In India a vast majority of public sector banks are virtually doing the same business and competing for the same pie of customers since a long time. But this strategy could lower the return on the capital employed by the government. The government and RBI have also emphasized the changing face of banking marked by technological changes and are infusing capital periodically. The following table shows the recapitalization of public sector banks and DenaBank, VijayaBank and Bank of Baroda in particular by the government:
The merger of VijayaBank and DenaBank into Bank of Baroda is planned to be effective from April 1st, 2019. The uniting emphasises on consolidating and group action smaller banks with larger banks. The tripartite amalgamation reflects the government's focus towards consolidation and strengthening of public-sector banking and also to deal with the raising problematic issues like non-performing assets (NPAs) and default of loans. And the main reason for merger was the merged entity or the new entity the total business will be around 1,482,325 lakh cr and as the result of this merger this particular bank or the new entity which will be created will be the 3rd largest bank in India. The NPA’s in banking sector are going to increase in the financial year 2019. As per this particular report in the financial year 2018 the NPA’s is 11.6% and in the financial year 2019 they may increase to 12.2% of total loans issued by the banking sector. And the same report also mix one more concerning point that is if the situation goes beyond control rather than limiting to 12.2% the NPA’s may actually increase to 13.3%.
DEA is the tool used to asses the relative efficiency of units, in this case the banks in either minimization of Input or maximization of Output this study is based on the maximization of output. While running the DEA model with three inputs and two outputs, with reference to Table 1 all the selected efficiency scores has attained more than 90 percentage for all the selected Decision Making Units (DMU) and the main thumb rule while running the model is “The sample size should be at least two or three times larger than the sum of Inputs and Outputs”, here with this above table the efficiency score has attained. The Table 1 shows that the performance efficiency of selected twelve banks over a period of time the efficiency was measured through Data Envelopment Analysis- Intermediation approach. Every year by keeping a benchmark bank as reference bank the efficiency has measured based on that the average and the rank has been given. The benchmark bank was selected according to the maximum score of weighted input and output. The overall efficiency shows that Corporation bank has ranked one with the average score of (0.99) followed by oriental bank of commerce (0.99) it has also scored the same but point of difference in the years average level point score and rank as number 2. The score of other public sector banks are Indian Overseas bank (0.98), Indian bank (0.98), Syndicate bank (0.96), Vijayabank (0.96), Andhra bank (0.96), United bank of India (0.96), Denabank (0.96), Bank of Maharashtra (0.96), UCO bank (0.94), Punjab and sind bank (0.93).
Interest on Loans and advances has been one of the important sources of earning in Indian banking industry. Secondly, in one way, public sector banks have promised to the government of India to provide financial support for the economic growth. For this reason public sector banks have been adopting a less strict credit policy to increase their earning. This less strict credit policy brings a lot of pain in the form of NPA or unconscious Assets. It is not only for banks but also for the economy and nation as a whole. In the other side Banks are arguing that, they are giving their level best to reduce these unconscious assets to the minimum possible extend. This study has given an effort to find out the result of the unconscious assets management effort of banks and which among the public sector banks ranks better as compare to other in the race. The study placed Central bank of India in first position in unconscious assets management. State Bank of Bikaner and Jaipur, DenaBank, Union Bank of India, State Bank of Travancore, Punjab and Sind Bank are also playing well. Other banks, which come under top ten ranking, are Indian Bank, State Bank of India, Bank of Maharashtra and Bank of Baroda. The study also found that there is a significance differences in the addition and reduction of unconscious assets in different public sector banks working in India.
The public sector banks taken for the study are The Karnataka Apex Bank Ltd , Bank of India, Karnataka, UCO Bank , Bank of Baroda, VijayaBank , Syndicate Bank, IDBI Bank Ltd , Andhra Bank, Union Bank of India, State Bank of Mysore, Indian Overseas Bank, United Bank Of India and Central Bank of India . The private sector banks taken for the study are The South Indian Bank Ltd, HDFC Bank , Karnataka Bank , Axis Bank and Bank of Rajasthan.
