This document is a capstone project report submitted by Ruchi Agarwal for the Post Graduate Diploma in Management program at SIES College of Management Studies. The report is about mergers and acquisitions in the banking sector. It includes declarations, acknowledgements, and certificates signed by the student and guide. It also includes an executive summary of objectives, introduction to the topic, and an outline of the contents with chapter headings discussing literature review, types of mergers, HR issues, case studies of bank mergers in India, and conclusions.

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CAPSTONE PROJECT REPORT
SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR
THE AWARD OF
POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM)
on
"Mergers and Acquisition in Banking Sector"
Submitted to
SIES COLLEGE OF MANAGEMENT STUDIES
Submitted by
Ruchi Agarwal
Roll No. 96
Batch 2012-14
SIES COLLEGE OF MANAGEMENT STUDIES
NERUL, NAVI MUMBAI

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DECLARATION
I, Ruchi Agarwal, studying in the second year of POST GRADUATE DIPLOMA IN
MANAGEMENT-HUMAN RESOURCE (PGDM-HR) at SIES College of Management Studies,
Nerul, Navi Mumbai, hereby declare that I have completed the Capstone Project titled
"Mergers and Acquisition in Banking Sector" as a part of the course requirements for
POST GRADUATE DIPLOMA IN MANAGEMENT (PGDM) Program.
I further declare that the information presented in this project is true and original to be best of my
knowledge
Date:
Place: Mumbai
Signature of the Student Name of Guide: Prof. Susen Varghese
Signature

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ACKNOWLEDGEMENT
I, gratefully acknowledge the valuable guidance and support of Prof. Susen Varghese, my
project guide, who had been of immense help to me in choosing the topic and successful
completion of the project.
I, would like to thank people working in various banks, their experience, perception and
thorough professional knowledge, being available beyond the stipulated period of time and ever-
willing attitude to help led to successful completion of this project.
I would like to extend my gratitude towards all the professors and staff of SIES College of
Management Studies for all their support throughout the project.
I am thankful to my parents, fellow colleagues and all the people who helped me directly or
indirectly in making this project report successful and for their continuous support

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CERTIFICATE
This is to certify that Ruchi Agarwal SIES College of Management Studies, specializing in
Human Resource has completed her Research project on "Mergers andAcquisition in
Banking Sector" The information submitted is true and original to the best of my
knowledge.
Signature:

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TABLE OF CONTENTS
Sr.no. Particulars Page No.
1 Executive Summary & Objectives
2 Introduction of the Topic
3 Literature Review
4 Mergers & Acquisition (Purpose, Types, Advantages, Procedure)
5 HR Issues in Mergers & Acquisition
6 Mergers & Acquisition In Indian Banking Sector
7 Risk associated with Mergers & Acquisition
8 Challenges and Opportunities in Indian Banking Sector
9 Procedure of Bank Merger
10 RBI guidelines on Banks Mergers & Acquisition
11 Case 1-Merger of ICICI Bank with Bank of Madura
12 Case 2-Merger of Centurion Bank with Bank of Punjab
13 Case 3-Merger of IDBI with IDBI Bank
14 Case 4-Merger of ICICI Bank with Sangli Bank
15 Conclusion
16 Bibliography

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EXECUTIVE SUMMARY
Merger is a combination of two or more companies into one company. The acquiring company,
(also referred to as the amalgamated company or the merged company) acquires the assets
and the liabilities of the target company (or amalgamating company). Typically, shareholders of
the amalgating company get shares of the amalgamated company in exchange for their shares in
the Target Company.
There are two ways which company can grow; one is internal growth and the other one is
external growth. The internal growth suffers from drawbacks like the problem of raising
adequate finances, longer implementation time of the projects, uncertain etc. in order to
overcome these problems a company can grow externally by acquiring the already existing
business firms. This is the route of mergers and acquisition.
Mergers and acquisitions allow shareholders to maximize value from their investments. An
effective collaboration between two companies will eventually benefit the shareholder. Another
favorable consequence is the lessening of competition. A company acquiring one of its rivals
will result in one less competitor for the company. Most importantly mergers and acquisitions
help utilize resources efficiently and lead to an overall improved performance of the companies.
The process of an M&A is not an easy one. It is a very time consuming process and involves
exhaustive analysis and study of various factors. Even people skilled and trained in the art of
negotiations and dealing with the nitty gritties of a merger or acquisition find it difficult to
pinpoint the right method to carry out an M&A. Equally difficult is to predict the success of one.
The HR department has to play a major role during the entire process, right from the inception of
the idea for the proposed merger and acquisition to the final stage of integration HR is like the
interface between the top management and the employees, and hence communication is of prime
importance here for ensuring success of the M&A

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OBJECTIVES
 To evaluate whether the mergers and acquisitions in banking sector create any
shareholder value or not.
 To study why mergers and acquisition is necessary in banking sector.
 To study challenges in mergers and acquisitions in banking sector.
 To study the risks associated with mergers and acquisitions.
 To understand how to identify key talent and take steps to retain the same post in mergers
and acquisitions.
 To identify the major HR issues during mergers and acquisitions.
The following project gives an insight into the various details of a merger or acquisition,
the various issues faced during the same, the role played by HR in tackling them and
finally the critical issue of talent retention in mergers and acquisitions. Case studies of
mergers and acquisitions of banks were studied to understand the above mentioned
aspects better.

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Literature Review
After going through the available relevant literature on M&As and it comes to know that most of
the work done high lightened the impact of M&As on different aspects of the companies. A firm
can achieve growth both internally and externally. Internal growth may be achieved by
expanding its operation or by establishing new units, and external growth may be in the form of
Merger and Acquisitions (M&As), Takeover, Joint venture, Amalgamation etc. Many studies
have investigated the various reasons for Merger and Acquisitions (M&As) to take place, Just to
look the effects of Merger and Acquisitions on Indian financial services sector.
It described that the
acquiring firms mainly focuses on the economies of scale, efficiency gain and address the need of
communication and employee concern, and described the integration process was handled by
professional and joint integration committee. Road map is prepared and HR integration is done as
per schedule and they took a case of the Bank of Punjab acquired the Lord Krishna Bank and later
on the Centurion Bank of Punjab acquired by the HDFC Bank and gave the frame of integration.
This study regulate the link between communication, HR integration, management action and
consequent contribution of post merger success by conducted interview in a recent bank merger,
in depth interviews work conducted in a recent mergers of a Indian Bank. It was inferred that
proactive communication, changes in organizational structure, and appropriate human resource
integration would smoothen the journey towards successful integration.
the views on financial implications and problem occurring in
Merger and Acquisitions (M&As) 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 and there is always the risk of
improving performance after merger.

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Introduction
We have been learning about the companies coming together to form another company
and companies taking over the existing companies to expand their business.
With recession taking toll of many Indian businesses and the feeling of insecurity surging
over our businessmen, it is not surprising when we hear about the immense numbers of corporate

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restructurings taking place, especially in the last couple of years. Several companies have been
taken over and several have undergone internal restructuring, whereas certain companies in the
same field of business have found it beneficial to merge together into one company.
In this context, it would be essential to understand what corporate restructuring and
mergers and acquisitions are all about.
All our daily newspapers are filled with cases of mergers, acquisitions, spin-offs, tender
offers, & other forms of corporate restructuring. Thus important issues both for business decision
and public policy formulation have been raised. No firm is regarded safe from a takeover
possibility. On the more positive side Mergers & Acquisition’s may be critical for the healthy
expansion and growth of the firm. Successful entry into new product and geographical markets
may require Mergers & Acquisitions at some stage in the firm's development. Successful
competition in international markets may depend on capabilities obtained in a timely and
efficient fashion through Mergers & Acquisitions. Many have argued that mergers increase value
and efficiency and move resources to their highest and best uses, thereby increasing shareholder
value.
To opt for a merger or not is a complex affair, especially in terms of the technicalities
involved. Before going for merger considerable amount of brainstorming would be required by
the managements to reach a conclusion.
WHAT IS MERGER
Merger is defined as combination of two or more companies into a single company where one
survives and the others lose their corporate existence. The survivor acquires all the assets as well
as liabilities of the merged company or companies. Generally, the surviving company is the
buyer, which retains its identity, and the extinguished company is the seller.

