Pre- and Post-Merger Financial Analysis of Banks

Divyesh Khushalani,Manish Sinha

doi:10.13189/ujaf.2021.090604

Abstract

This work intends to inspect the financial performance of our country's banks before and post the merger. Acquisitions or mergers have been implemented as a tool these days as a respite for distressed banks. By Mergers and Acquisitions, banks are restructured to increase shareholders' value and competitiveness by increasing efficiency. For this work, a specimen of four bank mergers that happened after liberalization was taken and they were analyzed based on financial parameters, for example, Net Profit Margin (NPM), Dividends per Share (DPS), Capital Adequacy Ratio (CAR), Return on Assets (ROA), and Credit Deposit Ratio. This set of parameters chosen is unique when compared to past works. Paired t-test was implemented to identify a substantial change between the financial particulars before and after the merger. The paper also looks at the study's future scope, such as analyzing the stock price movements before and after the merger. This study then can conclude whether the merger of the banks involved was beneficial for the banks and the Indian banking industry or not.

Highlights

For a nation, banks are one of the most important catalysts and occupy a cardinal place in developing the economy of any country
A decrease in Dividend per Share (DPS) may indicate that the organization may be in poor financial conditions
Out of the four banks selected for this study, there was a significant increase in Capital Adequacy Ratio (CAR) for Indian Overseas Bank, HDFC and ICICI, after the merger

Summary

Introduction

Banks are one of the most important catalysts and occupy a cardinal place in developing the economy of any country. The soundness of the banking structure makes the country's economic development discernible. Banks in our country have made strong headway as financial intermediaries amid the financial crisis that the world is facing. It is pretty clear from the trends in their NPA, profitability, and annual credit production. Organizations get the advantages of cost-effectiveness and higher market share through merging or taking over other entities. Banks have utilized acquisitions or even mergers to achieve higher market portions, larger size, rapid expansion, and harmony to become more contentious economies of scale [1]

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Conclusion