INTODUCTIONTO

MERGERSAND

ACQUISITIONS

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INTRODUCTION TO MERGER AND ACQUISITION

MERGERS

A merger occurs when two or more companies combines and the resulting firm maintains

the identity of one of the firms. One or more companies may merger with an existing

company or they may merge to form a new company.

Usually the assets and liabilities of the smaller firms are merged into those of larger

firms. Merger may take two forms-

1. Merger through absorption

2. Merger through consolidation.

Absorption

Absorption is a combination of two or more companies into an existing company. All

companies except one loose their identify in a merger through absorption.

Consolidation

A consolidation is a combination if two or more combines into a new company. In this

form of merger all companies are legally dissolved and a new entity is created. In

consolidation the acquired company transfers its assets, liabilities and share of the

acquiring company for cash or exchange of assets.

ACQUISITION

A fundamental characteristic of merger is that the acquiring company takes over the

ownership of other companies and combines their operations with its own operations.

An acquisition may be defined as an act of acquiring effective control by one company

over the assets or management of another company without any combination of

companies.

TAKEOVER

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A takeover may also be defined as obtaining control over management of a company by

another company.

DISTINCTION BETWEEN MERGERS AND ACQUISITIONS

Although they are often uttered in the same breath and used as though they were

synonymous, the terms merger and acquisition mean slightly different things.

When one company takes over another and clearly established itself as the new

owner, the purchase is called an acquisition. From a legal point of view, the

target company ceases to exist, the buyer "swallows" the business and the

buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms, often of about

the same size, agree to go forward as a single new company rather than remain

separately owned and operated. This kind of action is more precisely referred to

as a "merger of equals." Both companies' stocks are surrendered and new

company stock is issued in its place. For example, both Daimler-Benz and

Chrysler ceased to exist when the two firms merged, and a new company,

DaimlerChrysler, was created.

In practice, however, actual mergers of equals don't happen very often. Usually,

one company will buy another and, as part of the deal's terms, simply allow the

acquired firm to proclaim that the action is a merger of equals, even if it's

technically an acquisition. Being bought out often carries negative connotations,

therefore, by describing the deal as a merger, deal makers and top managers try

to make the takeover more palatable.

A purchase deal will also be called a merger when both CEOs agree that joining

together is in the best interest of both of their companies. But when the deal is

unfriendly - that is, when the target company does not want to be purchased - it

is always regarded as an acquisition.

Whether a purchase is considered a merger or an acquisition really depends on

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whether the purchase is friendly or hostile and how it is announced. In other

words, the real difference lies in how the purchase is communicated to and

received by the target company's board of directors, employees and

shareholders.

TYPES OF MERGERS

Mergers are of many types. Mergers may be differentiated on the basis of activities,

which are added in the process of the existing product or service lines. Mergers can be a

distinguished into the following four types:-

1. Horizontal Merger

2. vertical Merger

3. Conglomerate Merger

4. Concentric Merger

Horizontal merger

Horizontal merger is a combination of two or more corporate firms dealing in same

lines of business activity. Horizontal merger is a co centric merger, which involves

combination of two or more business units related to technology, production process,

marketing research and development and management.

Vertical Merger

Vertical merger is the joining of two or more firms in different stages of production or

distribution that are usually separate. The vertical Mergers chief gains are identified as

the lower buying cost of material. Minimization of distribution costs, assured supplies

and market increasing or creating barriers to entry for potential competition or placing

them at a cost disadvantage.

Conglomerate Merger

Conglomerate merger is the combination of two or more unrelated business units in

respect of technology, production process or market and management. In other words,

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firms engaged in the different or unrelated activities are combined together.

Diversification of risk constitutes the rational for such merger moves.

Concentric Merger

Concentric merger are based on specific management functions where as the

conglomerate mergers are based on general management functions. If the activities of the

segments brought together are so related that there is carry over on specific management

functions. Such as marketing research, Marketing, financing, manufacturing and

personnel.

BENEFITS OF MERGERS

1. GROWTH 0R DIVERSIFICATION: - Companies that desire rapid growth

in size or market share or diversification in the range of their products may find that

a merger can be used to fulfill the objective instead of going through the tome

consuming process of internal growth or diversification. The firm may achieve the

same objective in a short period of time by merging with an existing firm. In addition

such a strategy is often less costly than the alternative of developing the necessary

production capability and capacity. If a firm that wants to expand operations in

existing or new product area can find a suitable going concern. It may avoid many of

risks associated with a design; manufacture the sale of addition or new products.

Moreover when a firm expands or extends its product line by acquiring another firm,

it also removes a potential competitor.

2. SYNERGISM: - The nature of synergism is very simple. Synergism exists when

ever the value of the combination is greater than the sum of the values of its parts. In

other words, synergism is “2+2=5”. But identifying synergy on evaluating it may be

difficult, infact sometimes its implementations may be very subtle. As broadly

defined to include any incremental value resulting from business combination,

synergism in the basic economic justification of merger. The incremental value may

derive from increase in either operational or financial efficiency.

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Operating Synergism: - Operating synergism may result from economies of scale,

some degree of monopoly power or increased managerial efficiency. The value may

be achieved by increasing the sales volume in relation to assts employed increasing

profit margins or decreasing operating risks. Although operating synergy usually is

the result of either vertical/horizontal integration some synergistic also may result

from conglomerate growth. In addition, some times a firm may acquire another to

obtain patents, copyrights, technical proficiency, marketing skills, specific fixes

assets, customer relationship or managerial personnel.

Operating synergism occurs when these assets, which are intangible, may be combined

with the existing assets and organization of the acquiring firm to produce an incremental

value. Although that value may be difficult to appraise it may be the primary motive

behind the acquisition.

Financial synergism

Among these are incremental values resulting from complementary internal funds flows

more efficient use of financial leverage, increase external financial capability and income

tax advantages.

a) Complementary internal funds flows

Seasonal or cyclical fluctuations in funds flows sometimes may be reduced or eliminated

by merger. If so, financial synergism results in reduction of working capital requirements

of the combination compared to those of the firms standing alone.

b) More efficient use of Financial Leverage

Financial synergy may result from more efficient use of financial leverage. The

acquisition firm may have little debt and wish to use the high debt of the acquired firm to

lever earning of the combination or the acquiring firm may borrow to finance and

acquisition for cash of a low debt firm thus providing additional leverage to the

combination. The financial leverage advantage must be weighed against the increased

financial risk.

c) Increased External Financial Capabilities

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Many mergers, particular those of relatively small firms into large ones, occur when the

acquired firm simply cannot finance its operation. Typical of this is the situations are the

small growing firm with expending financial requirements. The firm has exhausted its

bank credit and has virtually no access to long term debt or equity markets. Sometimes

the small firm has encountered operating difficulty, and the bank has served notice that

its loan will not be renewed? In this type of situation a large firms with sufficient cash

and credit to finance the requirements of smaller one probably can obtain a good buy bee.

Making a merger proposal to the small firm. The only alternative the small firm may have

is to try to interest 2 or more large firms in proposing merger to introduce, competition

into those bidding for acquisition. The smaller firm’s situations might not be so bleak. It

may not be threatened by non renewable of maturing loan. But its management may

recognize that continued growth to capitalize on its market will require financing be on

its means. Although its bargaining position will be better, the financial synergy of

acquiring firm’s strong financial capability may provide the impetus for the merger.

