The findings of the paper confirm that banking mergers in India have been, on an average, beneficial to the banking sector as the financial performance and efficiency of acquirers improved post-merger. This is true for banks both in the private as well as public sector.
These findings are also valid for recent bank mergers during 2019-2020, for which limited data is available so far. The findings suggest that technical efficiency of acquirers increased from 90.88 in the pre-merger period to 93.80 three years post-merger, and 94.24 five years post-merger.
The study did not find any hindrance in relatively lower managerial and organisational competencies in acquired banks. The mergers facilitated increased scale of productive capacity, the paper notes. The merged entities also benefited from the additional access to the branch network of the banks that were acquired, it said. ” A deep dive into factors that may have led to efficiency gains identifies post-merger geographical diversification and improvement in the share of interest income as the significant factors” the paper said.
The approach employed for mergers during 2019-2020, where adequate data is still not available, suggests that mergers resulted in an increase in shareholders’ wealth of the acquiree banks, while the share price of acquirer banks witnessed a temporary blip.
The research paper is Snehal Herwadkar, director, department of Economic and Policy Research, Shubham Gupta Vaishnavi Chavan former manager and research intern respectively with the Reserve Bank of India. The views expressed in the paper are of the authors and do not necessarily reflect the views of the Reserve Bank of India.
The research assumes significance as more than two years have elapsed since the mega-merger and the impact assessment in the literature appears to be divided. While certain studies suggest that non-performing assets (NPAs) of weak merging banks declined by 10 per cent, almost entirely due to a decline in strategic defaults, some researchers, on the other hand, argue that, “the merger decisions were not necessarily on efficiency grounds, and hence, post-merger benefits are minimal”. The authors attribute this divergence in assessment to the difference in methodology adopted in the various studies.