6. What are the legal hurdles for large scale mergers and acquisition in the Indian banking
sector? How can those hurdles be over come?
7. Has the transformation been achieved in diversification of regional banking rural
banking services? If yes, what are those modern services?
8. What is the level of change that has taken place in the financial health of regional rural
banks after mergers and acquisition?
9. Can we accept the statement made by the former Finance Mister of India for large
mergers and acquisition in Indian banking?
What are the challenges for large scale mergers and acquisition in public sector
banks?
11. Does the merger and acquisition strategy increase the competitive strength in RRBs at
global level? If yes, what are the areas getting the competitive advantages?
12. Will the mergers and acquisition strategy influence creative marketing of RRB at the
services?

What are the new products offered by RRBs by adopting customization
strategy?
12. To identify the general problems for large scale mergers and acquisition in RRBs what
are the strategies evaluated by the different agencies to overcome it?
SCOPE OF THE STUDY
Rural sector is an important segment of the Indian economy. It influences speedy
development in the rest of the economy. Among the various factors responsible for
economic development and poverty alleviation, the role of financial institutions in
general and RRBs in particular is considered very significant. The objectives of reforms
were to strengthen the Indian banks, make them internationally competitive and
encourage them to play an effective role in accelerating the process of growth. The
banking transformation process also initiated measures for improving productivity,
efficiency and profitability of the banking system. Productivity is a vital indicator of
economic performance. In simple words, it is output-input ratio. It is a relationship
between given output and the means used to produce it. Banking is primarily is a service
industry. There are number of indicators to measure the productivity of the banking
sector. Measures of productivity at bank or industry level may differ from the indicators
of productivity at branch level. Productivity is generally defined in terms of efficiency,
improvement and technical change with which inputs are transformed into outputs in the
production process.

Mergers and acquisitions is a strategy, which helps the banking sector to
transform not only to expand the size of the operations but also to ensure
efficiency in different spheres of activities. Mergers and acquisition has been
injected in to the Regional Rural Banks, the same which as well contributes a
buoyant share to the GDP of the country. The Regional Rural Banks have
geared up to building up their strengths in so far as, reduction of cost,
efficiency, the economy of scale, increasing customer base and marketing
advantages. Needless to state it covers the banks owned by Government of
India and sponsored banks. The study further focuses upon traditional and non-
traditional services, technology, infrastructure, customer care, governance,
impact of GATS and the recent changes in regional rural banking operational
system.

NEED FOR THE STUDY
Mergers and acquisition is a viable strategy which has been adopted and
transformation experienced by the industries in the global competitive area.
National Assessment Economic Research Council recommended GDP rate at
9percent, the service sector in turn contributed about 41.1percent of the total
GDP of the country. Nevertheless, the banking sector, an important industry in
the services sector, the contribution from the banking sector to total GDP is not
satisfactory, owing to the problems of solvency, liquidity and turnover. To retain
the regional rural banks in the competitive market, to face the challenges, to
establish the balance among all the banks, to overall economic development of
India and make them financial sound, in order to make Regional Rural Banks
very viable banks, the RBI and Government of India has recommended
transforming the rural banks through mergers and acquisition in a big way.
Mergers and acquisition as a potential would enable change of the Regional
Rural Banks to be stronger and competitive in the Indian banking system. The
study also focuses on the transformation of the Regional Rural Banks in
Karnataka.

OBJECTIVES OF THE STUDY
The objectives of this study are framed on the extensive literature survey on
mergers and acquisitions, before and after merger and acquisition, and the need
and benefits from mergers and acquisition in the banking sector both in India
and outside India. The main objectives are as follows:
1. To study the trends in Mergers and Acquisition activity in the banking sector in
India with special reference to Regional Rural Banking Sector.
2. To evaluate the role of Regional Rural Banks in rural economic development
of Karnataka.
3. To explore the scope for transforming the Regional Rural Banks to improve
their financial health through Mergers and Acquisition.
4. To compare the performance of Regional Rural Banks during pre-and-post
merger period.
5. To study the legal and operational hurdles impending Mergers and Acquisition
activity in the Regional Rural Banking sector.
6. To identify the policy initiatives for promoting Mergers and Acquisition in the
Regional Rural Banking sector.

HYPOTHESES OF THE STUDY
The following hypotheses are formulated and put to test based on the extensive
literature survey:
1. HO -“The Provisions of advances made by Regional Rural Banks to priority sector is
adequate.”
H1 - “The Provisions of advances made by Regional Rural Banks to priority sector is
inadequate.”
2. HO - “Mergers and Acquisitions is not enhance the competitive strength of Regional
Rural Banks in the Indian Banking System.”
H2 - “Mergers and Acquisitions enhance the competitive strength of Regional Rural
Banks in the Indian Banking System.”
3. HO - “Focus on social banking is not adversely impacts profitability of Regional Rural
Banks.”
H3 - “Focus on social banking adversely impacts profitability of Regional Rural
Banks.”
4. HO - “Diversification of Services is not positively influences the performance of
Regional Rural Banks.”
H4 - “Diversification of Services positively influences the performance of Regional
Rural Banks.”
5. HO - “There is no exists positive relationship between Mergers and Acquisitions and
efficiency of Regional Rural Banks.”
H5 - “There exists positive relationship between Mergers and Acquisitions and

RESEARCH METHODOLOGY:
The research work is constructed on the basis of primary and
secondary data. An effort was made to collect actual data for
“Transforming the Indian Banking Sector through Mergers and
Acquisitions:” A Study with special Reference to Regional Rural Banks
in Karnataka. For this purpose a structured questionnaire was administered
to the samples of respondents from managerial staff, non managerial staff
and customers of all regional rural banks in Karnataka. The sample size
was selected on STRATIFIED RANDOM SAMPLING method. Besides,
required data was also collected through interaction with the top managers
and prime customers in Regional Rural Banks in Karnataka.
The Sample chosen for the study consists of respondents who include
employees of the Regional Rural banks branches in rural, semi-urban, urban
and metropolitan cities. Out of 7237 employee working in all the three
Regional Rural Banks 700 (10percent) employees were taken as sample
respondents’ for the study.