Sometimes the acquired firm possesses the financing capability. The acquisition of a cash

rich firm whose operations have matured may provide additional financing to facilitate

growth of the acquiring firm. In some cases, the acquiring may be able to recover all or

parts of the cost of acquiring the cash rich firm when the merger is consummated and the

cash then belongs to it.

d) The Income Tax Advantages

In some cases, income tax consideration may provide the financial synergy motivating a

merger, e.g. assume that a firm A has earnings before taxes of about rupees ten crores per

year and firm B now break even, has a loss carry forward of rupees twenty crores

accumulated from profitable operations of previous years. The merger of A and B will

allow the surviving corporation to utility the loss carries forward, thereby eliminating

income taxes in future periods.

Counter Synergism

Certain factors may oppose the synergistic effect contemplating from a merger. Often

another layer of overhead cost and bureaucracy is added. Do the advantages outweigh

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disadvantages? Sometimes the acquiring firm agrees to long term employments contracts

with managers of the acquiring firm. Such often are beneficial but they may be the

opposite. Personality or policy conflicts may develop that either hamstring operations or

acquire buying out such contracts to remove personal position of authority.

Particularly in conglomerate merger, management of acquiring firm simply may not have

sufficient knowledge of the business to control the acquired firm adequately. Attempts to

maintain control may induce resentment by personnel of acquired firm. The resulting

reduction of the efficiency may eliminate expected operating synergy or even reduce the

post merger profitability of the acquired firm. The list of possible counter synergism

factors could goon endlessly; the point is that the mergers do not always produce that

expected results. Negative factors and the risks related to them also must be considered in

appraising a prospective merger.

Other motives For Merger

Merger may be motivated by two other factors that should not be classified under

synergism. These are the opportunities for acquiring firm to obtain assets at bargain price

and the desire of shareholders of the acquired firm to increase the liquidity of their

holdings.

1. Purchase of Assets at Bargain Prices

Mergers may be explained by opportunity to acquire assets, particularly land mineral

rights, plant and equipment, at lower cost than would be incurred if they were purchased

or constructed at the current market prices. If the market price of many socks have been

considerably below the replacement cost of the assets they represent, expanding firm

considering construction plants, developing mines or buying equipments often have

found that the desired assets could be obtained where by heaper by acquiring a firm that

already owned and operated that asset. Risk could be reduced because the assets were

already in place and an organization of people knew how to operate them and market

their products. Many of the mergers can be financed by cash tender offers to the acquired

firm’s shareholders at price substantially above the current market. Even so, the assets

can be acquired for less than their current casts of construction. The basic factor

underlying this apparently is that inflation in construction costs not fully rejected in stock

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prices because of high interest rates and limited optimism by stock investors regarding

future economic conditions.

2. Increased Managerial Skills or Technology

Occasionally a firm will have good potential that is finds it unable to develop fully

because of deficiencies in certain areas of management or an absence of needed product

or production technology. If the firm cannot hire the management or the technology it

needs, it might combine with a compatible firm that has needed managerial, personnel or

technical expertise. Of course, any merger, regardless of specific motive for it, should

contribute to the maximization of owner’s wealth.

3. Acquiring new technology -To stay competitive, companies need to stay on top

of technological developments and their business applications. By buying a

smaller company with unique technologies, a large company can maintain or

develop a competitive edge.

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NEED

OF

MERGERS

AND

ACQUISITIONS

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NEED FOR MERGER AND ACQUISITION

The South East Asian crisis and the earlier economic turmoil in several developing

nations demonstrated that strong banking system is critical. Throughout the world,

banking industry has been transformed from highly protected and regulated to

competitive and deregulated. Globalization coupled with technological development has

shrinked the boundaries. Trade has become transactional from international. Due to this,

there is no difference between domestic and foreign currency. As a result innovations and

improvement assumed greatest significance in institutional performance. This trend of

global banking has been marked by twin phenomena of consolidation and convergence.

The trend towards consolidation has been driven by the need to attain meaningful balance

sheet size and market share in the face of intensified competition. The trend towards

convergence is driven by a move across industry to provide most of the financial services

under one roof. Indian banking experienced wide ranging reforms in the last decade and

these reforms have contributed to a great extent in enhancing their competitiveness. The

issue of bank restructuring assumes significance from the point of view of making Indian

banking strong and sound apart its growth and development to become suitable.

International evidence also strongly indicates greater gains to banking industries after the

restructuring process. With the impending capital account convertibility, cross border

movement of financial capital would become a reality. Such a scenario would lead to the

alignment of various structures with the international Indian banks for that matter almost

all the banks in Asia, especially in small emerging countries are at disadvantage on all

fonts- size, technology, capital base, cost of fund, availability of highly trained personnel

to deal in international market, world wide networking and freedom of actions. If we

cannot consolidate our size, it is rather difficult to find reasons that could prevent Indian

banks from being swallowed by the powerful foreign banks in the long run, under the free

for all environments. The core objective of restructuring is to maintain long term

profitability and strengthen the competitive edge of banking business in the context of

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changes in the fundamental market scenario. Restructuring can have both internal and

external dimensions.

The pace of change in the financial market world over and in the external economic

environment, in which we work, shows no sign of slowing down. Commercial banks now

have to think “global” to service the requirements of the highly sophisticated

multinationals that are increasingly dominated the industrial world. The development of a

global market place has accelerated through the deregulation of domestic markets and the

removal of barriers to cross border trade. Even on the merger front, we have witnessed an

increasing number of cross border alliances. As per the recent guidelines, the overall

ceiling for foreign direct investment in private sector banks has also been enhanced. In

the changed scenario, it has now become extremely important for Indian banks to remain

competitive for surviving. Universally there is a move towards consolidation and

convergence. The bank merger process should be primarily market driven and such

proposals should come voluntarily from the banks themselves, depending on the

organizational synergy and the market share. If you look at our banks in global context,

we do not really feature high in the list of large banks. In the top 1000 list only 20 Indian

banks feature and in the top 200 only one bank gets listed. Even smaller countries like

Taiwan have larger than the largest Indian bank.

Certainly, there is need for us to pause and seriously think this issue out. Today banking

is a competitive field, something which was not really conceivable a decade back. Niche

players could play out for a while, but would put pressure on banks to reach critical sizes

of mass to succeed in business. Further, the pressure of capital would tend to surround the

management of banks, which in turn requires enough clout to access markets. As is true,

only the best or largest would survive. Bank mergers would be the rule rather than

exception in times to come and there is a need for banks to check their premises before

embanking on their future plans. There are synergies to be leveraged through

consolidation where factors such as size, spread, technology, human resource and capital

can be reconciled. We could hence think of a situation where we have 4-5 global players

which are really large, a handful of regional banks which will gradually set to merger and

some other players which will get to acquire special niche to serve limited market. But it

involves the sorting of various issues such as legal, regulatory, procedural etc. This is

statement of SH. V. Leeladhar, chairman, IBA on 28th aug, 2004.

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History has improved beyond doubt that strong banking systems are critical for sound

economic growth. It is important to improve the comprehensiveness and quality of the

banking system to bring efficiency in the performance of the real sector in India.

