Navigating Through Mergers and Acquisitions to Achieve Competitive Edge: An Empirical Analysis of Indian Banks

Abstract

Mergers and Acquisitions were the established norms for firms to achieve efficiency both financial and operational since long. Banks helped the mergers activity to take place by provisioning of credit facilities. But in order to cater the needs of challenges posed by internationalization banks themselves have to be efficient. Public sector banks in India have been consolidated quite a few times but recent mergers in Indian banking system led by State Bank of India and others have changed the objective of merger by consolidation into few large banks with large capital base. The purpose of this study is to investigate the impact of mergers on operational efficiency of merging banks using window period of one, two and three years by pre-post comparison of operating ratios namely Interest Income Per Employee, Interest Income Per Branch, Business Per Employee and Business Per Branch. The data  analysis by Paired Sample t-test found Interest Income Per Employee improved significantly in third year post-merger in comparison to three years pre-merger.The similar result was repeated when data was analysed through Wilcoxon Signed Rank Test and Sign Test for the same window period. Business per Employee Improved in window period of one year post-merger in comparison to one year pre-merger according to all statistical tools namely, Paired Sample t-test, Wilcoxon Signed Rank Test and Sign Test respectively. Again Business Per Employee improved significantly in third year pre-post window by all the three tests employed in this study. Interest Income Per Branch also improved in third year window period of pre-post analysis as evident from all the three tests employed. Business Per Branch improved as well significantly in third year of pre-post window horizon and verified by all the three tests. Therefore, this study comes to the conclusion that mergers helped banks to improve upon all the operating performance ratios significantly only in the third year post-merger period. Banks therefore, achieved the objective of operational efficiency in long run, although they started improving from one year window itself.