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Merger is also defined as amalgamation. Merger is the fusion of two or more existing companies.
All assets, liabilities and the stock of one company stand transferred to Transferee Company in
consideration of payment in the form of:
 Equity shares in the transferee company,
 Debentures in the transferee company,
 Cash, or
 A mix of the above modes.
WHAT IS ACQUISITION
Acquisition in general sense is acquiring the ownership in the property. In the context of
business combinations, an acquisition is the purchase by one company of a controlling interest in
the share capital of another existing company.
Methods of Acquisition:
An acquisition may be affected by
a) Agreement with the persons holding majority interest in the company management like
members of the board or major shareholders commanding majority of voting power;
b) Purchase of shares in open market;
c) To make takeover offer to the general body of shareholders;
d) Purchase of new shares by private treaty;
e) Acquisition of share capital through the following forms of considerations viz. Means of
cash, issuance of loan capital, or insurance of share capital.
Takeover:
A ‘takeover’ is acquisition and both the terms are used interchangeably.
Takeover differs from merger in approach to business combinations i.e. The process of takeover,
transaction involved in takeover, determination of share exchange or cash price and the
fulfillment of goals of combination all are different in takeovers than in mergers. For example,

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process of takeover is unilateral and the offeror company decides about the maximum price.
Time taken in completion of transaction is less in takeover than in mergers, top management of
the offeree company being more co-operative.
De-merger or corporate splits or division:
De-merger or split or divisions of a company are the synonymous terms signifying a movement
in the company.
Purpose of Mergers & Acquisitions
The purpose for an offeror company for acquiring another company shall be reflected in the
corporate objectives. It has to decide the specific objectives to be achieved through acquisition.
The basic purpose of merger or business combination is to achieve faster growth of the corporate
business. Faster growth may be had through product improvement and competitive position.
Other possible purposes for acquisition are short listed below: -
(1) Procurement of supplies:

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1. To safeguard the source of supplies of raw materials or intermediary product;
2. To obtain economies of purchase in the form of discount, savings in transportation costs,
overhead costs in buying department, etc.;
3. To share the benefits of suppliers economies by standardizing the materials.
(2) Revamping production facilities:
1. To achieve economies of scale by amalgamating production facilities through more
intensive utilization of plant and resources.
2. To standardize product specifications, improvement of quality of product, expanding.
3. Market and aiming at consumers satisfaction through strengthening after sale
Services.
4. To obtain improved production technology and know-how from the offered company.
5. To reduce cost, improve quality and produce competitive products to retain and improve
market share.
(3) Market expansion and strategy:
1. To eliminate competition and protect existing market;
2. To obtain a new market outlets in possession of the offeree;
3. To obtain new product for diversification or substitution of existing products and to
enhance the product range;
4. Strengthening retain outlets and sale the goods to rationalize distribution;
5. To reduce advertising cost and improve public image of the offeree company;
6. Strategic control of patents and copyrights.
(4) Financial strength:
1. To improve liquidity and have direct access to cash resource;
2. To dispose of surplus and outdated assets for cash out of combined enterprise;
3. To enhance gearing capacity, borrow on better strength and the greater assets backing;
4. To avail tax benefits;

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5. To improve EPS (Earning Per Share).
(5) General gains:
1. To improve its own image and attract superior managerial talents to manage its affairs;
2. To offer better satisfaction to consumers or users of the product.
(6) Own developmental plans:
The purpose of acquisition is backed by the offeror company’s own developmental plans.
A company thinks in terms of acquiring the other company only when it has arrived at its own
development plan to expand its operation having examined its own internal strength where it
might not have any problem of taxation, accounting, valuation, etc. But might feel resource
constraints with limitations of funds and lack of skill managerial personnel’s. It has to aim at
suitable combination where it could have opportunities to supplement its funds by issuance of
securities, secure additional financial facilities, eliminate competition and strengthen its market
position.
(7) Strategic purpose:
The Acquirer Company view the merger to achieve strategic objectives through alternative type
of combinations which may be horizontal, vertical, product expansion, market extensional or
other specified unrelated objectives depending upon the corporate strategies. Thus, various types
of combinations distinct with each other in nature are adopted to pursue this objective like
vertical or horizontal combination.
(8) Corporate friendliness:

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Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite
competitiveness in providing rescues to each other from hostile takeovers and cultivate situations
of collaborations sharing goodwill of each other to achieve performance heights through business
combinations. The combining corporate aim at circular combinations by pursuing this objectives.
(9) Desired level of integration:
Mergers and acquisition are pursued to obtain the desired level of integration between the two
combining business houses. Such integration could be operational or financial. This gives birth
to conglomerate combinations. The purpose and the requirements of the offeror company go a
long way in selecting a suitable partner for merger or acquisition in business combinations.
Types of Mergers
Merger or acquisition depends upon the purpose of the offeror company it wants to achieve.
Based on the offerors’ objectives profile, combinations could be vertical, horizontal, circular and
conglomeratic as precisely described below with reference to the purpose in view of the offeror
company.
(A) Vertical combination:

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A company would like to take over another company or seek its merger with that company to
expand espousing backward integration to assimilate the resources of supply and forward
integration towards market outlets. The acquiring company through merger of another unit
attempts on reduction of inventories of raw material and finished goods, implements its
production plans as per the objectives and economizes on working capital investments. In other
words, in vertical combinations, the merging undertaking would be either a supplier or a buyer
using its product as intermediary material for final production.
The following main benefits accrue from the vertical combination to the acquirer company i.e.
1. It gains a strong position because of imperfect market of the intermediary products,
scarcity of resources and purchased products;
2. Has control over products specifications.
(B) Horizontal combination:
It is a merger of two competing firms which are at the same stage of industrial process. The
acquiring firm belongs to the same industry as the target company. The mail purpose of such
mergers is to obtain economies of scale in production by eliminating duplication of facilities and
the operations and broadening the product line, reduction in investment in working capital,
elimination in competition concentration in product, reduction in advertising costs, increase in
market segments and exercise better control on market.
(C) Circular combination:
Companies producing distinct products seek amalgamation to share common distribution and
research facilities to obtain economies by elimination of cost on duplication and promoting
market enlargement. The acquiring company obtains benefits in the form of economies of
resource sharing and diversification.

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(D) Conglomerate combination:
It is amalgamation of two companies engaged in unrelated industries like DCM and Modi
Industries. The basic purpose of such amalgamations remains utilization of financial resources
and enlarges debt capacity through re-organizing their financial structure so as to service the
shareholders by increased leveraging and EPS, lowering average cost of capital and thereby
raising present worth of the outstanding shares. Merger enhances the overall stability of the
acquirer company and creates balance in the company’s total portfolio of diverse products and
production processes.
Advantages of Mergers
Mergers and takeovers are permanent form of combinations which vest in management complete
control and provide centralized administration which are not available in combinations of
holding company and its partly owned subsidiary. Shareholders in the selling company gain from
the merger and takeovers as the premium offered to induce acceptance of the merger or takeover
offers much more price than the book value of shares. Shareholders in the buying company gain

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in the long run with the growth of the company not only due to synergy but also due to “boots
trapping earnings”.
Mergers and acquisitions are caused with the support of shareholders, manager’s ad promoters of
the combing companies. The factors, which motivate the shareholders and managers to lend
support to these combinations and the resultant consequences they have to bear, are briefly noted
below based on the research work by various scholars globally.
(1) From the standpoint of shareholders
Investment made by shareholders in the companies subject to merger should enhance in value.
The sale of shares from one company’s shareholders to another and holding investment in shares
should give rise to greater values i.e. The opportunity gains in alternative investments.
Shareholders may gain from merger in different ways viz. From the gains and achievements of
the company i.e. Through
(a) Realization of monopoly profits;
(b) Economies of scales;
(c) Diversification of product line;
(d) Acquisition of human assets and other resources not available otherwise;
(e) Better investment opportunity in combinations.
One or more features would generally be available in each merger where shareholders may
have attraction and favour merger.
(2) From the standpoint of managers
Managers are concerned with improving operations of the company, managing the affairs of the
company effectively for all round gains and growth of the company which will provide them
better deals in raising their status, perks and fringe benefits. Mergers where all these things are
the guaranteed outcome get support from the managers. At the same time, where managers have
fear of displacement at the hands of new management in amalgamated company and also
resultant depreciation from the merger then support from them becomes difficult.

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(3) Promoter’s gains
Mergers do offer to company promoters the advantage of increasing the size of their company
and the financial structure and strength. They can convert a closely held and private limited
company into a public company without contributing much wealth and without losing control.
(4) Benefits to general public
Impact of mergers on general public could be viewed as aspect of benefits and costs to:
(a) Consumer of the product or services;
(b) Workers of the companies under combination;
(c) General public affected in general having not been user or consumer or the worker in the
companies under merger plan.
(a) Consumers
The economic gains realized from mergers are passed on to consumers in the form of
lower prices and better quality of the product which directly raise their standard of living
and quality of life. The balance of benefits in favour of consumers will depend upon the
fact whether or not the mergers increase or decrease competitive economic and
productive activity which directly affects the degree of welfare of the consumers through
changes in price level, quality of products, after sales service, etc.
(b) Workers community
The merger or acquisition of a company by a conglomerate or other acquiring company
may have the effect on both the sides of increasing the welfare in the form of purchasing
power and other miseries of life. Two sides of the impact as discussed by the researchers
and academicians are: firstly, mergers with cash payment to shareholders provide
opportunities for them to invest this money in other companies which will generate
further employment and growth to uplift of the economy in general. Secondly, any

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restrictions placed on such mergers will decrease the growth and investment activity with
corresponding decrease in employment. Both workers and communities will suffer on
lessening job opportunities, preventing the distribution of benefits resulting from
diversification of production activity.
(c) General public
Mergers result into centralized concentration of power. Economic power is to be
understood as the ability to control prices and industries output as monopolists. Such
monopolists affect social and political environment to tilt everything in their favour to
maintain their power ad expand their business empire. These advances result into
economic exploitation. But in a free economy a monopolist does not stay for a longer
period as other companies enter into the field to reap the benefits of higher prices set in
by the monopolist. This enforces competition in the market as consumers are free to
substitute the alternative products. Therefore, it is difficult to generalize that mergers
affect the welfare of general public adversely or favorably. Every merger of two or more
companies has to be viewed from different angles in the business practices which protects
the interest of the shareholders in the merging company and also serves the national
purpose to add to the welfare of the employees, consumers and does not create hindrance
in administration of the Government polices.
Procedure for evaluating the decision for Mergers and Acquisition
The three important steps involved in the analysis of mergers and acquisitions are:-
1. Planning:- of acquisition will require the analysis of industry-specific and firm-specific
information. The acquiring firm should review its objective of acquisition in the context
of its strengths and weaknesses and corporate goals. It will need industry data on market