Throughout the world, banking industry has been transferred from a highly protected and

regulated situation to competitive and deregulated. Globalization coupled with

technological development has shrinked the boundaries. Financial services and products

are being provided to the customers across the length and breadth of the globe.

Due to this, domestic and foreign currency, banking and non banking financial services

are getting closer. Correspondingly innovations and improvements assumed greater

significance in institutional performance. This trend of global banking has been marked

by twin phenomena of consolidation and convergence. The trend towards consolidation

has been driven by the need to attain meaningful balance sheet size and market share in

the face of intensified competition. The trend towards convergence is driven by a move

across industry to provide most of the financial service viz., banking, insurance,

investment etc, to the customers in one roof. Consolidation of banking industry is critical

from several aspects. The factors inducing mergers and acquisition include technological

progress, excess capacity, emerging opportunities and deregulation of geographic,

functional and product restrictions. It may also bring the performance of public sector

banks to a remarkable level without variation between banks in public sector.

The following are the important aspects for staying in the market:

Competition from global majors.

Competition from new Indian banks.

Disinter mediation and competition resulting into pressure or spread.

Qualitative change in the banking paradigm.

The competencies required from a banker would be sharper information

technology and knowledge centric.

Because of the forces that are likely to impinge upon the banking industry in the years

ahead, banks would be required to choose an appropriate organizational structure. A

choice will have to be made between the “universal banking model” where a single

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business entity is providing services ranging from financial intermenrdiation to

investment banking, insurance leasing, and project finance etc, and “ holding company

model” where the holding company owns various subsidiaries, each specializing in a

particular activity. While both models have their strong and weak points, the holding

company models scores over the universal banking model in certain respects, in the

present day. An important trend was gradual blurring of distinction between the roles of

commercial banks and financial instructions. This development had brought us a step

closer to the concept of universal banking. The process of globalization of Indian

economy has become irreversible and will be further intensified in future. Globalization

has brought about fierce competitive pressures on the Indian banks from international

banks. In order to compete with the new entrants effectively, Indian commercial banks

need to posses matching financial muscle, as a fair competition is possible only among

the equals. Size has therefore, assumed critically. A bank’s size is really to be determined

by the size of its balance sheet. The question before major commercial banks, therefore,

is how to acquire a competitive size. Mergers and acquisition route provides a quick step

forward in this direction offering opportunities to share synergies and reduce the cost of

product development and delivery. Different type of banks, even through they themselves

belong to the public sector, spend considerable time competing themselves without

increasing commensurate benefits to the system as a whole. As a result, the focus on

banks has shifted away from the areas of real productivity. The present system is not

ideal for simultaneously retaining separate identities as well as preserving the very

characteristics of competitiveness. Our banks are really small in terms of business size or

capital when compared with banks in the west or even China. None of our banks has a

sizeable international presence as of date. The lesson here is to think of consolidation of

our efficient banks to build up global scale institutions. Consolidations would also enable

us to go for global technologies benefiting the customers and efficiency of our banks.

If Indian banks are to be made more effective, efficiency and comparable with their

counterparts from abroad, they would need to be more capitalized, automated and

technology oriented, even while strengthening their internal operations and systems.

Further in order to make them comparable with their competitors from abroad with

regard to the size of their capital and asset base, it would be necessary to structure these

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banks. Merger and acquisitions are considered useful to achieve the requisite size in the

short run.

MERGERS AND

INDIAN

BANKING

SECTOR

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MERGER AND 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/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.

The process of merger and acquisition is not a new happening in case of Indian Banking,

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 most

recdently 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

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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.

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.

There is every reason to welcome the process of creating globally strong and competitive

banks and let big Indian banks create big thunders internationally in the days to come.

In order to achieve the INDIAN VISION 2020 as envisaged by Hon’ble president of

India Sh. A.P.J.Addul Kalam much requires to be done by banking industry in this

regard. It is expected that the Indian banking and finance system will be globally

competitive. For this the market players will have to be financially strong and

operationally efficient. Capital would be key factor in the building a successful

institution. The Banking and finance system will improve competitiveness through a

process of consolidation either through mergers and acquisitions or through strategic

alliances. There is need to restructure the banking sector in India through merger and

amalgamation in order top makes them more capitalized, automated and technology

oriented so as to provide environment more competitive and customer friendly

RISKS ASSOCIATED WITH MERGER

There are several risks associated with consolidation and few of them are as follows: -

1) When two banks merge into one then there is an inevitable increase in the size of

the organization. Big size may not always be better. The size may get too widely

and go beyond the control of the management. The increased size may become a

drug rather than an 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

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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.

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 favour of a new comprehensive identity. Goodwill is often towards

a brand and its sub-merger is usually not taken kindly.

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Structure of the Organized Banking Sector in India. Number Of Banks Are In Brackets.

MERGER STORY SO FAR

YEAR BANK MERGED WITH

1969 Bank Of Bihar State Bank Of India1970 National Bank Of Lahore State Bank Of India1971 Eastern Bank Ltd. Chartered Bank1974 Krishnaram Baldeo Bank Ltd. State Bank Of India1976 Belgaum Bank Ltd. Union Bank Of India1984-85 Lakshmi Commercial Bank Canara Bank1984-85 Bank Of Cochin State Bank Of India1985 Miraj State Bank Union Bank Of India1986 Hindustan Commercial Bank Punjab National Bank1988 Trader’s Bank Ltd. Bank Of Baroda1989-90 United Industrial Bank Allahabad Bank1989-90 Bank Of Tamilnad Indian Overseas Bank1989-90 Bank Of Thanjavur Indian Bank1989-90 Parur Central Bank Bank Of India1990-91 Purbanchal Bank Central Bank Of India1993-94 New Bank Of India Punjab National Bank1993-94 Bank Of Karad Bank Of India1995-96 Kasinath Seth Bank State Bank Of India1996 SCICI ICICI1997 ITC Classic ICICI 1997 BARI Doab Bank Oriental Bank of Commerce 1998 Punjab Co-operative Bank Oriental Bank of Commerce1998 Anagram Fianance ICICI1999 Bareilly Corporation Bank Bank of Baroda1999 Sikkim Bank ltd. Union Bank2000 Times bank HDFC Bank2001 Bank of Madura ICICI2002 Benaras state bank Bank of Baroda2003 Nedungadi Bank Punjab national Bank2004 South Gujrat Local Area Bank Bank of Baroda2004 Global Trust Bank Oriental Bank of Commerce2005 Bank of Punjab Centurion bank

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CHALLENGESAND

OPPORTUNITIESIN THE

INDIAN BANKING SECTOR

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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.

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

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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,

Enhancement of regulatory capacity in these areas, as well as human resource

development in both financial intermediaries and non-financial entities.

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.

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.

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

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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.

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, 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.

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.

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.

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

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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

transactions costs, risk assessment and risk management. Banks will have to

invest in new skills through new recruitment and through intensive training of

existing personnel.

RISK MANAGEMENT – Banking in modern economies is all about risk

management. The successful negotiation and implementation of Basel II Accord

is likely to lead to an even sharper focus on the risk measurement and risk

management at the institutional level. Sound risk management practices would be

an important pillar for staying ahead of the competition. Banks can, on their part,

formulate ‘early warning indicators’ suited to their own requirements, business

profile and risk appetite in order to better monitor and manage risks.