The variable size in this study uses the proxy of total assets more precisely the natural logarithm (ln) of total assets. This is because the amount of the total assets of each bank is different and has a far different. Banks with large assets are indeed able to generate large profits if they are balanced with good operational activities. One of the banking operational activities is to provide credit to the community. Large banks generally channel large loans as well. This can increase the potential for problem loans if the supervision is not done properly. The moral hazard hypothesis (Berger & Deyoung, 1997) can explain that banks that have large assets tend to be more courageous to take risks by channeling large amounts of credit and tend to be used by inappropriate debtors. The reason is that the impact of market discipline cannot be imposed on banks that expect government protection in the event of default (Stern
Target firms are typically smaller and more like opaque (difficult to understand) firms than acquiring firms. Banks that advise target firms can reuse information obtained in the course of a prior banking relationship by certifying the value of the merger (e.g., whether the price the acquirer offers to pay for the target is appropriate). The target bank’s private information about the target firms particularly valuable because of information asymmetries that make it difficult to certify the value of the target, and because it is the target firm that must be priced in a merger. However, this certification effect is likely to be reduced if the target bank advises the acquirer, since the target’s bank may be reluctant to reveal bad information about the target to the acquirer for fear that if the deal is not completed; the target will penalize the bank with the loss of its banking business. Acquirer’s abnormal returns are either negative or statistically insignificant both when the target’s bank and the acquirer’s bank advise the acquirer, and that the use of commercial bank advisors with prior banking relationships has no significant impact on acquirer abnormal returns.
On an overall, the sample includes a hybrid of different banking activities, and we cannot rule out the possibility that the differences between public and private sector banks are due to heterogeneous combinations of business lines. Yet, this is not a central issue to this research. The data for Axis bank merit a specific note. This was the only bank with a negative Net Income (NI) for the financial year ending March, 2011. Axis bank’s service range and corporate structure have altered since then, partly through the acquisition of other private companies. Axis bank’s negative Net Income resulted in a loss-making private sector banks when consolidating the data with ICICI bank and HDFC bank figures. Yet, the latter banks registered profits and therefore paid related taxes. While summing up the Income Statement figures for the three private sector banks, private sector banks resulted in loss-making institution which is still penalized in terms of taxation. These notions imply that the analysis of the private sector banks data may not in fact fully reflect the general state of the “private” Indian banks at the same time.
In an economy Banks, Insurance organisations, Development banks and other financial organisations plays a very important role in mobilization and distribution of funds. The growth of the economy is based on systematic functioning of these financial intermediaries. Bank is the major component in the economy, which offers different varieties of services to the needs of the customers. Traditional Banks play a limited role of mobilization and utilization of funds in an economy. The scope of modern banks are not limited to primary banking operations and extended to fund and fee based services. Performance evaluation of the banking sector is an effective measure and indicator to check the reliability of economic activities of an economy. The present study focuses on the comparative evaluation of the selected banks from public sector (SBI, Andfhra Bank) and private sector (ICICI, HDFC) banks. The study adopts an analytical research with data for a period of 10 years i.e., 2007-08 to 2016-17. T-value and one way ANOVA was adopted to study the association between banks. Ten ratios are selected for the study and made an analytical and comparative study. The study revealed that the HDFC bank performed well during the study period, Andhra bank presented a decline in many variables of performance and there is no significant relation between public sector banks.
Since the one way analysis of variance was found insignificant in relation to Occupational Stress, the least significant difference (LSD) test was not applied in order to find out the differences of the paired means among Personnel’s from Private Bank (Bank of Baroda), Personnel’s from Semi Government/Co- Operative Bank (Punjab National Bank) & Personnel’s from Public Bank (State Bank of India) from Varanasi District.
Specifically, the policies were business improvement orders calling for bold restructuring efforts such as the resignation of the top management, a review of compensation structures and a reduction in employee headcount when after-tax profits declined to below 30% (known as the ‘30% rule’). If banks were unable to improve profitability after receiving another business improvement order, then conversion rights were exercised to convert preferred shares into common shares. Several examples exist, such as the case of Kumamoto Family Bank, which received a business improvement order in July 2004 to change its president. In addition, the Financial Services Agency issued a business improvement order to UFJ Holdings and UFJ Bank on 18 June 2004 because the banks concealed documents concerning their borrowers.
share of all the output factors/Average index market share of all the input factors) X 100 where, output factors were deposits, non-deposit working funds, loans & advances, investments, interest spread, non-interest income and the net profit. The input factors were network of branches, number of staff, wage bill, non-wage operating expenses, etc. In order to facilitate comparison of one bank with the other, irrespective of size, the market share of each factor in percentage terms has to be taken into account instead of absolute levels.