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growth, nature of competition, ease of entry, capital and labour intensity, etc. This will
help in indicating the product-market strategies that are appropriate for the company. It
will also help the firm in identifying the business units that should be dropped or added.
On the other hand, the target firm will need information about quality of management,
market share and size, capital structure, profitability, production and marketing
capabilities, etc.
2. Search and Screening:- Search focuses on how and where to look for suitable
candidates for acquisition. Screening process short-lists a few candidates from many
available and obtains detailed information about each of them.
3. Financial Evaluation:- a merger is needed to determine the earnings and cash flows,
areas of risk, the maximum price payable to the target company and the best way to
finance the merger. In a competitive market situation, the current market value is the
correct and fair value of the share of the target firm. The target firm will not accept any
offer below the current market value of its share. The target firm may, in fact, expect the
offer price to be more than the current market value of its share since it may expect that
merger benefits will accrue to the acquiring firm.
The following graph shows the total valuation of mergers and acquisitions in India in the period
2000-2009.

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The following graph shows the total valuation of mergers and acquisitions in India in the period
2000-2009. Thus it is evident from the graphs that companies are becoming more and more open
to the idea of acquiring and takeovers and are willing to invest a good amount in the achievement
of the same.
HR issues in Mergers and Acquisitions
Mergers and acquisitions are the buzzwords currently doing the rounds in the corporate world.
Used as a tool of expansion, a lot of resources are invested in these M&A. They are strategic

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alliances between two companies and for any alliance to be successful, proper planning and
careful consideration of the various aspects involved therein have to be looked after. A lot of
attention is given to the legal, financial and operational elements of mergers and acquisitions.
People management is one of the most critical aspects in an M&A, which is usually overlooked.
Issues like staffing decisions, organizational grading, and pay scales are not given as much
importance as they should be. The success rate of an M&A is usually around 30%-40%, the
major cause for this being inadequate attention given to people related issues. Today it has been
widely accepted that the way in which HR issues are handled is critical to the success of any
M&A. It is also seen that most M&A failures can be traced to poor support of HR related issues
and activities. The following are the major HR issues that are faced during a merger or an
acquisition:
1. Lack of communication
2. Unrealistic expectations
3. Clash of objectives and goals
4. Cultural differences
5. Differences in the organizational hierarchy/grading
6. Issues in compensation management
7. Leadership issues
8. Identifying key personnel and taking measures to retain the same
9. Change management
10. Lay offs
Mergers and Acquisition In India Of Banking Sector

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Banking in India originated in the first decade of 18th century with The General Bank of India
coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are
now defunct. The oldest bank in existence in India is the State Bank of India being established as
"The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like
Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was
the most active trading port, mainly due to the trade of the British Empire, and due to which
banking activity took roots there and prospered. The first fully Indian owned bank was the
Allahabad Bank, which was established in 1865.
By the 1900s, the market expanded with the establishment of banks such as Punjab National
Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded
under private ownership. The Reserve Bank of India formally took on the responsibility of
regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve
Bank was nationalized and given broader powers.
BEFORE LIBERALISATION
In India the companies’ act 1956 and the monopolies and restrictive trade practices act, 1969 are
statutes governing mergers among companies.
In the companies act, as procedural has been laid down, in terms of which the merger can be
effectuated. Sanction of the company court is essential perquisite for the effectiveness of a
scheme of merger.
The other statue regulating mergers was the hitherto monopolies and restrictive trade practices
act. After the amendments the status does not regulate mergers.
The regulatory provisions in the MRTP act were removed through the 1991 amendments, with a
view to giving effect to the new industrial policy of liberalization and deregulation, aimed at
achieving economies of scale for ensuring higher productivity competitiveness.

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Liberalization
In the early 1990s the then Narasimha Rao government embarked on a policy of liberalization
and gave licenses to a small number of private banks, which came to be known as New
Generation tech-savvy banks, which included banks such as UTI Bank (the first of such new
generation banks to be set up), ICICI Bank and HDFC Bank. This move, along with the rapid
growth in the economy of India, kick started the banking sector in India, which has seen rapid
growth with strong contribution from all the three sectors of banks, namely, government banks,
private banks and foreign banks. The next stage for the Indian banking has been setup with the
proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in
banks may be given voting rights which could exceed the present cap of 10%.
The new policy shook the Banking sector in India completely. Bankers, till this time, were used
to the 4-6-4 method (Borrow at 4%; Lend at 6%;Go home at 4) of functioning. The new wave
ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this
led to the retail boom in India. People not just demanded more from their banks but also received
more.
In 1972 examined the restructuring of banks in greater depth and recommended that there should
be three all India banks and 5 or 6 regional banks plus a network of cooperative or rural banks in
the rural areas.
N.Vagul suggested the restructuring on the basis of location and functioning of the bank and
recommended four sets of banks in the public sector.
1) There should be district banks having the network of around 300 branches and Rs. 250
crores or more. Their functions similar to that of commercial banks.
2) National saving banks which will be located only in urban and metropolitan towns.
3) The third and fourth set of banks will be trade and industry banks and foreign exchange
banks and located at urban and metropolitan centers catering to designate clientele only.
In July 1976, a commission under the chairmanship of Sh. Manubhai shah suggested the
reduction in the number of existing banks and making the smallest nationalized banks bigger

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so as to have strong regional character in states of UP, MP, Bihar, and Orissa and North east
part of the country.
James Raj Committee appointed by RBI in June 1997 recommended that
1. A bank’s size should be in the range of 1000 to 1500 branches.
2. SBI group should be converted into holing company with 5 zones subsidiaries and
3. Streamlining of the rural and semi urban branches.
Narasimhan Committee Report
The first report of the Narsimhan committee on the financial system had recommended a broad
pattern of the structure of the banking system as under:
 3 or 4 larger banks (including the State Bank of India) which could become international
in character.
 8 to 10 national banks with a network of branches throughout the country engaged in
universal banking.
 Local banks whose operations would be generally confined to a specific region.
 Rural banks (including RRB’s) whose operations would be confined to the rural areas
and whose business would be predominantly engaged in financing of agricultural and
allied activities.
The Narsimhan committee was of the view that the move towards this revised system should be
market driven and based on profitability considerations and brought about through a process of
mergers and acquisitions.
Narsimhan Committee (1998)
The second report of the Narsimhan committee on the banking sector reforms on the structural
issues made following recommendations.
“Merger between banks and between banks and DFI’s and NBFC’s need to be based on
synergies and locational and business specific complimentary of the concerned institutions and
must obviously make sound commercial sense. Mergers of public sector banks should emanate

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from the managements of banks with the govt. as the common shareholder playing a supportive
role. Such mergers however can be worthwhile if they lead to rationalization of workforce and
branch network otherwise the mergers of public sector banks would tie down the management
with operational issues and distract attention from the real issue. It would be necessary to evolve
policies aimed at right sizing and redeployment of the surplus staff either by the way of
retraining them and giving them appropriate alternate employment or by introducing a VRS with
appropriate incentives. This would necessitate the corporation and understanding of the
employees and towards this direction. Management should initiate discussion with the
representatives of staff and would need to convince their employees about the intrinsic
soundness of the idea, the competitive benefits that would accrue and the scope and potential foe
employees’ own professional advancement in a larger institution. Mergers should not be seen as
a means of bailing out weak banks. Mergers between strong banks/FIs would make for greater
economic and commercial sense and would greater than the sum of its parts and have a force
multiplier effect. It can hence be seen from the recommendations of Narsimhan Committee that
mergers of the public sector banks were expected to emanate from the management of the banks
with government as common shareholder playing a supportive role.

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MERGERSIN INDIAN BANKING SECTOR
Mergers and acquisitions encourage banks to gain global reach and better synergy and allow
large banks to acquire the stressed assets of weaker banks. Merger in India between weak and
unviable banks should grow faster so that the weak banks could be rehabilitated providing
continuity of employment with the working force, utilization of the assets blocked up in the
weak/unviable banks and adding constructively to the prosperity of the nation through increased
flow of funds.
In the banking sector, important mergers and acquisitions in India in recent years include the
merger between IDBI (Industrial Development bank of India) and its own subsidiary IDBI
Bank. The deal was worth $ 174.6 million (Rs. 7.6 billion in Indian currency). Another
important merger was that between Centurion Bank and Bank of Punjab. Worth $82.1 million
(Rs. 3.6 billion in Indian currency), this merger led to the creation of the Centurion Bank of
Punjab with 235 branches in different regions of India, another merger was HDFC bank and
Centurion bank of punjab.
Some of the past merged banks are Grind lay Bank merged standard charated Bank, Times Bank
with HDFC Bank, bank of Madura with ICICI Bank, Nedungadi Bank Ltd. With Punjab
National Bank and Global Trust Bank merged with Oriental Bank of Commerce.
The small and medium sized banks are working under threats from economic environment which
is full of problem for them, viz. inadequacies of resources, outdated technology, on systemized
management pattern, faltering marketing efforts and weak financial structure. Their existence
remains under challenge in the absence of keeping pace with growing automation and techniques
obsolescence and lack of product innovations. These banks remain, at times, under threat from
large banks. Their reorganization through consolidation/merger could offer succor to re-establish
them in viable banks of optimal size with global presence.
Merger and amalgamation in Indian banking so far has been to provide the safeguard and
hedging to weak bank against their failure and too at the initiative of RBI, rather than to pay the
way to initiate the banks to come forward on their own record for merger and amalgamation
purely with a commercial view and economic consideration.