Sample Size: 700(the break- up of the sample size is as follows :
Table No. 04
Sample Size of Employees
SL
NO
Name of the Bank
No. of
employees
Frequency Percentage
1 Kaveri Grameena Bank 1580 150 21.00
2
Karnataka Vikas Grameena
Bank
2552 250 35.00
3
Pragathi Krishna Grameena
Bank
3105 300 43.00
Total 7237 700 100
Source: Primary data

Kaveri Grameena Bank
22%
Karnataka Vikas Grameena
Bank
35%
Pragathi Krishna Grameena
Bank
43%
Chart No:1
Sample size of Employees for RRBs

Sample Size: 700(the break- up of the sample size is as follows)
Table No. 05
Sl.No Name of the Bank
No of Employees
Working Rrbs
Employees
in Rrbs
Total
Frequency
Frequency
Male Female Total Male Male Female
1 KAVERI GRAMEENA
BANK
1185 395 1580 150(10%)
112
(75%)
38 (25%)
2
KARNATAK VIKAS
GRAMEENA BANK
1914 638 2552 250(10%)
188
(75%)
62 (25%)
3
PRGATHI KRISHNA
GRAMEENA BANK
2329 776 3105 300(10%)
225
(75%)
75 (25%)
TOTAL 5428 1809 7237 700(100%)
525(
100)
175(100)
Source: Annual reports of RRBs in Karnataka

KAVERI GRAMEENA BANK
22%
KARNATAK VIKAS
GRAMEENA BANK
35%
PRGATHI KRISHNA
GRAMEENA BANK
43%
Chart No:2
Sample size of the Employees

Break-up of respondent sample size is as follows:
Table No. 03
Break- up of the respondent different Cadre of employee’s size
SL NO Name of the Bank
Total
Employees
Frequency
Total
Percentage of
respondents
1 Managerial Cadre 3619 350(10%) 50.00
2 Non- Managerial Cadre 2533 250(10%) 35.00
3 Sub staff 1085 100(10%) 15.00
Total 7237 700(100%) 100.00

50%
35%
15%
Chart No:3
Total Employees Working in RRBs
1 Managerial Cadre 2 Non- Managerial Cadre 3 Sub staff

Break-up of respondent sample size of male and female employees:
Table No. 04
Break-up of the employee’s cadre respondent male and female
Sl No Designation No Of Employees Frequency Percentage
Male Female Total Total Total
1 Managerial cadre 2715 (75%) 904 (25%) 3619 350 50.00
2 Non-Managerial
cadre
1900 (75%) 633 (25%) 2533 250 35.00
3 Sub staff 814 (75%) 271(25%) 1085 100 15.00
Total 5429 1808 7237 700 100.00

0
500
1000
1500
2000
2500
KAVERI GRAMEENA BANK KARNATAK VIKAS GRAMEENA
BANK
PRGATHI KRISHNA GRAMEENA
BANK
2 3
Chart No:4
Break of the Employee's cadre Responedent Male and Female
No of Employees Working Rrbs
Male
No of Employees Working Rrbs
Female

Data Collection Instruments:
The data collection instrument used for obtaining the desired information
is the structured questionnaire. The questionnaires were administered and the
responses sought on the various Parameters such as working condition, quality
of service, lending policy, service delivery system, and employees’ benefits,
mergers and acquisition, Human Resource Management, and perception,
feeling, attitude, experience etc, before and after mergers and acquisition and
customers’ responses by meeting the respondents personally.
Besides, the separate questionnaire was also administered to 150 selected
customers of Kaveri Grameena Bank to seek opinion about the quality of
services offered by the banks before and after mergers and acquisition with
other three Banks.

Statistical Methods Applied
Frequencies
The Frequencies procedure provides statistics and graphical displays that are useful
for describing many types of variables.
• Chi-Square Test
The Chi-Square Test procedure tabulates a variable into categories and
computes a chi-square statistic. This goodness-of-fit test compares the observed
and expected frequencies in each category to test either that all categories
contain the same proportion of values or that each category contains a user-
specified proportion of values.
• One-way ANOVA Test
In statistics, one-way analysis of variance (abbreviated one-way
ANOVA) is a technique used to compare means of two or more samples (using
the F Distribution). This technique can be used only for numerical data.

The ANOVA tests the null hypothesis that samples in two or more groups
drawn from populations with the same mean values. To do this, two estimates
are made of the population variance. These estimates rely on various
assumptions. The ANOVA produces an F-statistic, the ratio of the variance
being calculated among the mean to the variance within the samples. If the
group means are drawn from populations with the same mean values, the
variance between the group means should be lower than the variance of the
samples, following the central limit theorem. A higher ratio therefore implies
that the samples were drawn from populations with different mean values.
Typically, however, the one-way ANOVA is used to test for differences
among at least three groups, since the two-group case can be covered by a t-
test (Gosset, 1908). When there are only two means to compare, the t-Test and
the F-test are equivalent; the relation between ANOVA and t is given by F = t2.
All the statistical methods were carried out through the software Minitab
for Windows (version 16.0)

