Project Title : “A Study of Impacts of Merger & Acquisition on Financial Performance of Indian Banking Sector’’

Submitted To : GUJARAT TECHNOLOGICAL UNIVERSITY,AHEMDABAD.

.Developed At : M.H.Gardi School of Management , Rajkot

Academic Year : 2011- 2012 (MBA Sem-4 ).

Prepared By : korat Ankit .G.

Guided by :prof. Niraj vyas

CONTENT1) Introduction

2) Research Methodology

3) Findings

4) Suggestions

5) Conclusion

INTRODUCTION

Merger A merger occurs when two or more companies combines and the

resulting firm maintains the identity of one of the firms.

Example:-

Company A + Company B = Company B

Acquisition An acquisition usually refers to a purchase of a smaller firm by a

larger one.

Types of Merger and Acquisition

1. Horizontal2. Vertical3. Conglomerate4. Crossborder

Motives behind Merger and Acquisition

To increase profit To get benefit of economize of scale To get the benefit of synergy Growth in market share. To enhance reputation Access to additional management or technical talent. To reduce competition To reduce distribution costs

RESEARCH METHODOLOGY

Statement of the problem :-

“To know the impacts of Merger and Acquisition on financial performance of Indian banking sector”

Objective of the study

Primary objective 

To evaluate the impacts of merger and acquisition on the profitability of the

selected Indian banks during the study period

To evaluate the impacts of merger and acquisition on the liquidity of the

selected Indian banks during the study period

To compare the overall performance of selected Indian banks for pre and post

merger

 Secondary objective

To study why the banks are going towards merger and acquisition

To know the risk involved in merger and acquisition

To study the benefits of merger and acquisition for banks

Method of Data Collection

Secondary Datao Websiteo News papero Magazine

Sample size : - 5

Sample Unit :- Indian banks .

 

Sampling Technique : - Systematic Sampling

 

Reason for selecting sample: - These 5 Indian bank’s merger took place during the year 2004 to 2007 and

which is widely accepted in all over the world.

Selection of sample

Tools of analysis

Ratio analysiso Liquidity ratioo Profitability ratio

Statistical analysiso Mean o Differences o Standard deviation

Hypothesis of the study

Null Hypothesis:

There would be no significant difference in average percentages of Liquidity

indicators in selected units, before and after merger and acquisition.

There would be no significant difference in average percentages of Profitability indicators in selected units, before and after merger and acquisition.

 

Alternate Hypothesis:

There would be significant difference in average percentages of Liquidity indicators in selected units, before and after merger and acquisition.

There would be significant difference in average percentages of Profitability indicators in selected units, before and after merger and acquisition.

Testing of Hypothesis :- paired T-test

Limitations of the study

Our study is based on only 5 selected banks

There is a lack of Time for the study.

We have no so much Experience about banking mergers and acquisition.

The banks which we selected for our study may adopt Window Dressing

which creates effect on our study.

There is a lack of primary data in this study.

All the limitations of ratio analysis affect our study.

All the limitations of secondary data make an impact in our analysis

because our study is based on that data only.

For this study we have taken only 3 years data for both before and after

merger and acquisition, to compare the performance of selected units.

Ratio AnalysisRatio Before

M&AAfter M&A

tc tt Result

Liquidity

Cash Deposit 6.926 8.596 -1.844 2.776 H0

Deposit to owner’s Fund 12.21 11.72 0.28 2.776 H0

Loan to Deposit 0.9 0.81 0.517 2.776 H0

Debt to Equity 166.62 232.11 -6.205 2.776 H0

Debt to Asset 0.856 0.858 -0.156 2.776 H0

Fixed Asset to Fixed Capital

0.011 0.012 -0.259 2.776 H0

Interest Coverage 1.386 1.308 1.188 2.776 H0

Cont…

Profitability

Net Profit 11.8 10.8 0.816 2.776 H0

Interest Expense 42.2 46 -1.257 2.776 H0

Return on Asset 1.06 0.87 2.979 2.776 H1

Interest Expense to Interest Earned

69.47 69.95 -0.115 2.776 H0

Earning per Share 20.24 24.03 -3.130 2.776 H0

ROGCE 0.11 0.09 1.370 2.776 H0

RONCE 0.13 0.10 1.743 2.776 H0

Return on Net Worth 0.16 0.13 1.004 2.776 H0

Return on Equity Share Capital 128.03 146.05 -1.695 2.776 H0

Return on investment 19.18 22.35 -3.265 2.776 H0

FINDINGS

The Liquidity Performance of ICICI Bank has been decreased after

merger but the performance of Profitability has been increased.

The Liquidity Performance of IDBI Bank has been increased after

merger but the performance of Profitability has been decreased.

IOB shows the increasing trend after merger in Liquidity

Performance and shows the decreasing Profitability performance.

In Cash Deposit Ratio, IOB and OBC give result of decreasing

trend in before merger and highest positive value in the year of

merger and again decreasing trend in next two year of merger.

Cont…

IOB shows the increasing trend in before and after merger in Debt

to Equity ratio and IDBI also represent the same result but with

high increment in after merger as compare to before.

In fixed asset to fixed capital ratio IDBI shows decreasing trend in

before merger and highest positive value in the year of merger and

then again decrease in next two years after the year of merger

while IOB shows decreasing trend in both before and after merger.

SUGGESTIONS

The given result shows that ICICI bank’s liquidity performance

has been decreased but the profitability performance has been

increased after merger & acquisition so this bank should maintain

balance between the liquidity and profitability.

 

After merger & acquisition IDBI’s as well as IOB’s profitability

performance has been decreased due to inefficient utilization of

funds and increase in expenses (Employee cost, misc. expenses

and operating expenses) so bank should utilize its fund in such

way that it can cover all their expenses.

 

Cont…

So while merging any bank should keep in mind that their

liquidity and profitability performance must not decrease either it

should increase or it must be balanced.

The bank should not merge with weak unit which created negative

impact on their financial performance.

CONCLUSION The activity of merger and acquisition is a very rational as well as

risky as it create an adverse effect on the financial performance if wrong selection of unit is there.

THANK YOU