GOVERNANCE – The quality of corporate governance in the banks becomes

critical as competition intensifies, banks strive to retain their client base, and

regulators move out of controls and micro-regulation. The objective should be to

continuously strive for excellence. Improvement in policy-framework, regulatory

regime, market perceptions, and indeed, popular sentiments relating to

governance in banks need to be on the top of the agenda – to serve our society’s

needs and realities while being in harmony with the global perspective.

25

FUTURE SCENARIO

The future outlook of the Indian banking industry is that a lot of action is set to be seen

with respect to M & A’s, with consolidation as a key to competitiveness being the driving

force. Both the private sector banks and public sector banks in India are seeking to

acquire foreign banks. As an example, the State Bank of India, the largest bank of the

country has major overseas acquisition plans in its bid to make itself one of the top three

Banks in Asia by 2008, and among the top 20 globally over next few years. Some of the

PSU banks are even planning to merge with their peers to consolidate their capacities. In

the coming years we would also see strong cooperative banks merging with each other

and weak cooperative banks merging with stronger ones.

While there would be many benefits of consolidation like size and thereby economies of

scale, greater geographical penetration, enhanced market image and brand name,

increased bargaining power, and other synergies; there are also likely to be risks involved

in consolidation like problems associated with size, human relations problems,

dissimilarity in structure, systems and the procedures of the two organizations, problem

of valuation etc which would need to be tackled before such activity can give enhanced

value to the industry.

26

MERGERS

AND

AMALGAMATION

IN INDIA

27

MERGERS AND AMALGAMANTION IN INDIA

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.s

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 ensuringhigher productivity

competitiveness.

28

Liberalization

In the early 1990s the then Narasimha Rao government embarked on a policy of

liberalisation and gave licences 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, kickstarted 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.

Sarrriya Committee

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.

29

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 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

A bank’s size should be in the range of 1000 to 1500 branches.

SBI group should be converted into holing company with 5 zones subsidiaries

and

Streamlining of the rural and semi urban branches.

Shri R.C.Shah, the then chairman of Bank of Baroda, speaking at third National

seminar on banking held at M.S. University, Baroda, in which, 1981, on

restructuring presented his views.

The number of public sector commercial banks be reduced ( through

merger/amalgamation) to maximum of 10 to 12, not more than 3 of which should

have all India character; the remaining would be zonal banks operating in ( a

zonal comprising 2,3); geographically contiguous states, with all India banks

operating up to district Head quarters levels and in urban areas. Shri Shah had

also suggested some bifurcation of market segments for credit expansion purposes

amongst all India and zonal banks due to various constraints viz; non-clarity of

legal.

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.

30

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 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.

31

BANK MERGER/AMALGAMATION UNDER VARIOUS ACTS

The relevant provisions regarding merger, amalgamation and acquisition of banks under

various acts are discussed in brief as under:

Mergers- banking Regulation act 1949

Amalgamations of banking companies under B R Act fall under categories are voluntary

amalgamation and compulsory amalgamation.

Section 44A Voluntary Amalgamation of Banking Companies.

Section 44A of the Banking Regulation act 1949 provides for the procedure to be

followed in case of voluntary mergers of banking companies. Under these provisions a

banking company may be amalgamated with another banking company by approval of

shareholders of each banking company by resolution passed by majority of two third in

value of shareholders of each of the said companies. The bank to obtain Reserve Bank’s

sanction for the approval of the scheme of amalgamation. However, as per the

observations of JPC the role of RBI is limited. The reserve bank generally encourages

amalgamation when it is satisfied that the scheme is in the interest of depositors of the

amalgamating banks.

A careful reading of the provisions of section 44A on banking regulation act 1949 shows

that the high court is not given the powers to grant its approval to the schemes of merger

of banking companies and Reserve bank is given such powers. Further, reserve bank is

empowered to determine the Markey value of shares of minority shareholders who have

voted against the scheme of amalgamation. Since nationalized banks are not Baking

Companies and SBI is governed by a separate statue, the provisions of section 44A on

voluntary amalgamation are not applicable in the case of amalgamation of two public

sector banks or for the merger of a nationalized bank/SBI with a banking company or

vice versa. These mergers have to be attempted in terms of the provisions in the

respective statute under which they are constituted. Moreover, the section does not

envisage approval of RBI for the merger of any other financial entity such as NBFC with

a banking company voluntarily.

32

Therefore a baking company can be amalgamated with another banking company only

under section 44A of the BR act.

Sector 45- Compulsory Amalgamation of banks

Under section 45(4) of the banking regulation act, reserve bank may prepare a scheme of

amalgamation of a banking company with other institution (the transferee bank) under

sub- section (15) of section 45. Banking institution means any banking company and

includes SBI and subsidiary banks or a corresponding new bank. A compulsory

amalgamation is a pressed into action where the financial position of the bank has

become week and urgent measures are required to be taken to safeguard the depositor’s

interest. Section 45 of the Banking regulation Act, 1949 provides for a bank to be

reconstructed or amalgamated compulsorily’ i.e. without the consent of its members or

creditors, with any other banking institutions as defined in sub section(15) thereof. Action

under there provision of this section is taken by reserve bank in consultation with the

central government in the case of banks, which are weak, unsound or improperly

managed. Under the provisions, RBI can apply to the central government for suspension

of business by a banking company and prepare a scheme of reconstitution or

amalgamation in order to safeguard the interests of the depositors.

Under compulsory amalgamation, reserve bank has the power to amalgamate a banking

company with any other banking company, nationalized bank, SBI and subsidiary of SBI.

Whereas under voluntary amalgamation, a banking company can be amalgamated with

banking company can be amalgamated with another banking company only. Meaning

thereby, a banking company can not be merged with a nationalized bank or any other

financial entity.

Companies Act

Section 394 of the companies act, 1956 is the main section that deals with the

reconstruction and amalgamation of the companies. Under section 44A of the banking

Regulation Act, 1949 two banking companies can be amalgamated voluntarily. In case of

an amalgamated of any company such as a non banking finance company with a banking

company, the merger would be covered under the provisions of section 394 of the

companies act and such schemes can be approved by the high courts and such cases do

33

not require specific approval of the RBI. Under section 396 of the act, central government

may amalgamate two or more companies in public interest.

State Bank of India Act, 1955

Section 35 of the State Bank of India Act, 1955 confers power on SBI to enter into

negotiation for acquiring business including assets and liabilities of any banking

institution with the sanction of the central government and if so directed by the

government in consultation with the RBI. The terms and conditions of acquisition by

central board of the SBI and the concerned banking institution and the reserve bank of

India is required to be submitted to the central government for its sanction. The central

government is empowered to sanction any scheme of acquisition and such schemes of

acquisition become effective from the date specified in order of sanction.

As per sub-section (13) of section 38 of the SBI act, banking institution is defined as

under “banking institution” includes any individual or any association of individuals

(whether incorporated or not or whether a department of government or a separate

institution), carrying on the business of banking.