TESTING OF HYPOTHESIS
1. HO -“The Provisions of advances made by Regional Rural Banks to priority sector is
adequate.”
H1 - “The Provisions of advances made by Regional Rural Banks to priority sector is
inadequate.”
Table .No 01
Calculated average result of one sample t test for H1 statements
Analysis of data relating H-1
Frequency and Percent Responses for Statement H1
Source: 16.0 version SPSS
N Mean
obtained
Std.
Deviation
Mean
expected
t P
H1 700 35.3760 4.12367 30 29.151 .000

The average total scores on the issue of ‘Provisions of
advances made by Regional Rural Banks to priority sector is in
adequate ’, were verified against the average expected mean
value of 30.0, one sample t test revealed a significant difference
between average expected and observed mean values. t value of
29.151 was found to be significant at .000 level. Further, it is
clear that the observed mean values were significantly higher
than the average expected mean values indicating. That “The
Provisions of advances made by Regional Rural Banks to
priority sector is inadequate.” Are really true and accepted

2. HO - “Mergers and Acquisitions is not enhance the competitive strength of
Regional Rural Banks in the Indian Banking System.”
H2 - “Mergers and Acquisitions enhance the competitive strength of Regional
Rural Banks in the Indian Banking System.”
Table No. 02
Frequency and Percent Responses for Statement
N Mean
obtained
Std.
Deviation
Mean
expected
t P
H2 700 27.9560 5.69446 24 15.534 .000

The average total scores on the issue of ‘Mergers and Acquisitions
enhance the competitive strength of Regional Rural Banks in the Indian
Banking System. Were verified against the average expected mean value of
24.0, one sample t test revealed a significant difference between averages
expected and observed mean values. t value of 15.534 was found to be
significant at .000 level. Further, it is clear that the observed mean values were
significantly higher than the average expected mean values indicating that
“Mergers and Acquisitions enhance the competitive strength of Regional
Rural Banks in the Indian Banking System.” as really true, and accepted.

3. HO - “Focus on social banking is not adversely impacts profitability of
H3 - “Focus on social banking adversely impacts profitability of Regional Rural
Banks.”
Table No.03
Frequency and Percent Responses for Statement- H3
N Mean
obtained
Std.
Deviation
Mean
expected
t P
H3 700 32.380 4,12287 30 12.919 .000

The total average scores on the issue of ‘Focus on social banking
adversely impacts profitability of Regional Rural Banks. Were verified against
the average expected mean value of 30.0, one sample t test revealed a
significant difference between average expected and observed mean values. t
value of 12.919 was found to be significant at .000 level. Further, it is clear
that the observed mean values were significantly higher than the average
expected mean values indicating that the hypothesis are Focus on social
banking adversely impacts profitability of Regional Rural Banks.” are
really true and accepted.

4. HO - “Diversification of Services is not positively influences the performance of
H4 - “Diversification of Services positively influences the performance of Regional Rural
Banks.”
Table No. 04
Frequency and Percent Responses for Statement- H4
N Mean
obtained
Std.
Deviation
Mean
expected
t P
H4 700 32.7560 4.27141 30 14.428 .000

The average total scores on the issue of ‘Diversification of Services
positively influences the performance of Regional Rural Banks, were verified
against the average expected mean value of 30.0, one sample t test revealed a
significant difference between average expected and observed mean values. t
value of 14.428 was found to be significant at .000 level. Further, it is clear
that the observed mean values were significantly higher than the average
expected mean values indicating that RRB’s diversification of RRBs was
really true. And the hypothesis” -“Diversification of Services positively
influences the performance of Regional Rural Banks.” Are really true and
accepted.

5. HO - “There is no exists positive relationship between Mergers and
Acquisitions and efficiency of Regional Rural Banks.”
H5 - “There exists positive relationship between Mergers and Acquisitions and
Table No. 12
Analysis of data relating to H-5
Frequency and Percent Responses for Statement H5
N Mean
obtained
Std.
Deviation
Mean
expected
t P
H5 700 33.0988 3.79859 30 18.237 .000

The average total scores on the issue of ‘There exists positive
relationship between Mergers and Acquisitions and efficiency of Regional
Rural Banks, were verified against the average expected mean value of 30.0,
one sample t test revealed a significant difference between expected and
observed mean values. t value of 18.237 was found to be significant at .000
level. Further, it is clear that the observed mean values were significantly
higher than the average expected mean values indicating that Mergers and
acquisition promotes efficiency by allowing RRB’s to utilize competitive
advantage which was really true. “There exists positive relationship
between Mergers and Acquisitions and efficiency of Regional Rural
Banks. That which was really true and accepted.

LIMITATIONS OF THE STUDY:
Like any other research work in the field of social sciences, the present
research on “Transforming of the Indian banking sector through Mergers
and Acquisitions”: A Study with special Reference to Regional Rural
Banks in Karnataka is also not free from limitations. The main limitations
are:
1. Mergers and acquisition strategy is generic but the research is confined to
Regional Rural Banks in Karnataka.
2. The analysis and interpretation based on the sample of the responses in
Karnataka State, India will not reflect the responses of the universe as a whole.
3. The statistical figures from various sources collected for the purpose of
research work may vary resulting in slight variation in the responses, analysis
and interpretation.

