Is the Merger of Banks on the Path of Expected Yields?

Abstract

Government of India announced the merger of 10 Public sector banks into 4 Banks in the month of August 2019 in order to reduce the NPA’s as well as reducing the burden of capital infusion to comply Bessel norms. Further mergers of Public Sector banks led to the emergence of 12 bigger banks. This article examines whether this consolidation of banks is really on the path of expected yields by assuming efficiencies as a parameter using inverse DEA. The M & A in banking sector has been evergreen research topic in the global arena and that gives impetus to the current research on Indian Mergers. Generally, the global research studies on M&A focused on the positive impact and the outcomes tend to be the conflicting nature. The InvDEA is the model which supports to identify the necessary level of inputs and outputs for a given decision making unit (Bank) to reach its predefined efficiency. This model facilitates in identifying the outcomes of mergers in terms of efficiency though the objectives of mergers where defined in different perspective. The elements of cost and profit were considered as inputs and outputs in ascertaining the efficiency and that will reveal the true picture of attaining the expected yield of the merger in short-term.