29. 29
As the entire Indian banking industry is witnessing a paradigm shift in systems, processes,
strategies, it would warrant creation of new competencies and capabilities on an on going basis
for which an environment of continuous learning would have to be created so as to enhance
knowledge and skills.
RISKS ASSOCIATED WITHMERGER
There are several risks associated with consolidation and few of them are as follows: -
1) Whentwo banksmerge intoone thenthere isan inevitable increase inthe size of the
organization.Bigsize maynotalwaysbe better.The size maygettoo widelyandgobeyondthe
control of the management.The increasedsize maybecome adrugrather thanan asset.
2) Consolidation does not lead to instant results and there is an incubation period before the
results arrive. Mergers and acquisitions are sometimes followed by losses and tough
intervening periods before the eventual profits pour in. Patience, forbearance and
resilience are required in ample measure to make any merger a success story. All may not
be up to the plan, which explains why there are high rate of failures in mergers.
3) Consolidation mainly comes due to the decision taken at the top. It is a top-heavy
decision and willingness of the rank and file of both entities may not be forthcoming.
This leads to problems of industrial relations, deprivation, depression and demotivation
among the employees. Such a work force can never churn out good results. Therefore,
personal management at the highest order with humane touch alone can pave the way.
4) The structure, systems and the procedures followed in two banks may be vastly different,
for example, a PSU bank or an old generation bank and that of a technologically superior
foreign bank. The erstwhile structures, systems and procedures may not be conducive in
the new milieu. A thorough overhauling and systems analysis has to be done to assimilate
both the organizations. This is a time consuming process and requires lot of cautions
approaches to reduce the frictions.
5) There is a problem of valuation associated with all mergers. The shareholder of existing
entities has to be given new shares. Till now a foolproof valuation system for transfer and
compensation is yet to emerge.

30. 30
6) Further, there is also a problem of brand projection. This becomes more complicated
when existing brands themselves have a good appeal. Question arises whether the earlier
brands should continue to be projected or should they be submerged in favor of a new
comprehensive identity. Goodwill is often towards a brand and its sub-merger is usually
not taken kindly.
MERGERS AND ACQUISITIONSAT A GLANCE..
YEAR BANK MERGED WITH
1969 Bank Of Bihar State Bank Of India
1970 National BankOf Lahore State Bank Of India
1971 EasternBank Ltd. CharteredBank
1974 KrishnaramBaldeoBankLtd. State Bank Of India
1976 BelgaumBank Ltd. UnionBank Of India
1984-85 Lakshmi Commercial Bank Canara Bank
1984-85 Bank Of Cochin State Bank Of India
1985 Miraj State Bank UnionBank Of India
1986 HindustanCommercial Bank PunjabNational Bank
1988 Trader’sBank Ltd. Bank Of Baroda
1989-90 UnitedIndustrial Bank AllahabadBank
1989-90 Bank Of Tamilnad IndianOverseasBank
1989-90 Bank Of Thanjavur IndianBank
1989-90 Parur Central Bank Bank Of India
1990-91 Purbanchal Bank Central BankOf India
1993-94 NewBankOf India PunjabNational Bank

31. 31
1993-94 Bank Of Karad Bank Of India
1995-96 KasinathSethBank State Bank Of India
1996 SCICI ICICI
1997 ITC Classic ICICI
1997 BARIDoab Bank Oriental Bankof Commerce
1998 PunjabCo-operative Bank Oriental Bankof Commerce
1998 AnagramFianance ICICI
1999 BareillyCorporationBank Bank of Baroda
1999 SikkimBankltd. UnionBank
2000 Timesbank HDFC Bank
2001 Bank of Madura ICICI
2002 Benarasstate bank Bank of Baroda
2003 Nedungadi Bank Punjabnational Bank
2004 SouthGujarat Local AreaBank Bank of Baroda
2004 Global Trust Bank Oriental Bankof Commerce
2005 Bank of Punjab Centurionbank
2005 IDBI bank IDBI
2008 HDFC bank Centurionbankof punjab

32. 32
Challenges and opportunities in Indian banking sector
In a few years from now there would be greater presence of international players in Indian
financial system and some of the Indian banks would become global players in the coming years.
Also competition is not only on foreign turf but also in the domestic field. The new mantra for
Indian banks is to go global in search of new markets, customers and profits. But to do so the
Indian banking industry will have to meet certain challenges. Some of them are –
FOREIGN BANKS – India is experiencing greater presence of foreign banks over time. As a
result number of issues will arise like how will smaller national banks compete in India with
them, and will they themselves need to generate a larger international presence? Second,
overlaps and potential conflicts between home country regulators of foreign banks and host
country regulators: how will these be addressed and resolved in the years to come? It has been
seen in recent years that even relatively strong regulatory action taken by regulators against such
global banks has had negligible market or reputational impact on them in terms of their stock
price or similar metrics. Thus, there is loss of regulatory effectiveness as a result of the presence
of such financial conglomerates. Hence there is inevitable tension between the benefits that such
global conglomerates bring and some regulatory and market structure and competition issues that
may arise.
I. GREATER CAPITAL MARKET OPENNESS - An important feature of the Indian
financial reform process has been the calibrated opening of the capital account along
with current account convertibility. It has to be seen that the volatility of capital inflows
does not result in unacceptable disruption in exchange rate determination with inevitable
real sector consequences, and in domestic monetary conditions. The vulnerability of
financial intermediaries can be addressed through prudential regulations and their
supervision; risk management of non-financial entities. This will require market
development,
II. Enhancement of regulatory capacity in these areas, as well as human resource
development in both financial intermediaries and non-financial entities.

33. 33
III. TECHNOLOGY IS THE KEY – IT is central to banking. Foreign banks and the new
private sector banks have embraced technology right from their inception and continue
to do so even now. Although public sector banks have crossed the 70%level of
computerization, the direction is to achieve 100%. Networking in banks has also been
receiving focused attention in recent times. Most recently the trend observed in the
banking industry is the sharing of ATMs by banks. This is one area where perhaps India
needs to do significant ‘catching up’. It is wise for Indian banks to exploit this globally
state-of-art expertise, domestically available, to their fullest advantage.
IV. CONSOLIDATION – We are slowly but surely moving from a regime of "large number
of small banks" to "small number of large banks." The new era is one of consolidation
around identified core competencies i.e., mergers and acquisitions. Successful merger of
HDFC Bank and Times Bank; Stanchart and ANZ Grindlays; Centurion Bank and Bank
of Punjab have demonstrated this trend. Old private sector banks, many of which are not
able to cushion their NPA’s, expand their business and induct technology due to limited
capital base should be thinking seriously about mergers and acquisitions.
V. PUBLIC SECTOR BANKS - It is the public sector banks that have the large and
widespread reach, and hence have the potential for contributing effectively to achieve
financial inclusion. But it is also they who face the most difficult challenges in human
resource development. They will have to invest very heavily in skill enhancement at all
levels: at the top level for new strategic goal setting; at the middle level for
implementing these goals; and at the cutting edge lower levels for delivering the new
service modes. Given the current age composition of employees in these banks, they will
also face new recruitment challenges in the face of adverse compensation structures in
comparison with the freer private sector.
VI. Basel II – As of 2006, RBI has made it mandatory for Scheduled banks to follow Basel
II norms. Basel II is extremely data intensive and requires good quality data for better
results. Data versioning conflicts and data integrity problems have just one resolution,

34. 34
namely banks need to streamline their operations and adopt enterprise wide IT
architectures. Banks need to look towards ensuring a risk culture, which penetrates
throughout the organization.
VII. COST MANAGEMENT – Cost containment is a key to sustainability of bank profits as
well as their long-term viability. In India, however, in 2003, operating costs as
proportion of total assets of scheduled commercial banks stood at 2.24%, which is quite
high as compared to in other economies. The tasks ahead are thus clear and within reach.
VIII. RECOVERY MANAGEMENT – This is a key to the stability of the banking sector.
Indian banks have done a remarkable job in containment of non-performing loans (NPL)
considering the overhang issues and overall difficult environment. Recovery
management is also linked to the banks’ interest margins. Cost and recovery
management supported by enabling legal framework hold the key to future health and
competitiveness of the Indian banks. Improving recovery management in India is an area
requiring expeditious and effective actions in legal, institutional and judicial processes.
IX. REACH AND INNOVATION - Higher sustained growth is contributing to enhanced
demand for financial savings opportunities. In rural areas in particular, there also appears
to be increasing diversification of productive opportunities. Also industrial expansion
has accelerated; merchandise trade growth is high; and there are vast demands for
infrastructure investment, from the public sector, private sector and through public
private partnerships. Thus, the banking system has to extend itself and innovate. Banks
will have to innovate and look for new delivery mechanisms and provide better access to
the currently under-served. Innovative channels for credit delivery for serving new rural
credit needs will have to be found. The budding expansion of non-agriculture service
enterprises in rural areas will have to be financed. Greater efforts will need to be made
on information technology for record keeping, service delivery, and reduction in