PRESENTATION OF THE STUDY:
This research work on the topic entitled “Transforming of the Indian banking sector through Mergers
and Acquisition Strategy” A Study of Regional Rural Banks in Karnataka” is presented in five
chapters:
The first chapter deals with the mergers and acquisition strategy is a working in the
field of both industrial and service sector as a reconstruction strategy. An extensive survey of
literature available at national and international level is brought out. Research Gap, statement of
the problem, research questions, scope of the study, need for the study, objectives of the research
work, limitations involved therein, and methodology of study, hypotheses and scheme are
formed.
The Mergers and Acquisition Strategy in Indian Banking is covered in second chapter to
have a meaningful base to the research work. This chapter deals with the Mergers and
Acquisition Conceptual Frame, Evolution of Mergers and Acquisition, Mergers and Acquisitions
as a holistic process, Mergers and Acquisition at Global Level, Mergers and Acquisition in
Indian Economy, Mergers and Acquisition in Indian Banking Sector, Mergers and acquisition in
Regional Rural Banks ,Government approaches towards Mergers and Acquisition Strategy, and
the Legal Frame on mergers and Acquisition in India.

The third chapter contains the study of regional rural banks and its history of
Indian Banking System, Growth of Banking System in India, Evolution of Regional
Rural Banks, Contribution of Regional Rural Bank in Rural Development, Present
Status of Regional Rural Banks in Karnataka- Profile of the Kaveri Grameena Bank,
Pragathi Krishna Grameena Bank, Karnataka Vikas Grameena Bank, Services Offered-
Regional Rural Banks, Quality of services before and after Mergers and Acquisition in
RRBs, Sample study in Kaveri Grameena Bank-Financial Status of Regional Rural
Banks before and after Merger and Acquisition in RRBs -Sample study in Kaveri
Grameena Bank.
The fourth chapter has a clear account of survey- modalities adopted, actual
collection of data, data analysis; data interpretation .The statistical tools such as
measures of dispersions, chi square, one-way ANOVA tests are extensively used in this
chapter. Further the testing of hypotheses is highlighted in this chapter.

The fifth chapter has summary of findings, suggestions, areas for further
research and conclusion.
SOME OF THE MAJOR FINDINGS OF THE STUDY:
1. 69 percent the employee respondents working in all the three regional rural banks in
Karnataka strongly agreed that, even today regional rural banks provide loans and
advances only to government sponsored schemes at subsided rate of interest to small
and marginal agricultural farmers and there is huge gap between demand and supply
for agricultural finance.
2. 68percent of the respondents agreed that, even after the second phase of mergers in
regional rural banks, banks are not in a position to provide good quality of banking
services to its customers on par with other commercial banks. However the first and
second phase of consolidations transformed the regional rural banking services from
traditional to modern services.
3. More 70percent of the respondents expressed their opinion that social banking has
negatively influenced the quality of banking services and profit of the banking sector.
All the banking services provided under social banking has been free of cost and
government sponsored schemes.

4. Transforming and creation of world class banks through mergers and acquisition:
Global corporations today expect their bankers to have the expertise, products and
presence to serve them anywhere. Banks do need greater resource base and presence
across a wide range of markets to satisfy their corporate customers and therefore, the
necessary environment must be created to enable the development of institutions with
the size and resources to compete globally.
5. In the modern banking system the Regional Rural Banks must work on the competitive
scale of economy. 51.60percent of the employee respondents a strongly agreed that
mergers and acquisition is a strategy which will transform the enter banking operation
and its efficiency in Regional Rural Banks.
6. In the present Indian banking system the regional rural banks focuse more on social
banking keeping the core objectives in mind. 43.60percent of managerial employee
respondents placed on record that social banking still the has been one of the primary
objectives of all Regional Rural Banks even after the first phase of mergers and
acquisition in the present global banking system.
7. 36.86percent respondents from the rural banks opined that outdated technology has
been used in operation processes. 26.28percent of the respondents indicated that banks
use new technology by updating the old one.16.92percent of the respondents revealed
that rural banks use it on par with competitive banks. 17.16percent of the respondents
felt that there is a definite lack of technology use.

8. The concept of traditional service in the banking sector has ceased, consequent to
mergers and acquisition. In fact the regional rural banks started offering modern
services to hedge with other public, private and foreign banks. Regional rural
banks are linked with capital market, insurance, leasing, high purchase, factoring
and forfeiting. All the regional rural banks in Karnataka work in co-ordination
with sponsored banks in offering non-fund based services.
9. The study finds that regional rural banks rendered only traditional services before
mergers and acquisition. Slowly and steadily the regional rural banks are moving
from traditional services to modern services, thanks to freedom accorded to them.
The regional rural banking services may be transforming with the help of larger
scale mergers and acquisitions strategy.
10. The Regional rural banks can achieve strong base in capital, human resource, and
technology, area of operation and qualitative products as sources of the important
factors which support the banks to rise to the global bench mark. The mergers and
acquisition consolidates the above status of resources for both the strong and weak
banks, so that it enables them to achieve global standards.
11. Privatization of the public sector banks may have a serious concern on social
banking. The Public sector including regional rural banks act as agents of the
states as such their various schemes promote the welfare of the society. It can
further improve through mergers and acquisition. The regional rural banks on a
large scale at the national level.

12.Mergers and acquisition of banks require a nod from the RBI and Finance
Ministry. The government should look in to prospects and consequences of the
mergers of the proposed banks which involve protection of interest of
customers, human resources, consolidation of proposals, quality of services
and area of operation. The government is required to examine legal
implication, which obviously consumes more time; as such the process may
get delayed.
13.In the context of mergers and acquisition, one of the major issues, which need
to be handled, is in regard to the treatment of the employees of the transferor
bank consequent upon the merger or acquisition. Various laws under which the
banking institutions are constituted contain provisions about mergers as also
continuation of the existing employees of the transferor bank. In the case of
New Bank of India Vs. Union of India (1996 (8) SCC 407) the Supreme Court
held that the Central Government had the powers to frame such a scheme and
the Court would be entitled to interfere with such a scheme only if it comes to
the conclusion that either the scheme is arbitrary or irrational or based on
extraneous considerations. In all cases of mergers, the Central Government
will have to formulate a suitable scheme for continuation and other service
conditions, applicable to the employees of the transferor bank consequent
upon the merger and acquisition process being completed.

