MERGERS AND ACQUISITIONS IN INDIAN BANKING SECTOR

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 amalgamating 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 drawbac s li e the problem of raising adequate finances, longer implementation time of the pro!ects, uncertain etc. in order to o"ercome these problems a company can grow externally by acquiring the already existing business firms. This is the route of mergers and acquisition.

List o Ta!"es #a$e %o& #. $an mergers in the post reforms period ..............................%& %. '()*T and cost of debts of +,-C $an ................................../ .. $eta and cost of equity of +,-C $an ....................................0 &. 1conomic 2alue *dded of +,-C $an post Merger...................3 /. -inancial performance of +,-C $*'4 and Centurion $an of )un!ab ()re and post merger).............................................................5 0. -inancial performance of +,-C $an ()re and )ost Merger).....&0

TABLE OF CONTENTS

Sr& No&

To'ic

#a$e %o&

#.

M6* in 7ndian $an ing 7ndustry

%.

7ntroduction

..

Change in scenario of 7ndian $an ing 8ector

%#

&.

9$7 :uidelines on Mergers 6 *cquisitions of $an s

%%

/.

*nalysis of Merger between +,-C $an and Centurion $an of )un!ab

%;

0.

*nalysis of Merger between 7C7C7 $an and $an of Madura

&<

3.

-indings

&5

5.

Conclusion

&;

OB(ECTI)E*

The main ob!ecti"es of the study are= #. To study the performance of Mergers on )rofitability on *cquiring $an s. %. To study the operating performance of the ban s in the pre and post M 6 *.

#ROBLEM STATEMENT* To in"estigate whether M6* ha"e an impact on operating performance of the acquiring firm and does it create wealth for the shareholders.

SAM#LE SELECTION* There are two ma!or Mergers and acquisition exists in 7ndian $an ing 8ector. These are > #. Merger between 7C7C7 $*'4 and $an of Madura in %<<#. %. *cquisition of Centurian $an of )un!ab by +,-C ban in %<<5

MET+ODOLOG,*

7 ha"e adopted the methodology of comparing pre? and post > merger performance of companies, using the following financial ratios= ROCE - 1$7T @ Total Capital 1mployed

ROE - 'et )rofit @ 1quity

CURRENT RATIO - Current *ssets @ Current Aiabilities

DEBT.EQUIT, RATIO - ,ebt @ 1quity

ROA - 'et )rofit @ Total *ssets

E#S - )*T ? )reference di"idend @ 'o. (f equity shares

Boo/ )a"ue - 'et Borth @ 'o. (f equity shares

LIMITATIONS O0 T+E STUD,* #. The study ignores the impact of possible differences in the accounting methods adopted by different companies. %. The factors which effect the M 6 * performance may not be same for all companies.