35. 35
Procedure of Bank Merger
The procedure for merger either voluntary or otherwise is outlined in the respective state statutes/
the Banking regulation Act. The Registrars, being the authorities vested with the responsibility of
administering the Acts, will be ensuring that the due process prescribed in the Statutes has been
complied with before they seek the approval of the RBI. They would also be ensuring
compliance with the statutory procedures for notifying the amalgamation after obtaining the
sanction of the RBI.
 Before deciding on the merger, the authorized officials of the acquiring bank and the
merging bank sit together and discuss the procedural modalities and financial terms.
After the conclusion of the discussions, a scheme is prepared incorporating therein the all
the details of both the banks and the area terms and conditions.
 Once the scheme is finalized, it is tabled in the meeting of Board of directors of
respective banks. The board discusses the scheme thread bare and accords its approval if
the proposal is found to be financially viable and beneficial in long run.
 After the Board approval of the merger proposal, an extra ordinary general meeting of the
shareholders of the respective banks is convened to discuss the proposal and seek their
approval.
 After the board approval of the merger proposal, a registered valuer is appointed to
valuate both the banks. The valuer valuates the banks on the basis of its share capital
market capital, assets and liabilities, its reach and anticipated growth and sends its report
to the respective banks.
 Once the valuation is accepted by the respective banks , they send the proposal along
with all relevant documents such as Board approval, shareholders approval, valuation
report etc to Reserve Bank of India and other regulatory bodies such Security & exchange
board of India SEBI for their approval.
 After obtaining approvals from all the concerned institutions, authorized officials of both
the banks sit together and discuss and finalize share allocation proportion by the
acquiring bank to the shareholders of the merging bank SWAP ratio
 After completion of the above procedures , a merger and acquisition agreement is signed.

36. 36
RBI Guidelines on Mergers & Acquisitions of Banks
 With a view to facilitating consolidation and emergence of strong entities and providing
an avenue for non disruptive exit of weak/unviable entities in the banking sector, it has
been decided to frame guidelines to encourage merger/amalgamation in the sector.
 Although the Banking Regulation Act, 1949 (AACS) does not empower Reserve Bank to
formulate a scheme with regard to merger and amalgamation of banks, the State
Governments have incorporated in their respective Acts a provision for obtaining prior
sanction in writing, of RBI for an order, inter alia, for sanctioning a scheme of
amalgamation or reconstruction.
 The request for merger can emanate from banks registered under the same State Act or
from banks registered under the Multi State Co-operative Societies Act (Central Act) for
takeover of a bank/s registered under State Act. While the State Acts specifically provide
for merger of co-operative societies registered under them, the position with regard to
take over of a co-operative bank registered under the State Act by a co-operative bank
registered under the central.
 Although there are no specific provisions in the State Acts or the Central Act for the
merger of a co-operative society under the State Acts with that under the Central Act, it is
felt that, if all concerned including administrators of the concerned Acts are agreeable to
order merger/ amalgamation, RBI may consider proposals on merits leaving the question
of compliance with relevant statutes to the administrators of the Acts. In other words,
Reserve Bank will confine its examination only to financial aspects and to the interests of
depositors as well as the stability of the financial system while considering such
proposals.

37. 37
Change in scenario of Banking Sector
1. The first mega merger in the Indian banking sector that of the HDFC Bank with Times Bank,
has created an entity which is the largest private sector bank in the country.
2. The merger of the city bank with Travelers Group and the merger of Bank of America with
Nation Bank have triggered the mergers and acquisition market in the banking sector
worldwide.
3. Europe and Japan are also on their way to restructure their financial sector thought merger
and acquisitions. Merger will help banks with added money power, extended geographical
reach with diversified branch Network, improved product mix, and economies of scale of
operations. Merger will also help banks to reduced them borrowing cost and to spread total
risk associated with the individual banks over the combined entity. Revenues of the combine
entity are likely to shoot up due to more effective allocation of bank funds. ICICI Bank has
initiated merger talks with Centurian Bank but due to difference arising over swap ration the
merger didn’t materialized. Now UTI Bank is egeing Centurian Bank. The proposed merger
of UTI Bank and Centurian Bank will make them third largest private banks in terms of size
and market Capitalization State Bank of India has also planned to merge seven of its
associates or part of its long-term policies to regroup and consolidate its position. Some of
the Indian Financial Sector players are already on their way for mergers to strengthen their
existing base.
4. In India mergers especially of the PSBS may be subject to technology and trade union related
problem. The strong trade union may prove to be big obstacle for the PSBS mergers.
Technology of the merging banks to should complement each other NPA management.
Management of efficiency, cost reduction, tough competition from the market players and
strengthing of the capital base of the banks are some of the problem which can be faced by
the merge entities. Mergers for private sector banks will be much smoother and easier as
again that of PSBS.

38. 38
THE BANKING SCENARIO HAS BEEN CHANGING AT FAST PACE
Bank traditionally just borrower and lenders, has started providing complete corporate and retail
financial services to its customers
1. Technology drive has benefited the customers in terms of faster improve convenient banking
services and Varity of financial products to suit their requirement. Atms, Phone Banking, Net
banking, Any time and Any where banking are the services which bank have started offering
following the changing trend in sectors. In plastic money segment customer have also got a
new option of debits cards against the earlier popular credit card. Earlier customers had to
conduct their banking transaction within the restricted time frame of banking hours. Now
banking hours are extended.
2. Atms, Phone banking and Net banking had enable the customer to transact as per their
convince customer can now without money at any time and from any branch across country
as certain their account transaction, order statements of their account and give instruction
using the tally banking or on online banking services.
3. Bank traditionally involve working capital financing have started offering consumer loans
and housing loans. Some of the banks have started offering travel loans, as well as many
banks have started capitalizing on recent capital market boom by providing IPO finance to
the investors.

39. 39
Information & Documents to be furnished by THE ACQUIRER OF BANKS
1. Draft scheme of amalgamation as approved by the Board of Directors of the acquirer bank.
2. Copies of the reports of the valuers appointed for the determination of realizable value of
assets (net of amount payable to creditors having precedence over depositors) of the acquired
bank.
3. Information which is considered relevant for the consideration of the scheme of merger
including in particular:-
a. Annual reports of each of the Banks for each of the three completed financial years
immediately preceding the proposed date for merger.
b. Financial results, if any, published by each of the Banks for any period subsequent to
the financial statements prepared for the financial year immediately preceding the proposed date
of merger.
c. Pro-forma combined balance sheet of the acquiring bank as it will appear consequent
on the merger.
d. Computation based on such pro-forma balance sheet of the following:-
I. Tier I Capital
Ii. Tier II Capital
Iii. Risk-weighted Assets
Iv. Gross and Net npas
V. Ratio of Tier I Capital to Risk-weighted Assets
Vi. Ratio of Tier II Capital to Risk-weighted Assets
Vii. Ratio of Total Capital to Risk-weighted Assets
Viii. Tier I Capital to Total Assets
Ix. Gross and Net npas to Advances
X. Cash Reserve Ratio

40. 40
4. Information certified by the values as is considered relevant to understand the net realizable
value of assets of the acquired bank including in particular:-
a. The method of valuation used by the values
b. The information and documents on which the values have relied and the extent of the
verification, if any, made by the values to test the accuracy of such information
c. If the values have relied upon projected information, the names and designations of
the persons who have provided such information and the extent of verification, if any, made by
the values in relation to such information
d. Details of the projected information on which the values have relied
e. Detailed computation of the realizable value of assets of the acquired bank.
5. Such other information and explanations as the Reserve Bank may require.

41. 41
Case 1:Merger of ICICI Bank with Bank of Madura
The proposed merger between ICICI Bank and Bank of Madura (BOM) is a remarkable one. The
pre--merger market capitalization of ICICI Bank was roughly Rs.2500 crore while bom was at
roughly Rs.100 crore. BOM is known to have a poor asset portfolio. What will the merged entity
be worth?
The key rationale underlying every merger is the question of synergy. Can ICICI Bank's products
and technology bring new life to the 263 branches of BOM? Will ICICI Bank (which has 1,700
employees) be able to overcome the 2,600 employees that BOM carries, given that Indian labour
law makes it troublesome and expensive to sack workers?
In applying these ideas to ICICI Bank and to BOM, we need to believe that the stock market
effectively processes information to produce estimates of the price and volatility of the shares of
both these banks. This assumption is suspect, because both securities have poor stock market
liquidity. Hence, we should be cautious in interpreting the numbers shown here. There are many
other aspects in which this reasoning leans on models, which are innately imperfect depictions of
reality. However, these models are powerful tools for understanding the basic factors at work,
and they probably convey the broad picture quite effectively.
The stock of ICICI Bank may be in the limelight on the back of the proposed acquisition of Bank
of Madura.
Though the stock has gained sharply in the last two months after hitting a recent low of Rs 110,
some upside may be left as the bank could get re-rated on account of the merger. Existing
shareholders could hold their exposures in ICICI Bank while investors with an appetite for risk
could contemplate exposures despite the impressive gains of the past few months. ICICI Bank
continues to be one of the better options in the banking sector at the moment and the possible
merger with ICICI may well be on the backburner.
The merger would pitchfork ICICI Bank as the leading private sector bank. The merger may be
viewed favorably since Bank of Madura has focused strengths and a reasonably good quality
balance sheet.