14. The study found out that the regional rural banks can also increase the
effectiveness of retail banking services (ATMs) along with the network of merged
banks and make use of the existing infrastructure and ATM counters to the
optimum extent on par with commercial banks. Today rural banks are providing
ATMs services through their sponsored banks ATM net work only.
15. Considering mergers and acquisition as panacea in respect of weak regional rural
banks, Government has accorded the nod for the regional rural banks, so that they
can carry out the process. Other regional rural banks are waiting curiously.
16. The mergers and acquisition strategy in regional rural banks increases the size and
strengthens both the banks competitive qualities in the both banks so as to enable
them to face the competition in the reformed banking sector, by that regional rural
banking operation can be transformed positively towards achieving their core
objectives including social banking.
17. More than 54.40percent of the respondents working in regional rural banks clearly
said that large scale mergers and acquisition in RRBs have more scope in future.
By this the regional rural banks will be operating its business at the global
competitive level on par with other banks in the Indian banking system.
18. About 55.20percent of the employee respondents agreed that, the large scale
mergers and acquisition in RRBs positively influence quality of banking services
at affordable cost by diversifying its traditional banking services to modern
services. What the private and public sector banks enjoy after mergers and
acquisition strategy will be so far RRBs too.

19.In the present global banking conditions, Regional Rural Banks are also working on
the sustenance and growth strategy for their survival in the competition. More than
63.40 percent of the employee respondents opine that, mergers and acquisition
strategy is a viable one Regional Rural Banks also.
20.The performance of the 196 Regional Rural Banks on the basis of the viability
norms evolved by the Reserve Bank of India was not satisfactory brings out the
fact that only 21 Regional Rural Banks out of 196 are found to be satisfying all the
viability norms. Keeping this in mind the UPA government recommended large
scale merger and acquisition in regional rural banks which would transform the
financial status.
21.All the respondents have made it specific that the public, private and the foreign
banks in the wake of globalization have made good progress in terms of deposit
mobilization, and diversification of banking services. This situation in turn forces
the Regional Rural Banks fall in line. Further they made it clear that mergers and
acquisition would help Regional Rural Banks for two reasons - survival and
acceleration of market share.
22.The study clearly depicted that the mergers and acquisition in Regional Rural Banks
could identify the surplus in human resources. The surplus has been utilized or
redeployed on various new products offered by the Regional Rural Banks in
marketing their new products /services effectively.

23. On the reaction of customer respondents on “Mergers and acquisition helps in
sustenance and growth”, the study reveals that all the respondents both from
customer and managerial cadre, express that mergers and acquisition undoubtedly
supports sustenance and growth of Regional Rural Banks.
24. A customer of rural banks expects not only quality service but also quick service.
Mergers and acquisition was considered to achieve these supra objectives. In the
wake of competition, public, foreign and private banks have given greater
significance to their “customer care” wing. 92percent of customer respondents
from Regional Rural Banks revealed that Regional Rural Banks take care of
customers who fly away. The study reveals that about 10 percent of the customers
move away for want of better quality and quick services.
25. The ongoing merger of associate banks with the State Bank of India has been
opposed by the trade unions. In order to facilitate mergers the SBI has proposed
three retirement benefits while all along bank managements have complained
about lack of adequate funds even to provide two benefits. This unfair approach
would have an adverse impact on the ongoing mergers and acquisition process in
RRBs too.
26. The study found out that the profit in Regional Rural Banks witnessed a decline
due to competition, lack of diversity of banking services, and stringent rules of
RBI and sponsored banks before mergers and acquisition. The profit declined in
the initial period of mergers and acquisition as the operations were not linked with
profit and lack of diversity and the problem NPAs in the banking services.

27. However, 36.86 percent respondents from the rural banks opined that outdated
technology has been used in operation processes. 26.28 percent of the respondents
indicated that banks use new technology by updating the old one.16.92 percent of the
respondents revealed that rural banks use it on par with competitive banks. 17.16 percent
of the respondents felt that there is a definite lack of technology use.
28. The concept of traditional service in the banking sector has ceased, consequent to
mergers and acquisition. In fact the Regional Rural Banks started offering modern
services to have an edge over other public, private and foreign banks. Regional Rural
Banks have linkage with capital market, insurance, leasing, high purchase, factoring and
forfeiting. All the Regional Rural Banks in Karnataka work in co-ordination with
sponsored banks in offering non-fund based services.
29. The study finds that Regional Rural Banks rendered only traditional services before
mergers and acquisition. Slowly and steadily the Regional Rural Banks are moving away
from traditional services to modern services, thanks to the freedom accorded to them.
The Regional Rural Banking services may be transformed with help of larger scale
mergers and acquisitions strategy.
30. The Regional Rural Banks can achieve strong base in capital, human resource,
technology, area of operation and qualitative products as they are sources of the
important factors which support the banks to rise to the global bench mark. The mergers
and acquisition consolidates the above status of resources in both the strong and weak
banks, so that it helps them to achieve global standards.