SBI may, therefore, acquire business of any other banking institution. Any individual or

any association of individuals carrying on banking business. The scope provided for

acquisition under the SBI act is very wide which includes any individual or any

association of individuals carrying on banking business. That means the individual or

body of individuals carrying on banking business. That means the individual or body of

individuals carrying on banking business may also include urban cooperative banks on

NBFC. However it may be observed that there is no specific mention of a corresponding

new bank or a banking company in the definition of banking institution under section

38(13) of the SBI act.

It is not clear whether under the provisions of section 35, SBI can acquire a

corresponding new bank or a RRB or its own subsidiary for that matter. Such a power

mat have to be presumed by interpreting the definition of banking institution in widest

possible terms to include any person doing business of banking. It can also be argued that

if State Bank of India is given a power to acquire the business of any individual doing

banking business it should be permissible to acquire any corporate doing banking

34

business subject to compliance with law which is applicable to such corporate. But in our

view, it is not advisable to rely on such interpretations in the matter of acquisition of

business of banking being conducted by any company or other corporate. Any such

acquisition affects right to property and rights of many other stakeholders in the

organization to be acquired. The powers for acquisition are therefore required to be very

clearly and specifically provided by statue so that any possibility of challenge to the

action of acquisition by any stakeholder are minimized and such stakeholders are aware

of their rights by virtue of clear statutory provisions.

Nationalised banks may be amalgamated with any other nationalized bank or with

another banking institution. i.e. banking company or SBI or a subsidiary. A nationalized

bank can not be amalgamated with NBFC.

Under the provisions of section 9 it is permissible for the central government to merge a

corresponding new bank with a banking company or vice versa. If a corresponding new

bank becomes a transferor bank and is merged with a banking company being the

transferee bank, a question arises as to the applicability of the provisions of the

companies act in respect to the merger. The provisions of sec. 9 do not specifically

exclude the applicability of the companies act to any scheme of amalgamation of a

company. Further section 394(4) (b) of the companies act provides that a transferee

company does not include any company other than company within the meaning of

companies act. But a transferor company includes any body corporate whether the

company is within the meaning of companies act or not. The effect of this provision is

that provision contained in the companies act relating to amalgamation and mergers apply

in cases where any corporation is to be merged with a company. Therefore if under

section 9(2)(c) of nationalization act a corresponding new bank is to merged with a

banking company( transferee company), it will be necessary to comply with the

provisions of the companies act. It will be necessary that shareholder of the transferee

banking company ¾ the in value present and voting should approve the scheme of

amalgamation. Section 44A of the Banking Regulation Act which empowers RBI to

approve amalgamation of any two banking companies requires approval of shareholders

of each company 2/3rd in value. But since section44A does not apply if a Banking

company is to be merged with a corresponding new bank, approval of 3/4th in value of

shareholders will apply to such merger in compliance with the companies act.

35

Amalgamation of co-operative banks with Other Entities

Co-operative banks are under the regulation and supervision of reserve bank of India

under the provision of banking regulation act 1949(as applicable to cooperative banks).

However constitution, composition and administration of the cooperative societies are

under supervision of registrar of co-operative societies of respective states (in case of

Maharashtra State, cooperative societies are governed by the positions of Maharashtra co

operative societies act, 1961)

Amalgamation of cooperative banks

Under section 18A of the Maharashtra State cooperative societies act 1961(MCS Act

) registrar of cooperatives societies is empowered to amalgamate two or more cooperative

banks in public interest or in order to secure the proper management of one or more

cooperative banks. On amalgamation, a new entity comes into being.

Under sector 110A of the MCS act without the sanction of requisition of reserve bank of

India no scheme of amalgamation or reconstruction of banks is permitted. Therefore a

cooperative bank can be amalgamated with any other entity.

AMALGAMATION OF MULTISTATE COOPERATIVE BANKS WITH OTHER

ENTITIES

Voluntary Amalgamation

Section 17 of multi state cooperative society’s act 2002 provides for voluntary

amalgamation by the members of two or more multistage cooperative societies and

forming a new multi state cooperative society. It also provides for transfer of its assets

and liabilities in whole or in part to any other multi state cooperative society or any

cooperative society being a society under the state legislature. Voluntary amalgamation

of multi state cooperative societies will come in force when all the members and the

creditors give their assent. The resolution has been approved by the central registrar.

Compulsory Amalgamation

36

Under section 18 of multi state cooperative societies act 2002 central registrar with the

previous approval of the reserve bank, in writing during the period of moratorium made

under section 45(2) of BR act (AACS) may prepare a scheme for amalgamation of multi

state cooperative bank with other multi state cooperative bank and with a cooperative

bank is permissible.

Amalgamation of Regional Rural Banks with other Entities

Under section 23A of regional rural banks act 1976 central government after consultation

with The National Banks (NABARD) the concerned state government and sponsored

banks in public interest an amalgamate two or ore regional rural banks by notification in

official gazette. Therefore, regional rural banks can be amalgamated with regional rural

banks only.

Amalgamation of Financial Institution with other entities

Public financial institution is defined under section 4A of the companies’ act 1956.

Section 4A of the said act specific the public financial institution. Is governed by the

provisions of respective acts of the institution?

Amalgamation of non-Banking financial Companies (NBFC’s) with other entities

NBFCs are basically companies registered under companies’ act 1956. Therefore,

provisions of companies act in respect of amalgamation of companies are applicable to

NBFCs.

Voluntary amalgamation

Section 394 of the companies’ act 1956 provides for voluntary amalgamation of a

company with any two or more companies with the permission of tribunal. Voluntary

amalgamation under section 44A of banking regulation act is available for merger of

two” banking companies”. In the case of an amalgamation of any other company such as

a non banking finance company with a banking company, the merger would be covered

under the provisions of section 394 of the companies act such cases do not require

specific approval of the RBI.

Compulsory Amalgamation

Under section 396 of the companies’ act 1956, central government in public interest can

amalgamate 2 or more companies. Therefore, NBFCs can be amalgamated with NBFCs

only.

37

NEED OF THE STUDY

Today financial service sector is currently undergoing a period of major restructuring,

which started in Northern Europe in early 1990s and slowly moved southwards, only

Reaching the southern European countries more recently. I t brought with it a greater

Diversification of activities and the use of new working methods in order to make savings

in efficiency in the light of increasing competition.

It is clear that the global restructuring of the economy and resulting increasing

competitive pressures are among the causative factors for the current merger mania in the

financial services sector. In the early 1990s mergers primarily took place at the national

level, as companies strive to achieve competitive advantage over other national or

European rivals’ mergers and acquisitions are a means of corporate expansion and

growth. They are not only means of corporate growth, but an alternative to growth by

internal or organic investment.

This focus needs to be laid down on the identification of the fact that whether these

mergers and acquisitions improve the position and performance of banks or not.

38

OBJECTIVES OF THE STUDY

Following are the trust areas of study:-

To make analysis of the merger of Banks.( BOP with Centurion Bank, ICICI

LTD. with ICICI Bank, Times Bank with HDFC, Bank Of Madura with ICICI

Bank)

To analyze the performance of banks before merger and after merger.