42. 42
It is quite likely that the swap ratio may be fixed in a manner that holds out a good deal for the
shareholders of Bank of Madura. This may also be influenced by the fact that the Bank of
Madura stock has gained sharply by around 70 per cent in the past fortnight in the homestretch to
the deal.
As the acquisition is to be financed by issuance of stock, the rise in the market capitalization of
Bank of Madura may mean a higher degree of equity issuance by ICICI Bank. But the price may
well be worth paying as this is the only way that ICICI Bank may be able to get control over
banks with reasonable quality balance sheets that could make a difference in the medium to long-
term.
Bank of Madura had assets of Rs 3,988 crore and deposits of Rs 3,395 crore as of March 2000.
The fact that the bank has a capital adequacy of 15.8 per cent with shareholder funds of Rs 263
crore may mean that ICICI Bank (post-merger phase) will have more leeway to pursue growth
without expanding the equity base (other than paying for the acquisition).
Strong capital adequacy, a strong beachhead on the Internet arena, a revamped IT architecture, a
growing retail client base through a brick-and-click strategy, and improving asset quality and
earnings growth are positive features as far as ICICI Bank is concerned.
Despite these factors, the share had been on a downtrend from after touching a high of Rs 271,
eight months ago. The uptrend then was on the back of the announcement of its ADR issue and
new technology initiatives. The subsequent downtrend was triggered by the possibility of the
merger with its parent. There is continuing concern on asset quality of ICICI. It has been a stated
goal of the ICICI group to go in for universal banking. It is clear that once regulatory hurdles are
removed, such a possibility becomes distinctly feasible. But
Given the battering that bank stock took, ICICI may now hesitate to pursue this path. Also ICICI
Bank is the most visible investor-friendly face for the group in terms of returns to shareholders
and it may well be maintained as a separate entity. In this backdrop, the stock may hold scope for
improvement in the valuation of the stock.

43. 43
Financial standing of ICICI Bank & Bank of Madura
Parameters ICICI Bank Bank of Madura
1998-1999 1999-2000 1998-1999 1999-2000
Net worth 308.33 1129.90 211.32 247.83
Total Deposit 6072.94 9866.02 3013.00 3631.00
Advances 3377.60 5030.96 1393.92 1665.42
Net Profit 63.75 105.43 30.13 45.58
Share Capital 165.07 196.81 11.08 11.08
Capital Adequacy
Ratio
11.06% 19.64% 18.83% 14.25%
Gross Advances /
Gross NP’s
4.72% 2.54% 8.13% 11.09%
Net Advances /
Net NP’s
2.88% 1.53% 4.66% 6.23%
Source: Complied from Annual Report (March 2000) of ICICI Bank & Bank of Madura.
Crucial Parameters: - How they stand
Name of the Bank of ICICI
Bank Madura Bank
Book value of bank on the
day of merger
announcement
183.0 58.0
Market price on the day
announcement of merger
183.0 169.90

44. 44
Earnings per share
Dividend paid (in%) P/E
Ratio
38%
55%
1.73
5.4
15%
783
 The Generation Gap:- the merger of 57 year old BOM sooth bared old generation bank
with a fast growing technology say new Generation bank will help the latter and the start
merger is likely to bring cheer to shareholder and bank employees of BOM and some amount
of discomfort and anxiety to those of ICICI bank.
 The scheme of amalgamation will increase the equity bank of ICICI Bank to RS 220.36 CR.
ICICI Bank will issue 235.4-lakh share of RS 10 each to the shareholder of BOM. The
merger entity will have an increase of a net base over RS 160 billion and deposit base of RS
131 billion.
 The merged entity will have 360 branches and a similar number of ATM’s across the country
and also enable the ICICI to serve a large customer bone of 1.2 million customers of BOM
through a wider network, adding to 2.7 million.
Managing rural branches:
ICICI major branches are in major and cities, where as BOM spreads its wings mostly in semi
urban and city segments of south India. There in a task ahead lying for the merged entity to
increase dramatically the business mix of rural branches of BOM. On the other hand due to
Geographical location of its branches and level of competition. ICICI Bank will have a tough
time to cope with.
Managing software:
Another task which stand on the way is technology while ICICI bank which is fully automatic.
 Quality of assets:- the nature of assets a bank is holding would signify its operational
efficiency. Usually the level of Non – performing Assets ( NPAS) judges the quality of

45. 45
assets. The lower the NAPS to total advances or total assets the better the quality is and vice
versa.
 Staff productivity: - One of the key area where banks can develop competition advantage.
The measurement of staff productivity becomes one of the essential factors while measuring
the performance of the banks.
 Liquidity:- While assessing the liquidity of a bank the most sought ratio is net loans to total
assets. A rise in the net loans to total assets may be considered as a fall in the liquidity of the
bank.
 Book Value per share:- It is simply the net worth of the company (which is equal to the paid
up equity capital plus resource and surplus) divided by the number of outstanding equity
shares.
 Earnings per share:- specific valuation per unit of investment given by Net income after
income taxes and after dividends on preferred stock of the company.
 Net work:- Book value of a company is common stock, surplus, resources and retained
earnings.
 Profitability: - the most crucial ratio in measuring the profitability is net profit of the bank.
The ratio such as Net Interest Income (NIL) and Net Interest Margin (NIM) measure
sustenance ability of the bank based on the spread. Entity is using the package, Banks 2000,
BOM computerized 90 percent of its business and was converted with ISBS software.
The BOM branches are supposed to switch over to Banks 2000. Though it is not a difficult
task, with 80% computer literate staff would need effective retraining which involves a cost.
The ICICI Bank need to invest RS 50 core for upgrading BOM’s 263 branches.
Managing Human Resources:
One of the greatest challenges before ICICI Banks is managing human resources. When the head
count of ICICI Bank is taken it in less than 1500 employees on the other hand BOM has over
2500. The merged entity will have bout 4000 employees which will make it one of the largest
banks among the new generation private sector banks. Th staff of ICICI Banks are drawn from

46. 46
75 various banks mostly young qualified professionals with computer background and prefer to
work in metro or by either with good remuneration packages.
While under the influence of tread unions most of the BOM employees have low career
aspiration. The announcement by H.N. signor, CEO and MD of ICICI, that three would be no
VRS or retrenchment, creates a new hope amongst the BOM employees. It is a tough task ahead
to manage. On the other hand their pay would be revised upwards.
Managing Client Base
The clients base of ICICI Bank after merger, will be as 2.7 Million from it past 0.5 Million, as
accumulation of 2.2 Million from BOM. The nature and quality of clients is not of uniform
quality.
The BOM had built up it client base for a long time, in a hard way, on the basis of personalized
services. In order to deal with the BOM clientele, the ICICI Bank needs to redefine its strategies
to suit to the new clientele. The sentiments or a relationship of small and medium borrower is
hurt it may be difficult for them to reestablish the relationship which could also hamper the
image of the bank.
Recommendation of Narasimham Committee on banking sector reforms
 Globally, the banking and financial systems have adopted information and communications
technology. This phenomenon has largely by passed the Indian banking system, and the
committee feels that requisite success needs to be achieved in the following areas:-
- Banking automation
- Planning, Standardization of electronic payment systems
- Telecom infrastructure
 Merger between banks and dfls and nbfcs need to be based on synergies and should make a
sound commercial sense. Committee also opines that merger between strong banks would
make for greater economic and commercial sense and would be a case where the whole is
greater than the sum of its party and have a ‘force multiplier effect”. It also have merger
should not be seen as a means of bailing out weak banks.