31. Transforming and creation of World Class banks through Mergers and acquisition:
Global corporations today expect their bankers to have the expertise, products and
presence to serve them anywhere. Banks do need greater resource base and presence
across a wide range of markets to satisfy their corporate customers and therefore, the
necessary environment must be created to enable the development of institutions with
the size and resources to complete globally.
32. The study finds out that the Regional Rural Banks can also increase the effectiveness of
retail banking services (ATMs) along with the network of merged banks and make use of
the existing infrastructure and ATM counters to the optimum extent on par with
commercial banks. Today rural banks are providing ATM services through their
sponsored bank ATM net work only.
33. The mergers and acquisition strategy in Regional Rural Banks increases the size and
strengthens the competitive qualities in both banks so as to enable them to face the
competition in the reformed banking sector. By that the regional rural banking operation
can be transformed positively towards achieving their core objectives including social
banking.
34. In the modern banking system the Regional Rural Banks must working on the
competitive scale of economy 51.60% of the employees respondents are strongly agreed
that mergers and acquisition is a strategy will transform the enter banking operation and
its efficiency in Regional Rural Banks.
35. In the present Indian banking system the Regional Rural Banks focus more on social
banking keeping the core objectives in mind. 43.60percent of managerial employee
respondents placed on record that social banking has been one of the primary objectives
of all Regional Rural Banks even after the first phase of mergers and acquisition in the
present global banking system.

36. The Government of India (Ministry of Finance) issued nine notifications on
September 12, 2005 for amalgamation of 28 RRBs into nine new RRBs sponsored
by nine banks in six States. These amalgamations have become effective from
September 12, 2005.
37. After amalgamation, RRB transformation has resulted in a 200 per cent increase in
net profits, a 100 per cent increase in business, a gradual reduction in the number
of loss-making banks and addition of 1,000 outlets. All this has been because of
consolidation among RRBs. The Central government initiated the process of
amalgamating RRBs in September, 2005. Then there were 196 RRBs.
38. Even in the global banking scenario all the banks including Regional Rural Banks
in India are not adapting marketing strategy in marketing of agricultural credit. But
banks are lending as per the guideline of the government at subsidized rate of
interest that will influence the bankers negatively due to problem of recovery and
NPAs.
39. All the respondents of managerial cadre agree that the mergers and acquisition as
injected in to the Regional Rural Banks help plummeting incessant loss besides
trimming of NPAs which was considered to be bane. The respondents have
placed on record that the loss and NPA is reduced by 100percent and 50percent
respectively, which fulfills the objectives of the strategy in absorbing banks and
the banks which takes over.
40. The study finds out that the Regional Rural Banks have not adopted flat structure,
bench marking strategies, business re-engineering process strategy for
diversification of banking non-fund based services and customization strategies for
creative marketing in their banking process.

SOME OF THE MAJOR SUGGESTIONS:
In an Endeavour to increase transformations of regional rural banks in
Karnataka through mergers and acquisitions and make them more compatible,
acceptable, meaningful and methodical, the researcher offers the suggestions inter-
alia:
Government, RBI and Regional Rural Banks Management:
1. To this day RRBs are providing loans and advances more on government sponsored
schemes at subsided rate of interest that neither gives any profit nor fulfills the
demand of marginal big farmers and the financial requirements. RRBs require to
adopting marketing strategies in providing loan and advances by which the banks
will not only reduce the gap between demand supply of agricultural finance but also
make profit by charging attractive rate of interest on agricultural finance to marginal
and big farmers.
2. The overall status of all regional rural banks working in Karnataka is not satisfactory
when compared to other commercial banks, but the first and the second phase of
mergers transformed their banking operations in a big way. The third phase of large
scale mergers and acquisition in regional rural banks at the national level will
further transforming the rural banking overall status on par with other commercial
banks.
3. The Government of India can make use of the regional rural banks to sponsor and
launch their welfare schemes like Pradanmanthri Jandan Yojana, Atal Pension,
Pradanmanthri Bheem Surksha Yojana, which by RRBs working in rural areas will
extend their non fund based banking services, that will transform the banking
operations at the national level.

4. Regional rural banks have to function under global environment. The banks have
to train their personnel keeping economic environment, political environment,
legal environment, socio cultural environment and technological environment in
mind. Further the rural bank should transform them from an ethno centric
approach to a geo centric approach, through polycentric and re-geocentric
approach. This transformation will be needless to say of necessity over mergers
and acquisition; the government must allow operation through its policies.
5. Cost per employee will see a decline in trend, once regional rural banks go for
mergers and acquisition process. Comparative cost advantage theory at the
industrial level will keep reducing. The cost per employee will decline
substantially and there will be reduction of cost per employee. In the case of
Kaveri Grameena Bank mergers experience the cost per employee reduced from
6.72 percent to 3.6 percent. It can also further reduce to 2.5 percent on par the
bench mark of global banking standard through merger and acquisitions at large
scale in regional rural banks in Karnataka.
6. Mergers and acquisition promote market share. Global Trust Bank over taken by
Indian Overseas Bank could witness euphoria share in the market. The proposed
mergers of state bank groups with the state banks of India will push the market
share by 7percent. Similarly the proposed mergers and acquisition in Kaveri
Grameena banks also witnessed 3 percent increase in its market share after its
merger with Kaveri Kalpatharu, ChikkaMangalore Kodagu and Visveshvaraya
Grameena Banks which also drove market share be significantly.

7. Mergers and acquisition elucidate unhealthy competition in the banks. These
undoubtedly motivate the bank concerned to come out with palatable
strategies which may eliminate the operation of the weak banks. Elimination
of the competition will not bring back the problem of monopoly. Expenditure
of mergers and acquisition of unhealthy completion will undoubtedly sow the
seeds of confidence among the weak rural banks.
8. Regional rural banks continue to focus on social banking also mainly to aid
the people living under poverty line; this can be continued further, if the rural
banks consolidate in the big way.
9. The management of Regional Rural Banks should come out with a road map
of the quality of services. They must accord kingly status to the customers in
the market oriented economy, as it will have been an adopted by few public,
private and foreign banks. The customer looks only for quality of services, as
been embodied in GATS. In sequence, the rural banks have toned up the
services keeping the global bench mark in mind. Rural banks may also retain
the significance of quality of service and adopt required steering to consolidate
the quality of such services.
10.The RBI and the government of India may bring out strategies to strengthen
Mergers and acquisition process among regional rural banks instead of
advocating privatization of weak public sector banks slowly through
disinvestment.