RESEARCH METHODOLGY

The methodology or course of action adopted to fulfill first objective was Exploratory

Research. The data is mainly collected from secondary sources like Published reports,

websites, journals. To fulfill 2nd objective primary research technique is used, Random

and convent sampling method has been used to take out results. Sample size of 25 is

taken for employees of each bank, 25 for the customers of each bank and 10 for

shareholders of each bank. Research is taken out in baddi and Chandigarh.

39

MERGER OF

BANK OF

PUNJAB

AND

CENTURION

BANK

40

MERGERS OF CENTURIAN BANK

AND BANK OF PUNJAB

BANK OF PUNJAB

It was incorporated on may27, 1994 under the companies act, 1956.

The registered office of the bank was situated at SCO 46-47, sector 9-D, Madhya

Marg, Chandigarh- 160017.

It is banking company under the provisions of regulation act, 1949.

The objects of bank are banking business as set out in its memorandum and

articles of association.

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.

The bank is listed on the stock exchange, Mumbai, the national stock exchange of

India limited and the Ludhiana stock exchange.

CENTURION BANK

It was incorporated on june30, 1994 under the companies act, 1956.

The registered office of the Bank was situated at Durga Niwas, Mahatma Gandhi

Road, Panaji, 403001, Goa.

It is a banking company under the provisions of banking regulation act, 1949.

The objectives of transferee bank are banking business as set out in its

memorandum and articles of association.

41

The bank is a profitable and well capitalized new private sector bank having a

national presence of over 99 branches( including extension counter)

It has a significant presence in the retail segment offering a range of products

across various categories.

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.

42

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 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%.

43

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 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).

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 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

44

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.

45

HIGHLIGHTS OF THE MERGER- CENTURION BANK

AND BANK OF PUNJAB

Bank of Punjab is merged into Centurion Bank.

New entity is named as “Centurion Bank of Punjab”.

Centurion Bank’s chairman Rana Talwar has taken over as the chairman of the

merged entity.

Centurion bank’s MD Shailendra Bhandari is the MD of the merged entity.

KPMG India pvt ltd and NM Raiji & Co are the independent values and ambit

corporate finance was the sole investment banker to the transaction.

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.

There has been no cash transaction in the course of the merger; it has been settled

through the swap of shares.

There is no downsizing via the voluntary retirement scheme.

46

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 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.

47

THE KEY FINANCIAL PARAMETERS OF

THE TWO ENTITIES LOOK AS FOLLOWS AS ON 31 MARCH 2005

Rs. In Crores

BOP Centurion Total

1. Capital Reserve 184.26 511.44 695.70

2. Total assets 4848.28 4490.29 9338.53

3. Deposits 4306.62 3530.38 7837

4. Advances 2416.99 2193.95 4610.94

5. Operating Profit before

provisions & contingencies

19.48 23.16 42.64

6. Business 6723.61 5724.33 12447.94

7. Interest margin 134.92 177.88 312.80

8. Capital adequacy 9.23 21.42 30.65

9. Banking officers 136 99 235

10. Market capitalization 315 1477.97 1792.97

48

MERGER OF

BANK OF

MADURA

WITH

ICICI BANK

49

MERGER OF ICICI BANK AND BANK OF

MADURA

The ICICI, one of largest financial institutions in India had an asset base of Rs.582 bn in

2000. It is an integrated wide spectrum of financial activities, with its presence in almost

all the areas of financial services, right from lending, investment and commercial

banking, venture capital financing, consultancy and advisory services to on-line stock

broking, mutual funds and custodial services. In July 1998, to synergize its group

operations, restructuring was designed, and as a result ICICI Bank has emerged.

ICICI Bank has announced a merger with the 57-year-old Bank of Madura Ltd. (BOM) in

an all share deal. The boards of the both the banks have approved the merger and decided

the share exchange ratio of two shares of ICICI Bank for every one share of BOM. The

shareholders of BOM stand to gain with this merger ratio.

BOM with an extensive network of 263 branches has a significant presence in Southern

India. The merger will enable ICICI Bank to spread its network (currently 106 branches)

to 16 states without seeking the RBI’s permission for branch expansion.

The merged entity will have an asset base of over Rs 160 bn and deposits base of over Rs

131 bn. The merger will give ICICI Bank a huge presence in the South which is an

important market given the high rate of economic development, as most of the

technology companies are South based leading to higher income per head.

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 group has about 4.7

percent, while LIC and UTI were having marginal holdings. The merger will give ICICI

Bank a hold on South Indian market, which has high rate of economic development.

50

THE BOARD OF DIRECTORS AT ICICI HAS CONTEMPLATED THE

FOLLOWING SYNERGIES EMERGING FROM THE MERGER:

1) FINANCIAL CAPABILITY: The amalgamation will enable them to have a stronger

financial and operational structure, which is suppose to be capable of greater

resource/deposit mobilization. And ICICI will emerge as one of the largest private

sector banks in the country.

2) BRANCH NETWORK: The ICICI’s branch network would not only increase by

264, but also increases geographic coverage as well as convenience to its customers.

3) CUSTOMER BASE: The emerged largest customer base will enable the ICICI

bank to offer banking and financial services and products and also facilitate cross-

selling of products and services of the ICICI group.

4) TECH EDGE: The merger will enable ICICI to provide ATMs, Phone and the

Internet banking and financial services and products to a large customer base, with

expected savings in costs and operating expenses.

5) 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.

Crucial Parameters: How they stand

Name of

the Bank

Book value of

Bank on the

day of merger

announcement

Market price on

the day of

announcement

of merger

Earnings

per share

Dividend

paid (in

%)

P/E

ratio

Profit per

employee 

(in lakh) 1999-

2000

Bank of

Madura183.0 131.60 38.7 55% 3% 1.73

51

ICICI

Bank58.0 169.90 5.4 15% - 7.83

Challenges Post Merger

THE ‘GENERATION GAP’

Will the merger of 57-year old BOM, south based old generation bank with a fast

growing tech savvy new generation bank, help the latter? For sure, the stock merger is

likely to bring cheer to shareholders 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 base of ICICI Bank to Rs. 220.36

cr. ICICI Bank will issue 235.4 lakh shares of Rs.10 each to the share- holders of BOM.

The merged entity will have an increase of asset base over Rs.160 bn and a deposit base

of Rs.131 bn. The merged entity will have 360 branches and a similar number of ATMs

across the country and also enable the ICICI to serve a large customer base of 1.2 million

customers of BOM through a wider network, adding to the customer base to 2.7 million.  

MANAGING RURAL BRANCHES

ICICI’s major branches are in major metros and cities, whereas BOM spread its wings

mostly in semi urban and city segments of south India. There is 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 geographic location of its branches and level of competition, ICICI

Bank will have a tough time to cope with.

MANAGINGSOFTWARE:  

Another task, which stands on the way, is technology. While ICICI Bank, which is a fully

automated entity, is using the package, Banks 2000, BOM has computerized 90 percent

of its businesses and was conversant with ISBS software. The BOM branches are

supposed to switch over to Banks 2000. Though it is not a difficult task, with 80 percent

52

computer literate staff would need effective retraining which involves a cost. The ICICI

Bank needs to invest Rs.50 crore, for upgrading BOM’s 263 branches.

