Mergers
and Acquisitions of Banks in India
The banking system in
India has undoubtedly earned numerous outstanding achievements, in a
comparatively short time, for the World’s largest and the most diverse
democracy. There have been several reforms in the Indian banking sector, as
well as quite a few successful mergers and acquisitions, which have
helped it, grow manifold.
Merger is nothing but
amalgamation of two groups into single entity. Merger is a process of combining two business entities under the common
ownership. Usually merger occurs when an independent bank loses its charter
and becomes a part of an existing bank with.
In 1960s, the Indian
banking industry had turned into an efficient tool to facilitate the
development of the Indian economy. At the same time, it had emerged as a large
employer, and a debate had ensued about the nationalization of the banking
industry.
In 1969 the Prime
Minister Indira Gandhi initiated the process of nationalization of banks. Since
then a number of mergers have taken place.
The year 1968 witnessed
an ordinance issued by the Government of India and 14 large commercial banks in
the country were nationalized. These fourteen banks, back then, contained a
whooping eighty five per cent of the total bank deposits in our country.
1980, was witness to yet
another round of nationalization and six more commercial banks came under the
government control. With this huge leap, an enormous ninety one per cent of the
banking sector came under direct control of the Indian Government. With this,
the number of nationalized banks in India rose to twenty.
Sometime later, in the
year 1993, the government took yet another stride towards economic
prosperity and made a turn towards merger of banks. The New Bank of
India was merged with the Punjab National Bank (PNB). This was the first
merger between nationalized banks, ever witnessed in Indian history and
consequently, the number of nationalized banks in India was reduced from twenty
to nineteen and that remains the same till date.
In the present time, the
recruitment to all the nineteen nationalized banks is by a Common Written
Examination, which is piloted in the country, by the Institute of Banking
Personnel Selection (IBPS).
Indian banks have been
welcoming towards the technological advances so far. This has substantially
given a rise to competition in the market and hence, several bank mergers have
been witnessed in India, over the years. Here is a run through of the mergers
that have taken place among Indian banks.
Important Mergers from the year 2010 to 2017:
Important Mergers from the year 2000 to 2009:
Important Mergers before 1990:
Merits of
Bank Mergers and Acquisitions:
- Through mergers, it will help
the banks to scale up its business and gain a large no. of customers
quickly.
- It also helps to fill the
business gap, to empower the business to fill product or technology gaps
and being acquired by the big business firm it will help to upgrade its
technology platform efficiently.
- It will bring better efficiency
ratio to the business and banking operations and minimize the risk factor
ratio by merging into one.
- It will also help in upgradation
of technology, increase in profit and raise the standard of living.
Demerits of
Bank Mergers and Acquisitions:
- The foremost disadvantage is
compliance and risk consistency and both the merged organizations have
different perspective of thinking, different risk culture so it creates a
negative impact on the profitability of the organization.
- Another disadvantage is a poor culture
fit as the bank only consider the perspective of merging on papers not
consider their people or culture into account this is the reason why many
bank mergers ultimately fail.
Important
Points related to Sections and Law:
- Amalgamation of two banking
companies is under the provisions of Section 44 of the Banking Regulation
Act,1949.
- Amalgamation of a banking
company with a non-banking company is governed by sections 391 to 394 of
the Companies Act, 1956