11.The administrative machinery of the RBI and central government should avoid
delay in the process of giving effect to the arrangement of mergers and
acquisition. The union government especially cabinet committee on financial
affairs takes two years to accord clearance. This inordinate delay causes
lethargic attitude among the customer and banking. It is suggested to clear
such proposal by the present NDA government within a maximum period of
three months as against 2 years at present. So that the expected results of the
mergers and acquisition can be realized by the customers and other public.
12.With a view to encouraging and facilitating consolidation and emergence of
strong entities and providing an avenue for non-disruptive exit of
weak/unviable entities in the banking sector, the Reserve Bank and
Government has issued suitable guidelines to facilitate merger and acquisition
at the global level.
13.The existing section 391(2) of the companies act stipulates two conditions for
a scheme of mergers or acquisitions to be approved. The requirement of the
majority in number does not serve any useful purpose considering that value is
simultaneously being considered as a criterion. Further, the international
practice also recognizes only value as the determining factor. Therefore, this
requirement should be modified to provide only for the approval by three-
fourth in value of shareholders and creditors, present and voting in the
meeting.

14. According to the existing section 391 of the Companies Act, the procedure of
holding of the meetings of the creditor and shareholders and also dispensing with
the same is left to the discretion of the courts of the jurisdiction of the merging
banks. However, different courts follow different procedures. In this connection, it
is suggested to formulate the rules under both banking and Companies Acts, so as
to maintain the uniformity in procedure of holding the meeting.
15. The Irani Committee, which was constituted in 2004, has also suggested that
statutory recognition be given to mergers and acquisition without court
interventions. The committee suggested the use of single-window concept to
approve mergers and acquisition in an effective time-bound manner. The
researcher feels that if it is implemented, the ongoing process of SBI and associate
banks and RRBs proposals will be approved without delay.
16. In respect of section 35DD of the Income Tax Act, the CBDT is suggested to allow
either 100 percent deduction for mergers and acquisition expenditure to absorbing
banks in the year of the process or to carry forward the same for subsequent years
even in case of RRBs.
17. The Government of India should create conducive atmosphere for the public sector
banks going in for large scale mergers. The government can also bring out a
crystal clear policy on the human resources which should include security,
promotion opportunity, horizontal mobility, career planning and development and
‘hot- stove’ approach. Besides the appraisal system by different stakeholders
should be clear. Further the rural banks may be asked to adopt polycentric,
geocentric approach to tackle the problems of human resources.

Employees:
1. The trade union of regional rural bank needs to understand the importance of mergers
and acquisition in transforming the banking sector in case of foreign and private banks.
They may note that mergers and acquisition in rural banks is for the benefit of society
at large which obviously includes the employees. Mergers and acquisition is the buzz
word in all sphere of activities at the global level. Hence the union may drop resistance
to the process. Further the tripartite agreement consists of employees, employer and
government which will help reducing the ambiguity of the employee’s work and
strengthening the hands to go ahead with the process further.
2. The employees need not resist Mergers and acquisition of banks by striking. The strike
will affect the growth and development of the country, as the operation gets paralyzed.
They must know that mergers and acquisition in the regional rural banks are not only
to facilitate up-gradation but also to enhance the market share. Stupendous growth of
market share brings more profitability which is one of the parameters to decide about
efficiency, economy, flexibility and effectiveness. The proposed mergers and
acquisition of State Bank Groups with State bank of India have been resisted by the
employees of the former banks by way of strikes, pen down, demonstrations and such
other protest which impede growth.
3. Rural Bank Employees Association and unions shall work together and arrive at a
consensus adiderm. Their fore institutions should understand the prospects and
consequence of general agreements on trade and services which easily governance the
banking sector also. Further harmonious relationship between them will help erecting
constructive guidelines and policy which in turn safeguards the interest of all those
concerned including India.

4. In the wake of globalization, the customers have assessed the indigenous
part of the business. The rural banks should offer the product to ensure
customer satisfaction. Further they need to moot efforts to render constant
services to make them happy customers. Customers no matter in the banks or
otherwise expect delightful service which indicates that the services may be
termed as above expectation. Mergers and acquisition of the regional rural
banks in case of Kaveri Grameena Banks is seen.
General:
1.Mergers and acquisition usually involve huge cost and high risk. At present,
the insurance covers available for the risk of failure of such mergers and
acquisition. The researcher suggests that the availability of such insurance
cover for failed mergers and acquisition is to be encouraged on large scale.
This insurance cover is expected to increase the comfort level of mergers
and acquisition in the Indian banking sector.
2.Mergers and acquisition is undoubtedly a viable strategy to save weak
regional rural banks from liquidation. The proposal involves the interest of
all the shareholders, customers, human resources, suppliers, creditors and
other financial institutions. Mergers and acquisition can be carried out by
creating a platform in which all the stakeholders can discus about the
prospects and consequences. The board of management and management are
not the prime stakeholders; hence they may back away taking unilateral
decision.