MANAGING HUMAN RESOURCES:  

One of the greatest challenges before ICICI Bank is managing human resources. When

the head count of ICICI Bank is taken, it is less than 1500 employees; on the other hand,

BOM has over 2500. The merged entity will have about 4000 employees which will

make it one of the largest banks among the new generation private sector banks. The staff

of ICICI Bank is drawn from 75 various banks, mostly young qualified professionals with

computer background and prefer to work in metros or big cities with good remuneration

packages. While under the influence of trade unions most of the BOM employees have

low career aspirations. The announcement by H.N. Sinor, CEO and MD of ICICI, that

there 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. Is it not a Herculean task to integrate two work cultures.

MANAGING CLIENT BASE:  

The client base of ICICI Bank, after merger, will be as big as 2.7 million from its past 0.5

million, an accumulation of 2.2 million from BOM. The nature and quality of clients is

not of uniform quality. The BOM has built up its client base for a long time, in a hard

way, on the basis of personalized services. In order to deal with the BOM’s clientele, the

ICICI Bank needs to redefine its strategies to suit to the new clientele. The sentiments or

a relationship of small and medium borrowers is hurt, it may be difficult for them to

reestablish the relationship, which could also hamper the image of the bank.

Key Ratios

Particulars ICICI Bank Bank of Madura

CAR 17.6% 15.8%

NPAs as a % of net advances 1.5% 4.8%

ROA 0.9% 1.1%

53

Interest spread as a % of total assets 1.5% 2.3%

Comparative Valuations

Particulars ICICI Bank Bank of Madura

Market Price (Rs) 170 132

PER (x) 22.7 3.0

Dividend yield 0.9% 4.2%

Price/Book value (x) 2.7 0.6

54

MERGER OF

TIMES BANK

WITH

HDFC BANK

55

Times Bank was a new generation private sector bank established by the Times group. As part of HDFC Bank's strategy of attaining great heights it decided to merge with Times Bank. As per the scheme of amalgamation issued by HDFC bank to its shareholder the following were the reasons cited for the merger deal.

1. Branch Network would increase by over 50 percent and thus providing increased geographical coverage.2. Increase the total number of retail customer accounts so as to increase deposit and loan products.3 After the merger the bank would be able to use Times Bank's lower cost alternative channels like phone banking, internet banking etc. and thereby the reducing of operating costs.4. The merger would increase the presence of HDFC bank in the depository participant activities.5. Improved infra structure facilities and central processing would help in deriving economies of large scale. and share holding pattern have been looked into.

PROFITABILITY

Profit is the ultimate aim of any business. And the future of a business depends upon the level of profitability. Here the Spread –Burden model has been adopted to measure banks profitability. Where Spread denotes the difference between interest income and interest expense, Burden implies difference between non interest income and non interest expense and profit margin refers to the profit earned by the bank before making provisions and contingencies.

ITEM COMBINEDPRE-MERGER AVERAGE

POST-MERGER

Spread/Total Income 6.56 -9.85

Burden/Total Income 418.55 -14.52

Profit Margin/ Total Income

-18.25 9.20

56

TOTAL INCOME

Income refers to the streams of revenue of a business. Bank may generate income from activities directly related to its activities or other activities. Since it assumes great importance it has been chosen as a variable for measuring the impact of merger .

ITEM COMBINED AVERAGE PRE-MERGER

POST-MERGER

Interest Income/Total Income

6.15 -0.49

Interest Expenses/Total Income

8.53 6.56

Non-Interest Income/Total Income

26.49 2.63

Non-Interest Expense/Total Income

0.22 1.69

Contingencies/ Total Income

34.28 16.31

EFFICIENCY OF BRANCH

The branch of any bank is a representative of the whole banking business. Possessing geographically widespread network of branches is a valuable asset for any bank. It would assist mobilizing and disbursing huge amount of funds over a wider portfolio. Considering the importance of branches for the success of a bank it has been included as a variable.

CAGR OF BRANCH WISE PERFORMANCE

ITEM COMBINED PRE-MERGER AVERAGE

POST-MERGER

Advance Per Branch 7.10 14.70

57

Deposits Per Branch 1.45 16.61

Net Revenue Per Branch

7.14 26.75

Working Fund Per Branch

7.61 15.10

Transaction Cost Per Branch

1.66 25.97

DEPOSIT MOBILIZATION EFFICIENCY

Deposits are an important source of Finance for all banks. In this era of globalisation there is intense competition among banks in mobilising deposits. In the private sector, remuneration of bank officials to an extend depends upon the targets of deposits raised by them. Thus deposits being an important component for a bank it is taken as a variable for measurement. Here deposit mix refers to the ratio of total of current and saving deposits to total deposits. Investment refers to the total of all investments made by the bank.

DEPOSIT MOBILIZATION RATIOS

ITEM COMBINED PRE-MERGER AVERAGE

POST-MERGER

Investment To Deposit 12.03 -0.15Credit Deposit Ratio -7.76 -1.63Operating Expense/Total Deposit

1.00 8.03

Deposit Mix 31.88 6.33

Income To Deposit 1.51 9.88

WORKING CAPITAL

Working fund refers to that part of capital which is required for financing the activities during its operating cycle. Working capital has assumed such significance that it is now being taught as a discipline in various universities. Here working fund refers to total of all assets and this definition has been adopted from the annual reports of HDFC Bank.

WORKING CAPITAL FUNDS

58

ITEM COMBINED PRE-MERGER AVERAGE

%POST MERGER

Interest Income/ Working Fund

-5.63 10.78

Non Interest Income/ Working Fund

-34.58 14.25

Total Income/Working Fund

-11.13 11.33

Interest Expense/ Working Fund

-3.24 18.62

Non Interest Expense/ Working Fund

-11.54 9.44

Total Expense/ Working Fund

-5.81 15.82

Contingent Liability/ Working Fund

-18.56 -7.46

OPERATING PERFORMANCE VARIABLES

Some more variables which are considered to be indicators of a banks operating performance have also been included to measure exactly the real impact of merger between HDFC and Times bank. based on actual figures have been summarized in the below Table-8.CAGR OF PERFORMANCE VARIABLES

ITEM COMBINED PRE-MERGER AVERAGE

%POST MERGER

TOTAL INCOME 36.39 59.03EBT 22.65 47.63PAT 23.78 57.32CAR -12.92 3.62

SHARE HOLDING PATTERN

The share holding pattern that might be influenced in a merger deal has also been closely analyzed.

59

SHARE HOLDING PATTERNS OF HDFC BANK

ITEM PRE-MERGER AVERAGE

%POST MERGER

HDFC GROUP 28.78 25.74INDIAN PRIVATE EQUITY FUND

10.00 8.95

INDOCEAN FINANCIAL HOLDINGS

4.99 4.46

BENNET, COLEMAN COMPANY AND GROUP

NIL 7.78

PUBLIC 56.23 53.07100 100

On analyzing all the above variables it can be found that

1. Before the merger the combined average non-operating losses of the bank was only 2.2 per cent of the total income. But that has increased to 6.15 per cent after the merger.

2. The average spread has increased by 10 per cent after the merger. This implies that HDFC Bank has truly benefited by merging with Times bank that had a good retail banking business.

