Impact of Bank Mergers on the Efficiency of Banks: A study of merger of Bharat Overseas Bank with Indian Overseas Bank

Abstract

After the implementation of reform measures, there has been large changes in the philosophy, perceptions, and functioning of commercial banks and banks are expected to manage the large inflows and outflows of financial resources. Therefore a strong banking system through consolidation is required. Under such situations, it is necessary to study the impact of consolidation on different profitability and efficiency parameters of the banks. In the paper the attempt is made to compare the pre-merger and post-merger performance of Bharat Overseas Bank and Indian Overseas Bank by comparing different efficiency parameters like Profit Per employee, Business Per Employee, Investment and Advances, Interest Income, Return on Assets, NPAs etc. The study concluded that after merger there is improvement in all the parameters of the banks. Since 1992, the Indian Banking system has undergone several changes in terms of organisation, functions, resource mobilisation, socio-economic role, problems and solutions. The Indian Banking system has travelled a long way from a highly regulated environment in relation to different parameters such as branch, location, interest rate on deposits and advances, priority sector lending etc. to a highly competitive environment by implementation of reform measures since 1992. In the pre-reform period, profitability was not considered as an important yardstick to evaluate the performance of the banks, particularly the public sector banks. But after the implementation of reform measures, there have been sea changes in the philosophy, perceptions and functioning of commercial banks. In order to understand the changing role of commercial banks and the problems and challenges that they have been facing presently it would be appropriate to study the major developments in the banking sector during the post reform period. One such development that has significantly affected the banking structure is the process of consolidation through Merger & Acquisition. In practice M& A provide an opportunity to banks to share their resources, reduce intermediate costs & expand delivery platforms & to improve chances for economies of scale in their operations. These developments are expected to have important implications for operating performance and profitability in the banking system. Therefore from the view point of both managerial and policy interests, it is extremely important to know how the banking industry has been reacting to the