Page 242 - DCOM208_BANKING_THEORY_AND_PRACTICE

Unit 14: Core Banking Solution

“Mergers and acquisitions in banking sector have become familiar in the majority of all the Notes
countries in the world. A large number of international and domestic banks all over the world
are engaged in merger and acquisition activities. One of the principal objectives behind the
mergers and acquisitions in the banking sector is to reap the benefits of economies of scale.”

With the help of mergers and acquisitions in the banking sector, the banks can develop
significantly in their operations and minimize their expenses to a considerable extent. Another
important advantage is that in this process, competition is reduced because merger eliminates
competitors from the banking industry.

Mergers and acquisitions in banking sector are forms of horizontal merger because the merging
entities are involved in the same kind of business or commercial activities. Sometimes, non-
banking financial institutions are also merged with other banks if they provide similar type of
services.
In the context of mergers and acquisitions in the banking sector, growth in size can be achieved
through mergers and acquisitions quite easily. This type of growth may be described as inorganic
growth. Both government banks and private sector banks are adopting policies for mergers and
acquisitions.

In many countries, global or multinational banks are expanding their operations through mergers
and acquisitions with the regional banks in those countries. These mergers and acquisitions are
named as cross-border or international mergers and acquisitions in the banking sector. By
doing this, global banks are able to place themselves into a dominant position in the banking
sector, achieve economies of scale, as well as earn market share.
Mergers and acquisitions in the banking sector have the capability to ensure efficiency,
profitability and synergy. They also help to grow shareholder value. In some cases, financially
distressed banks are also subject to mergers in the banking sector and this may result in monopoly
and job cuts. Deregulation in the financial market, market liberalization, economic reforms, and
a number of other factors have acted as an important function behind the growth of mergers and
acquisitions in the banking sector. Nevertheless, there are many challenges that are still to be
overcome through appropriate measures.

Mergers and acquisitions in banking sector are controlled or regulated by the apex financial
authority of a particular country. The mergers and acquisitions in the banking sector of India are
overseen by the Reserve Bank of India (RBI).
For Example:
Lord Krishna Bank with Centurion Bank on 29th August 2007

Ganesh Bank of Kurundwad with The Federal Bank (6-Jan 2006)
Bank of Punjab with Centurion Bank (29th June 2005)
IDBI Bank with IDBI Limited (October 01, 2004)

Global Trust Bank with Oriental Bank of Commerce (August 14, 2004)
Nedungadi Bank with Bank of Punjab (Feb 02 2003)
Benares State Bank with Bank of Baroda (July 19, 2002)

ICICI Limited with ICICI Bank (March 30, 2002)

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