47. 47
 A weak bank could be nurtured into healthy units. Merger could also be a solution to a after
cleaning up their balances sheets it only say if these is no Voltaire response to a takeover of
such bank, a restructuring commission for such PSB, can consider other options such as
restructuring , merger and amalgamations to it not closure.
 The committee also options that while licensing new private sector banks, the initial capital
requirement need to be review. It also emphasized on a transparent mechanism for deciding
the ability of promoter to professionally manage the bank. The committee also feels that a
minimum threshold capital for old private banks also deserved threshold capitals. The
committee also opined that a promoter group couldn't hold more that 40 percent of the equity
of a bank.
The Narasimham Committee also suggested that the merger could be a solution to ‘Weak
banks’ Coney after clearing up the balance sheets) with a strong public sector bank.
Source: Narasimham Committee report on banking sector reforms.
Changes after the merger
While, BOM had an attractive business per employee figure of Rs.202 lakh, a better
technological edge and had a vast base in southern India when compared to Federal bank. While
all these factors sound good, a cultural integration would be a tough task ahead for ICICI Bank.
ICICI Bank has announced a merger with 57-year-old Bank of Madure, with 263 branches, out
of which 82 of them are in rural areas, with most of them in southern India. As on the day of
announcement of merger) 09-12-00), Kotak mahindra group was holding about 12 percent stake
in BOM, the Chairman BOM, Mr.K.M. Thaiagarajan, along with his associates was holding
about 26 percent stake, Spic groups has about 4.7 percent, while LIC and UTI were having
marginal holdings. The merger will give ICICI Bank a hold on South India market, which has
high rate of economic development.
The board of Director at ICICI has contemplated the following synergies emerging from the
merger:

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Financial Capability: The amalgamation will enable them to have a stronger financial and
operational structure, which is supposed to be capable of greater resourger/deposit mobilization.
ICICI will emerged one of the largest private sector banks in the country.
Branch network: The ICICI’s branch network would not only 264, but also increases
geographic coverage as well as convenience to its customers.
Customer base: The emerged largest customer base will enable the ICICI bank to offer banking
financial services and products and also facilitate cross-selling of products and services of the
ICICI groups.
Tech edge: The merger will enable ICICI to provide atms, Phone and the Internet banking and
finical services and products and also facilitate cross-selling of products and services of the
ICICI group.
Focus on Priority Sector: The enhanced branch network will enable the Bank to focus on
micro-finance activities through self-help groups, in its priority sector initiatives through its
acquired 87 rural and 88 semi-urban branches.
Source: Report submitted at EGM on January 19, 2001.
THE SWAP RATIO:
The swap ratio has been approved in the ratio of 1:2 – two shares of ICICI Bank for every one
share of Bank of Madura.

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Case 2:Merger of Centurian Bank and Bank Of Punjab
BANK OF PUNJAB
a) It was incorporated on may27, 1994 under the companies act, 1956.
b) The registered office of the bank was situated at SCO 46-47, sector 9-D, Madhya
Marg, Chandigarh- 160017.
c) It is banking company under the provisions of regulation act, 1949.
d) The objects of bank are banking business as set out in its memorandum and articles of
association.
e) The bank is a new private sector bank in operating for more than 10 years, with a
national network of 136 branches( including extension counters) having a significant
presence in the most of the major banking sectors of the country. The transferor bank
offers a host of banking products catering to various classes of customers ranging
from small and medium enterprises to large cooperates.
f) The bank is listed on the stock exchange, Mumbai, the national stock exchange of
India limited and the Ludhiana stock exchange.
CENTURION BANK
a) It was incorporated on june30, 1994 under the companies act, 1956.
b) The registered office of the Bank was situated at Durga Niwas, Mahatma Gandhi Road,
Panaji, 403001, Goa.
c) It is a banking company under the provisions of banking regulation act, 1949.
d) The objectives of transferee bank are banking business as set out in its memorandum and
articles of association.
e) The bank is a profitable and well capitalized new private sector bank having a national
presence of over 99 branches( including extension counter)
f) It has a significant presence in the retail segment offering a range of products across
various categories.

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g) The bank is listed on the stock exchange, Mumbai and the National stock exchange of
India limited, Mangalore stock exchange of India limited, Mangalore stock exchange and
its global depository receipts are listed on the Luxembourg stock exchange.
The amalgamation of the Transferor bank (BOP) with the transferee bank (centurion) is effected
subject to the terms and conditions embodied in the scheme of merger pursuant to section 44A of
banking regulation act, 1949( hereinafter “the act”). In terms of section 44A of the said act, a
resolution is required to be passed by a majority in number and two-third in the value of the
members of the Transferor and the Transferee Bank, present rather in person or by proxy at the
respective meetings. As both the companies are banking companies, the amalgamation is
regulated by the provisions of the act and would require the sanction of the reserve bank of India
under the said act. The provisions of section 391-394 of the companies’ act, 1956 relating to
amalgamation are not applicable to the amalgamation of the transferor bank with the transferee
bank and therefore the scheme is not be required to be sanctioned by a high court under the
provisions of the companies act, 1956.
About Centurion Bank of Punjab
Centurion bank of Punjab is a new generation private bank offering a wide spectrum of retail,
SME and corporate banking products and services. It has been among the earliest banks to offer
a technology enabled customer interface that provides easy access and superior customer service.
Centurion Bank of Punjab has a nationwide reach through its network of 241 branches and 389
ATMs.The bank aims to serve all the banking and financial needs of its customers through
multiple delivery channels, each of which is supported by state of the art technology architecture.
Centurion Bank of Punjab was formed by the merger of Centurion Bank and Bank of Punjab,
both of which had strong retail franchises in their respective markets. Centurion Bank had a well
managed and growing retail assets business, including leadership positions in two wheeler loans
and commercial vehicles loans and a strong capital base. Bank of Punjab brings with it a strong
retail deposit customer base in North India in addition to a sizable SME and agriculture portfolio.
The shares of the bank are listed on the major stock exchanges in India and also on the
Luxembourg Stock exchange. Among centurion bank of Punjab’s greatest strengths is the fact
that it is a professionally managed bank with a globally experienced and capable management

51. 51
team. The day to day operations of the bank are looked by Mr. Shilnder bhandari, managing
Director & CEO, assisted by a senior management team, under the overall supervision and
control of the Board of directors. Mr. Rana Talwar is the chairman of the board. Some of our
major shareholders are saber capital, Bank Muscat and Keppel Corporation, Singapore are
represented on the Board.
The book value of the bank would also go up to around Rs 300 crores. The higher book value
should help the combine entity to mobilize funds at lower rate.
The combined bank will be full service commercial bank with a strong presence in the Retail,
SME and Agricultural segments.
Share holding pattern of Centurion Bank of Punjab
After the merger shareholding of Bank of Punjab (BOP) promotes will shrink to 5%. The family
of Darshanjit Singh which promoted Bop currently holds 15.62% while associates hold another
11.40% the promoter stake will now fall down to around 5% ad for associate that would be 7-
8%.
The major shareholder of the centurion bank, bank of Muscat’s stake will fall to 20.5% from
25.91%, Keppel’s stake will be at 9% from current level of 11.33% and Rana Talwar’s capital
will have a stake of 4.4% as against 5.61%.
The promoters of BoP and major stakeholders of centurion bank will have a combine stake of
around 42% in the merged entity- centurion bank of Punjab.
The costs of deposit of Bop were lower than Centurion; While Centurion had a net interest
margin of around 5.8%. The net interest margin of the merged entity will be at 4.8%.
The combined entity will have adequate capital of 16.1% to provide for its growth plans.
Centurion banks capital adequacy on a standalone basis stood at 23.1% while Bank of Punjab
figure stood at 9.21%.
The performance net worth of combined entity as at march 2005 stood at Rs. 696 crores with
centurion’s net worth at Rs. 511 crore and Bank of Punjab’s net worth at Rs. 181 crore, and

52. 52
combine entity( centurion Bank of Punjab) will have total asset 9395 crore, deposit 7837 crore
and operating profit 43 crore.
The merged entity will have a paid up share capital of Rs. 130 cr and a net worth of Rs. 696 cr.
The merged entity will have 235 Branches and extension counters, 382 ATMs and 2.2 million
customers.
MERGER POSITION
Private Banks is taking to the consolidation route in a big way. Bank of Punjab (BOP) and
Centurion Banks (CB) have been merged to form Centurion Bank of Punjab (CBP). Private
Banks is taking to the consolidation route in a big way. Bank of Punjab (BOP) and Centurion
Banks (CB) have been merged to form Centurion Bank of Punjab (CBP).
elements of both, he added. Centurion Bank has a presence in south and west and Bank of
Punjab has a strong presence in the north. “The merger will give us scale geographical reach and
entry into new products segments” said the official.
Bank of Punjab is strong in small and medium enterprises (ME) business in the north, with good
retail assets and an agriculture portfolio as well as deposit franchisee Centurion Bank has a
capital, ability to generate retail assets, risk management systems and good treasury division.
Market players except the swap ratio 2:1, said sources. For very two stocks of Centurion bank, a
shareholder will
RBI approved merger of Centurion Bank and Bank of Punjab effective from October 1, 2005.
The merger is at swap ratio 9:4 and the combined bank is called Centurion bank of Punjab. The
merger of the banks will have a presence of 240 branches and extension counters, 386 ATMs,
about 2.2 million customers. As on March 2005, the net worth of the combined entity is Rs 696
crore and the capital adequacy ratio is 16.1% in the private sector, nearly 30 banks are operating.
The top five control nearly 65% of the assets. Most of these private sector banks are profitable
and have adequate capital and have the technology edge. Due to intensifying competition, access
to low cost deposits is critical for growth. Therefore, size and geographical reach becomes the
key for smaller banks. The choice before smaller private banks is to merge and form bigger and
viable entities or merge into a big private sector bank. The proposed merger of bank of Punjab