3. Mergers and acquisition usually involve huge cost and high risk. At
present, the insurance covers available for the risk of failure of such
mergers and acquisition is not adequate. The researcher suggests that
the availability of such insurance cover for failed mergers and
acquisition is to be encouraged on a large scale. This insurance cover
is expected to increase the comfort level of mergers and acquisition in
the Indian banking sector including RRBs.
4. In India, research on mergers and acquisition is inadequate. This is
due to non-availability of statistical data on mergers and acquisition
in both the banking and the manufacturing sector. Hence, it is
suggested that the Government, RBI and the registrar concerned of
the company should install an information system on corporate
mergers and acquisition. The researchers may find it easy to access
such data on time.
5. Section 79 of the Income Tax Act should be redrafted in such a way
that exemption allowed at present to foreign banks should also be
extended to Indian Banks so that the business of banking
restructuring is encouraged.

6. Learned citizens of the biggest democracy of the world need to know the
performance of which offers stable government. India has witness political
instability ever since 1991, which could not provide effective governance owning
to inter and intra considerations. But later, the citizens supported one political
party which provide better, keep the country interest in mind and a good future in
the name of “Achhe-din”.!
7. Mergers and acquisition under homogeneous groups that is Regional Rural Banks
with other Regional Rural Banks will continue to nourish priority sectors such as
agriculture, small scale industry, export and housing. The Government of India
may evaluate policies from time to time to ensure growth in economic activities.
8. The regional rural banks must follow the marketing strategy in agricultural
lending to reduce the gap between demand and supply of agricultural finance by
that both banks and needy middle class farmers will be benefited in the global
banking scenario.
9. Cost per employee will decline once regional rural banks go in for mergers and
acquisition. Comparative cost advantage theory at the industrial level keeps
reducing. The cost per employee will decline substantially the reduction of cost
per employees.
10. Regional Rural Banks remain the main drivers of the Indian rural economy to
keep pace with socio-economic development. In fact the regional rural banks act
as social banking, by lending under various programmes launched by the
government for agricultural farmers. The merger and acquisition which could
focus on profitability and productivity should not ruin the social banking system
in the country. The demand for banking needs to be reduced in the years to
come; hence mergers and acquisition should continue with social banking.

SCOPE FOR FURTHER RESEARCH
The researcher hints at the following as areas of further research
1. Consolidation of the Indian banking sector through mergers of public sector
banks with foreign banks:
2. Merger and Acquisition of more public sector banks, which is called mega
mergers to reap the economies of large scale operations.
3. Consolidation of Indian Post Offices into a viable banking system to focus
rural banking in India.
4. Mergers and Acquisitions of small and weak banks in both private and public
sector.

CONCLUSION:
A lot of mergers and acquisition process have taken place in the corporate
world since time immemorial. As far as banking sector is concerned such
processes have been viable at the global level. Mergers and acquisition is a matter
of necessity to enhance capital adequacy, short run and long run solvency,
trimming of the debt equity, expanding the area of operation and thereby
becoming the market leader even at a global level. General Agreement on Trade
and Services and Basal II expected banking in India to equip them properly to
meet the challenges of foreign banks which may enter into India after 1st April
2009. The Government of India has prepared a road map and planned a dictum to
all the public sector banks to acquire required capabilities to meet the challenges.
Mergers and acquisition has become inevitable in the Indian banking
industry as well. Regional Rural Banks which is considered to be important in
Indian banking sector can be empowered on all fronts provided the mergers of
Regional Rural Banks at National level takes off. The Union Government has
already given its assent, and the two phases of merger of regional rural banks are
yielding result. The rural banks, which could nourish the priority sector such as
agriculture, SSI, housing, export, education, health care and drinking water, may
turn their face towards commercial value by considering the growth of priority
sector. The RBI, Government of India and sponsored banks must give the green
signal for third phase of mergers in RRBs will further transforming the banking
operation at global level.

The regional rural banks that were born in Karnataka may also come out
with their own formula to go for mergers and acquisition. This is very
essential not only for their survival but also for robust growth at a global level.
Mergers and Acquisition is the need of the hour, as such every bank may
ponder whether it will opt for the mega event by that the rural banks can
achieve transforming its operations and marketing of its services in the
competitive market. All the regional rural banks can mergers and form a new
big regional rural bank of Karnataka.
“Large Scale Mergers and Acquisitions in the banking sector will transform Indian
banking to become the Global Banking Leader”
*******************

BIBILOGRAPHY
Reports:
1. Economic Suruvey (2007-08): Ministry of Finance, Department of Economic Affairs,
Economic Division, Government of India, Delhi.
2. Economic Survey of Karnataka (2007): Economic Survey 2006-07 (March 2007),
Planning and Statistics Department, Government of Karnataka Bangalore.
3. Government of India (1971): interim Report of Nation Commission on Agriculture on
credit services for Small and Marginal Farmers and Agricultural Laborers, Ministry of
Agriculture, New Delhi.
4. Government of India (1975): Report of the working Group on Rural Banks (M
Narasimhan Committee), Bombay: Reserve Bank of India.
5. Government of India (1989): Report of the Agricultural Credit Review Committee
(khusro Committee) Bombay: Reserve Bank of India.
6. Government of India (1997): Report of the Expert Group on RRBs 1997(Thingalaya
Committee), Bombay: Reserve Bank of India.
7. Government of India (2002): Report of the working Group to suggest Amendments in
the Regional Rural Banks Act, 1976, Ministry of Finance, New Delhi.
8. Government of India (2005): Report of the Working Group on RRBs, 2005
(A V Sardesai Committee), Bombay: Reserve Bank of India.
9. Government of India: Report of the working Group on RRBs, 1984 (Kelkar
Committee). Bombay: Reserve Bank of India.
10.Government of Karnatka (2007): Agricultural Census 2055-06: Report on operational
holdings in Karnataka, Directorate of Economics and Statistics and State Agricultural
Commissioner Bangalore.

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