Click on the image above to view the report
Project by: Yuvraj Kataria
Overview
The purpose of this study is to examine the behaviour of mergers and acquisitions in the Indian banking sector. Mergers and acquisitions have been undertaken by a number of public sector banks. The main reason for participating in this activity is to gain from economies of scale. To cope with the recent trend and shift in banking performance throughout the world, corporate restructuring is a critical component in the current financial and economic climate. It is one technique to secure the establishment of a competitive force in the world economy.
Objectives
The objectives of the study is to:
To comprehend the Indian notion of mergers and acquisitions
To comprehend SBI's and its affiliates' merger.
To comprehend the advantages and disadvantages of bank mergers
To assess the financial performance of State Bank of India following the merger of
State Bank of Bikaner & Jaipur,
State Bank of Hyderabad,
State Bank of Mysore,
State Bank of Travancore,
State Bank of Patiala, and
Bharatiya Mahila Bank.
Organisation under Study
State Bank Of India
The State Bank of India (SBI) is an Indian multinational public sector bank with a branch network of over 24000 locations, over USD 500 billion in assets, and over 500 million active customers and accounts. (SBI, n.d.) The Imperial Bank of India is a descendant of the Bank of Calcutta, which was formed in 1806. The Imperial Bank of India was formed when the Bank of Madras combined with two other presidential banks, the Bank of Bengal and the Bank of Bombay.
The Reserve Bank of India acquired a 60 percent ownership in the Imperial Bank of India in 1955, according to the State Bank of India Act of 1955. Imperial Bank of India changed its name to State Bank of India on July 1, 1955. (Britannica, n.d.) It's part of the Fortune 500 companies.
The study focused on the State Bank of India (SBI) and its six associate banks:
State Bank of Travancore (SBT)
State Bank of Mysore (SBM)
State Bank of Bikaner and Jaipur (SBBJ)
State Bank of Hyderabad (SBH)
State Bank of Patiala (SBP)
Bhartiya Mahila Bank (BMB)
Methodology
Data Collection
Secondary data was utilized, including:
Annual and quarterly financial reports of SBI and its associate banks.
Stock market data from sources like NSE, Money Control, Screener.in, and StockEdge.
Literature and reference materials from Investopedia, Wall Street Mojo, and Wikipedia for descriptive insights.
Time Frame
A ten-year period was analyzed:
Pre-Merger Data: FY 2012–2016
Post-Merger Data: FY 2017–2021
Parameters Analyzed
Financial metrics including:
Gross NPA,
Net Interest Margin (NIM),
Profit Margin,
Capital Adequacy Ratio (CAR),
Return on Assets (ROA),
Return on Equity (ROE),
Loans to Asset Ratio,
Credit to Deposit Ratio, and
Earnings Per Share (EPS).
Stock market performance in relation to Bank Nifty and Nifty-50 indices.
Data Analysis Techniques Used
Microsoft Excel:
Used to compute financial ratios and generate graphical representations for comparison.
Statistical Testing:
T-tests conducted to compare pre-merger and post-merger financial metrics, with hypotheses set for significant differences.
Hypothesis Framework:
Null Hypothesis (H₀): No significant difference between pre-merger and post-merger values for each parameter.
Alternate Hypothesis (Hₐ): Significant differences exist between pre-merger and post-merger values.
Key Highlights of Report
The null hypothesis (H₀) was rejected for most financial parameters, indicating significant differences between pre-merger and post-merger performance.
Parameters like Gross NPA, Capital Adequacy Ratio (CAR), and Earnings Per Share (EPS) showed no significant changes.
Gross NPA: Increased initially post-merger but later improved, reflecting better loan management over time.
Profit Margin and ROE: Declined significantly after the merger, indicating reduced profitability and shareholder returns due to initial integration challenges.
Net Interest Margin (NIM): Decreased post-merger, suggesting increased operational and borrowing costs.
Capital Adequacy Ratio (CAR): Slightly improved, highlighting SBI’s better risk management capabilities after the merger.
Conclusion
The merger of SBI, India’s largest lender, with its affiliates was approved to elevate the state-owned entity to compete with global banking giants. The combined institution now boasts assets of approximately ₹37 lakh crore, nearly 24,000 branches, and around 58,700 ATMs across India, ranking it among the top 50 banks globally.
However, the financial performance of the affiliates, including Bhartiya Mahila Bank and others, was weak prior to the merger, necessitating integration to stabilize operations. Post-merger, SBI experienced declines in key metrics such as EPS, ROE, ROA, NIM, and profit margins due to accumulated losses from the affiliate banks.
The merged entity faced profitability challenges, with rising NPAs in 2017 and reduced investor interest.Despite initial setbacks, the merger has positioned SBI as a global banking leader. It brought strategic and economic benefits to the Indian banking sector, though operational and profitability challenges remain as SBI works towards long-term stability and growth.