3. During the pre merger era the combined entity used to consume only 8.08 per cent of its total income for provisions. But after the merger this increased to 13.82 per cent denoting a rising level of N.P.A

4. After the merger the bank has been following a policy of generating income from non-business activities. This is very clear from the investment deposit ratio.

5. The post merged HDFC bank has been able to mobilize more amounts of cheap funds in the form of current and savings deposits. So it can inferred that the HDFC bank could properly utilize the good foundation that Times bank had in retail banking.

6. The merger deal did not result in a huge dilution of ownership as the Times group promoters got only a 7% stake in the newly merged entity. The findings with regard to the aspect of achieving synergy or not on an account of the merger. From the foregoing analysis we can see that out of the 25 variables which have been identified for measuring

60

the impact of merger, 15 ratios indicate a synergy. This implies a success ratio of 60 percentages. So we conclude that the merger between times and HDFC Bank has turned out to be successful.

AVERAGE MOVEMENT OF IMPORTANT RATIOS

ITEM PRE-MERGERHDFC

TIMES BANK

COMBINED PRE-MERGER

%POST MERGER

BURDEN/TOTAL INCOME

-2.53 -1.91 -2.2 -6.15

SPREAD/TOTAL INCOME

33.55 15.4 24.5 34.6

PROVISION/TOTAL INCOME

11.39 4.77 8.08 13.82

INVESTMENT DEPOSIT

58.23 35.30 46.76 65.83

DEPOSIT MIX 42.17 20.69 31.43 42.6

61

Combined AnalysisOf

All Banks

62

Employees Information Analysis

1. Do you know about mergers?

88, 88%

12, 12%

Yes

No

2. Do you know about the merger of the bank?

87, 87%

13, 13%

Yes

No

3. Qualification of employees?

63

53, 53%

47, 47% Graduation

Post Graduation

4. For how long have you been associated with the bank?

26, 26%

39, 39%

35, 35%<1 year

1-2 years

>2 years

5. How is working of bank after merger?

54, 54%

6, 6%

40, 40% Good

Bad

No Change

6. Do you feel any improvement in Bank after merger?

64

53, 53%

22, 22%

25, 25%Yes

No

Can't Say

7. Work load on you has increased after merger or not?

44, 44%

46, 46%

10, 10%Yes

No

Can't Say

8. Is there any hike in salary after merger?

60, 60%17, 17%

23, 23%Yes

No

Can't Say

9. Do you want to leave job?

65

7, 7%

93, 93%

Yes

No

10. Bank is providing more services to customers after merger? Like Factoring, Bill discounting, Financing, E-Banking, Credit Cards, ATM’s facilities?

56, 56%

44, 44%Yes

No

11. Is there any change in hierarchy of the organization after merger?

47, 47%

37, 37%

16, 16%Yes

No

Can't Say

12. Do you think merger is in favour of Bank?

66

85, 85%

15, 15%

Yes

No

Customer Information Analysis

1. Do you know about mergers?

82, 82%

18, 18%

Yes

No

2. Do you know about the merger of the bank?

67

73, 73%

27, 27%

Yes

No

3. Do you have relation with any other bank?

63, 63%

37, 37%

Yes

No

4. For how long have you been associated with bank?

16, 16%

40, 40%23, 23%

21, 21%<1 year

1-2 years

2-5years

>5 years

5. For which service you visit bank?

68

R.D, 7

F.D, 19

Current A/C, 49

Saving A/C, 59

Draft, 74

Value Added, 44

0

10

20

30

40

50

60

70

80

R.D F.D CurrentA/C

SavingA/C

Draft ValueAdded

Series1

6. Do you feel that there is any change in the service of bank after merger?

65, 65%15, 15%

20, 20%Yes

No

Can't Say

7. Has the service of Bank improved after the merger?

58, 58%17, 17%

25, 25%Yes

No

Can't Say

8. Is Bank providing more Advance services after merger? Like Factoring, Bill discounting, Financing, E-Banking, Credit Cards?

69

54, 54%27, 27%

19, 19%Yes

No

Can't Say

9. Are you using any Advance service provided by bank?

Before Merger

37, 37%

63, 63%

Yes

No

After Merger

76, 76%

24, 24%

Yes

No

10. Is there any change in the interest of bank rates after merger?

40, 40%

10, 10%

50, 50%

Increase

Decrease

Can't Say

11. Behavior of staff?

70

Before Merger

65, 65%

35, 35%

Good

Bad

After Merger

28, 28%

10, 10%62, 62%

Good

Bad

No Change

12. Do you want to change your Bank?

8, 8%

92, 92%

Yes

No

Shareholder Information Analysis

1. Do you know about mergers?

34, 85%

6, 15%

Yes

No

71

2. Do you know about the merger of the bank?

27, 67%

13, 33%

Yes

No

3. Do you think Prices of shares has increased after merger?

16, 40%

7, 18%

17, 42% Yes

No

Can't Say

4. Is dividend amount received after merger more than before?

23, 57%8, 20%

9, 23%Yes

No

Can't Say

5. Has bank declared any interim dividend after merger?

72

21, 52%

7, 18%

12, 30% Yes

No

Can't Say

6. Do you feel that there is any change in the service of bank after merger?

25, 62%6, 15%

9, 23%Yes

No

Can't Say

7. Do you think in future price of share will increase?

26, 63%7, 17%

8, 20%Yes

No

Can't Say

8. What will be growth rate?

73

12, 30%

16, 40%

8, 20%

4, 10%

Rapid

Average

Low

Can't Say

74

LIMITATIONS:

There are a few limitations while project is in process:

Approachability to different banks was not easy; it’s very

painful and expensive.

It was very interesting project but I have to comprehend my

report due to lack of time.

Many times people not entertain me while filing

questionnaire.

75

CONCLUSION:

Growth is always essential for the existence of a business concern. A concern is bound to die if it does not try to expand its activities. The expansion of a concern may be in the form of enlargement of its activities or acquisition of ownership and control of other concerns. 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.This report is made before keeping each and every aspect in mind. The research is done on behalf of various segments (employee, consumer and shareholders).As per employee information analysis employee feels nice after merger, in term of organization culture, salary package, technological development and hierarchy level. And as per the consumer information analysis consumer are satisfied of banking services, advances increased. And shareholders are happy with the increase of share price and growth. Centurion Bank had a well-managed and growing retail assets business, including leadership positions in two-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 sizable SME and agricultural portfolio. BoM is smaller than ICICI Bank but its profitability is much more than the former. The EPS and the book value of BoM are Rs 38.7 and Rs 183 respectively, compared to ICICI Bank's Rs 5.4 and Rs 58 respectively. While BoM's last dividend was 55 per cent, ICICI Bank paid out 15 per cent. Of course, ICICI Bank is placed better on the technology front and professionalism. Considering BoM's small equity base of Rs 11.80 crore against ICICI Bank's Rs 196.80 crore, a swap ratio of 2:1 would have little impact on the ICICI Bank's equity, but it would considerably improve the bottomline. The merger with Times Bank had catapulted HDFC Bank into a different league, giving it greater muscle in terms of retail client base as well as mid-market corporate clientele. The bank has nearly 8.5 lakh retail accounts currently. It has said that in its corporate lending, it will continue to focus on top-end corporate clientele while retaining a part of mid-market clientele that came as part of the Times Bank baggage.

76