53. 53
and Centurion Bank is sure to encourage other private sector banks to go for the M&A road for
consolidation.
The merger of Centurion bank and Bank of Punjab, both of which had strong retail franchises in
their respective markets, formed centurion bank of Punjab. Centurion bank had a well managed
and growing retail assets business, including leadership positions in 2 wheeler loans and
commercial vehicle loans, and a strong capital base. Bank of Punjab brings with it a strong retail
deposit customer base in North India in addition to a sizeable SME and agricultural portfolio.
The shares of the bank are listed on the major stock exchanges in India and also on the
Luxembourg stock exchange. Bank of Punjab has net non- performing assets of around Rs
110.45 crore as on March 2004, which will be carried to Centurion Banks books after merger.
Both the brands are strong in their respective geographers and business hence the merged entity
will have the elements of both, he added. Centurion Bank has a presence in south and west and
Bank of Punjab has a strong presence in the north. “The merger will give us scale geographical
reach and entry into new products segments” said the official.
Bank of Punjab is strong in small and medium enterprises (ME) business in the north, with good
retail assets and an agriculture portfolio as well as deposit franchisee Centurion Bank has a
capital, ability to generate retail assets, risk management systems and good treasury division.
Market players except the swap ratio 2:1, said sources. For very two stocks of Centurion bank, a
shareholder will get one stock of Bank of Punjab. The merged entity will have a asset base of
Rs.10, 000 crore, said a senior bank official. The depository base of entity will be around Rs.
7165.67 crore and advances will be around Rs. 3909.87 crore. The organization structure for the
combined bank is in place and the grades and incentives across the organization have largely
been realigned. Centurion bank of Punjab said in a statement. ” The operations of the bank have
been integrated across the entire network.”
“A decision has been taken on a common system for the banks and a phased migration has been
planned to ensure minimum disruption of customer service and operation across the bank”’
Centurion Bank of Punjab Said.

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HIGHLIGHTS OF THE MERGER- CENTURION BANK AND BANK OF PUNJAB
1. Bank of Punjab is merged into Centurion Bank.
2. New entity is named as “Centurion Bank of Punjab”.
3. Centurion Bank’s chairman Rana Talwar has taken over as the chairman of the merged
entity.
4. Centurion bank’s MD Shailendra Bhandari is the MD of the merged entity.
5. KPMG India pvt ltd and NM Raiji & Co are the independent values and ambit corporate
finance was the sole investment banker to the transaction.
6. Swap ratio has been fixed at 4:9 that is for every four shares of Rs 10 of Bank of Punjab,
its shareholders would receive 9 shares of Centurion Bank.
7. There has been no cash transaction in the course of the merger; it has been settled through
the swap of shares.
8. There is no downsizing via the voluntary retirement scheme.
In the opinion of the Board of Directors of Bank of Punjab the following are amongst others, the
benefits that are expected to accrue to the members from the proposed scheme:
(a) Financial Capability: The amalgamation is expected to enable the merge
Entity to have a stronger financial and business profile, which could be synergized to both for
resources and mobilization and asset generation.
(b) Branch Network: As a result of the amalgamation, the branch network of the merged entity
would increase to 235 branches, providing increased geographic coverage, particular in the
southern India and giving it a larger national foot print as well as convenience to its
customers.
(c) Retail Customer Base: The amalgamation would enable the merged entity to increase its
retail customer base. This larger customer base will provide the merged entity enhanced

55. 55
opportunities for offering banking and financial services and products and facilitate cross
selling of products and services.
(d) Use of Technology: Post amalgamation, the merged entity would be able to provide through
its branches, ATMs, phone and the internet banking and financial services and products to a
larger customer base, with expected savings in costs and operating expenses.
(e) Larger Size: the larger asset base of the merged entity will put the merged entity amongst the
bigger players in the private sector banking space.
(f) International Listing: The members will become shareholders of an internationally listed
entity which has the advantage of greater access to raising capital.

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Case 3:Merger of IDBI and IDBI Bank
IDBI BANK
The Industrial Development Bank of India Limited commonly known by its acronym IDBI is
one of India's leading public sector banks and 4th largest Bank in overall ratings. RBI
categorized IDBI as "other public sector bank".It was established in 1964 by an Act of
Parliament to provide credit and other facilities for the development of the fledgling Indian
industry. It is currently the tenth largest development bank in the world in terms of reach with
975 ATMs, 568 branches and 352 centers.[1] Some of the institutions built by IDBI are The
National Stock Exchange of India (NSE), The National Securities Depository Services Ltd.
(NSDL) and the Stock Holding Corporation of India (SHCIL) IDBI BANK , as a private bank
after government policy for new generation private banks.
IDBI
The Industrial Development Bank of India (IDBI) was established on July 1, 1964 under an Act
of Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 16 February 1976,
the ownership of IDBI was transferred to the Government of India and it was made the principal
financial institution for coordinating the activities of institutions engaged in financing, promoting
and developing industry in the country. Although Government shareholding in the Bank came
down below 100% following IDBI’s public issue in July 1995, the former continues to be the
major shareholder (current shareholding: 52.3%). During the four decades of its existence, IDBI
has been instrumental not only in establishing a well-developed, diversified and efficient
industrial and institutional structure but also adding a qualitative dimension to the process of
industrial development in the country

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Merger position
On April 2, 2005, the merger of IDBI Bank Ltd. (IDBI Bank), the banking subsidiary of
Industrial Development Bank of India (IDBI) with its parent company (IDBI held 57% stake in
IDBI Bank) was announced. However, the merger was to be effective retrospectively from
October 1, 2004. The swap ratio was established at 1:1.42 , that is, IDBI issued 100 equity shares
for every 142 equity shares held by the shareholders in IDBI Bank. The merged entity was to be
called IDBI Ltd...
IDBI, one of India's leading Development Financial Institutions (DFI), .merged with IDBI bank,
its banking subsidiary, in a move aimed at consolidating businesses across the value chain and
realizing economies of scale.
M Damodaran is IDBI chairman he confirm that the merger would benefit both IDBI and IDBI
Bank. “The rationale of the merger is extremely compelling because the bank needs capital to
grow and gets to use a name that has great brand value. They can start operations as a full-
fledged bank without incurring expenditure on setting up branches, inducting technology, or
bringing in new people,” Damodaran said.
A new entity, IDBI Ltd, will become the holding company with two strategic business units —
IDBI, which will function as a development finance company, and IDBI Bank, which will be the
retail arm. IDBI Home Finance, which was acquired from the Tata's, would also be merged into
IDBI.

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Case 4:MERGER OF ICICIBANK WITH SANGLI BANK
The merger that was announced on APRIL 18, 2007 between ICICI Bank and SANGLI Bank.All
branches of Sangli Bank functions as branches of ICICI Bank from April 19, said the Reserve
Bank of India.
Sangli Bank is an unlisted private bank headquartered at Sangli in Maharashtra. As on March 31,
2006, Sangli Bank had deposits of Rs. 2,004 crore, advances of Rs. 888 crore, net NPA (non-
performing assets) ratio of 2.3 per cent and capital adequacy of 1.6 per cent. Its loss at the end of
2005-06 amounted to Rs. 29 crore.
It has 198 branches and extension counters, including 158 branches in Maharashtra and 31
branches in Karnataka.
About 50 per cent of the total branches are located in rural and semi-urban areas and 50 per cent
in metropolitan and urban centres. The bank has about 1,850 employees. ICICI Bank is the
second largest bank in India and the biggest in terms of market capitalisation.
As on September 30, 2006, ICICI Bank had total assets of Rs. 282,373 crore. In the six months
ended September 30, 2006, it made a net profit of Rs. 1,375 crore.
It had 632 branches and extension counters and 2,336 ATMs as on that date, and is in the process
of setting up additional branches and ATMs pursuant to authorisations granted by the RBI. It has
about 31,500 employees.
ICICI Bank offers a wide range of financial products and services directly and through
subsidiaries in the areas of life and general insurance, asset management and investment
banking.
Its shares are listed on the Bombay Stock Exchange Limited and the National Stock Exchange of
India Limited and its American Depositary Shares are listed on the New York Stock Exchange

59. 59

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CONCLUSION
Growth is always essential for the existence of a business concern. A business is bound to die if
it does not try to expand its activities. The expansion of a business may be in the form of
enlargement of its activities or acquisition of ownership. Internal expansion results gradual
increase in the activities of the concern. External expansion refers to “business combination”
where two or more concerns combine and expand their business activities.
Looking at the global trend of consolidation and convergence , it is need of the hour to
restructure the banking structure in India through mergers and acquisition in order to make them
more capitalized, automated and technology oriented so as to provide environment more
competitive and customer friendly . Few more impediment for paving the way towards mergers
and acquisition on commercial consideration and mutual arrangement, such as government
shareholding of public sector banks, legal provisions related to banking and industrial matter
should immediately be resolved if at all the place of merger and acquisition has to be accelerated
in Indian banking sector.
Although a lot of roadblocks are faced in the process of acquisitions, concentrated efforts by both
companies involved to focus on the key aspects like managing cultural differences, addressing
employee concerns and retaining the best people will ultimately prove to be of essence in
ensuring success of the acquisition or merger and acquisition.

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BIBLIOGRAPHY
Books
 Finance and profits:- N.J.Yasaswy
 Financial management and policy:-James Horne
 Financial management:-P.K Jain
 Financial management:-Subir Kumar Banarjee
 Merger and acquisition :- C.H.Rajeshwar
Web
 www.icicibank.com
 www.globalhrnews.com
 www.banknetindia.com
 www.academicjournals.com
 www.wikipedia.com