Mergers and Acquisitions of Banks in Post-Reform India
September, 18th 2015
A major perspective of the Reserve Bank of India's banking policy is to encourage competition, consolidate and restructure the system for financial stability. Mergers and acquisitions have emerged as one of the common methods of consolidation, restructuring and strengthening of banks. There are several theoretical justifications to analyse the M&A activities, like change in management, change in control, substantial acquisition, consolidation of the firms, merger or buyout of subsidiaries for size and efficiency, etc. The objective here is to examine the performance of banks after mergers.
The hypothesis that there is no significant improvement after mergers is accepted in majority of cases--there are a few exceptions though. Therefore, the strategy of M&A to consolidate banks for purposes of efficiency seems flawed. Future banking policy must take note of this empirical reality and long-drawn experience of the past two decades.