t is generally held opinion that flowing water is free from contamination; and stagnant water is the fulcrum of contamination. This can be encapsulated in relation to corporate sector as growth is the essence of corporate life; and stagnation is death of corporate life. Hence, growth strategies are imperative to keep the wheels of organization on a growth track on continuous basis. The banking sector in India is not an exception to it as banks are operating not under static and stabilized conditions but under ever changing condition since the implementation of LPG policy in 1991. Under these conditions, no entity even dreams to give pause for its growth and welcome potential disastrous conditions. This growth can be realized either through organic growth route or through in- organic growth route or mixture of both. Organic growth refers to internal growth those results in enhanced customer base, higher sales, increased revenue, without resulting in change of corporate entity. Inorganic growth refers to the external growth producing leap frog effect as it enables to skip few steps on the growth ladder associated with internal growth process. At present, every banking entity desires to pool up the resources, by joining hands with other banking entity, with the purpose of realizing enhanced competitive advantage. One cannot fail to notice occurrences of such events in Indian banking sector. In this backdrop present paper intents to touch and disclose an overview of Mergers and Amalgamations in banking sector; reasons for Mergers and Amalgamations; regulatory framework governing Merger and Amalgamation in banking sector. In addition to, it, present paper intends to evaluate the impact of Mergers on surviving banks in terms of Profitability, Efficiency and Solvency.
The forced merger of Global Trust Bank, a pioneer private bank of new generation with Oriental Bank of Commerce revives the debate for a transparent and uniform policy towards ailing sick banks in private sector including cooperative sector. It is true that Deposit Insurance and Credit Guarantee Corporation with its fragile capacity would not be able to meet the depositors interests on even a portion of insured deposits. GTB episode has once again exposed the vulnerability of banking companies who would conveniently divert the depositor’s money to seek their own ends. Reserve Bank’s delayed surveillance over the weaker banks and deficiencies in audit and inspection of affairs of banks as in GTB episode pose serious concerns on the safety and soundness of banking system.
The degree to which different portfolios are affected by these systematic risks as compared to the effect on the market as a whole, is different and is measured by Beta. To put it differently, the systematic risks of various securities differ due to their relationships with the market. The Beta factor describes the movement in a stock's or a portfolio's return in relation to that of the market returns. For all practical purposes, the market returns are measured by the returns on the index (Bank Nifty), since the index is a good reflector of the market.
We are grateful to Chief Editor Nezameddin Faghih and the reviewers for their insight comments and suggestions throughout the review process. Finally, we wish to thank our parents for encouraging us throughout the study. Corresponding Author: The completion of this study would have been not possible if not dependent on the steadfast support and the encouragement of my wife (Samiya Jan) for her motivational speeches. There are no other contributors.
V.K. Shobhana and Dr. N. Deepa (2011), in their article entitled to “Mergers and Acquisitionsin Indian banking sector and pre and post merger technical efficacies-An empirical investigation” have examined technical efficiencies of the nine selected merged banks in the post reform period. The study uses stochastic Production Frontier Approach to measure the technical efficiency as a ratio of output and input. The study reveals that of the nine select cases of M&As, the merger deals of Union Bank of India and HDFC Bank only resulted in significant improvement in the technical efficiency.
BOB has made substantial progress in its end-to-end business and IT strategy project covering the bank‟s domestic, overseas and subsidiary operations. All Branches, Extension Counters in India, overseas business and five sponsored Regional Rural Banks are on the Core Banking Solution (CBS) platform. BOB has implemented the Global Treasury Solution in its key territories like UK, UAE, Bahamas, Bahrain, Hong Kong, Singapore and Belgium. The bank has taken various technological initiatives in overseas operations such as implementation of Centralized SWIFT activity through Data Centre in Mumbai, Payment Messaging System with Anti Money Laundering check, Anti Money laundering Compliance and Online List Matching solution. While bank implemented Transaction-based Internet Banking facility for its customers in Uganda, Botswana, UAE, New Zealand, Kenya, Mauritius and Seychelles, a View based e- banking facility was made available in Fiji, Oman, Tanzania and UK.
Interpretation: CRAR is the ratio of capital funds to risk weighted assets. Reserve Bank of India prescribes bank to maintain a CRAR of 9% about credit risk, market risk and operational risk on an ongoing basis as against 8% prescribed in BASEL. From the above table it is clear that Axis bank has the most favorable Capital Adequacy Ratio for the year 2014 and 2018. Higher the ration, higher is the risk taking capacity of bank due to unexpected loss in banking portfolio. With respect to RBI norms of 9%, every bank analyzed is in favorable position. The table predicts that private banks more bearing capacity for credit and market risk as compared to Government owned Banks
In the recent times, we have seen some M&A as voluntary efforts of banks. Merger of Times Bank with HDFC Bank was the first of such consolidations after financial sector reforms ushered in 1991. Merger of Bank of Madura with ICICI Bank, reverse merger of ICICI with ICICI bank, coming together of Centurion Bank and Bank of Punjab to form Centurion Bank of Punjab and the recent decision of Lord Krishna Bank to merge with Federal Bank are voluntary efforts by banks to consolidate and grow.