Assignment I

of
BBA 605: Banking and Insurance
on

Banking Mergers Since 2000

&
Fee and Fund Based Products and Services in Banking
Sector

Submitted To:
Ms. Simranjit Bhinder
Assistant Professor
Management Studies

Submitted By:
Roop Kanwal Kaur
12507
BBA-VI

Merger
Merger is defined as combination of two or more companies into a single
company, with one surviving company and others losing their corporate
existence. In simple words, merger is the fusion of two or more existing
companies. The company which retains its identity is the buyer, which acquires
all the assets as well as the liabilities of the merged companies. Merger is also
known as amalgamation.
Acquisition
Acquisition refers to buying of a smaller company by a larger one. Another term
for acquisition is takeover/ buyout, i.e., buying of one company by another.
Acquisitions may be friendly or hostile with controlling interest in the share
capital of another existing company.
Indian Banking Sector
There are three main phases of the Indian Banking sector since its evolution:
Phase I (1786-1969): Initial phase of banking in India
Phase II (1969-1991): Nationalization, Regularization and Growth
Phase III (1991-Present): Liberalization and till date
Mergers in Indian Banking Sector Since 2000
Since the Indian governments LPG (Liberalization, Privatization and
Globalization) policy in 1991, there have been numerous reforms in the
countrys economy and in the banking sector. With the instability of the 1991
recession followed by the globalization trend, the Indian banks saw tough
competition from foreign banks due to which many banks merged, while the
others re-structured themselves. With this assignment, we look at some of the
mergers and acquisitions in the Indian banking sector since 2000.

Date of
Transferor

Transferee

Amalgamation/Merge
r

Times Bank
ANZ Grindlays Bank
Bank of Madura
ICICI Ltd.
Benares State Bank
Nedungadi Bank
South Gujarat Local
Area Bank Ltd.
Global Trust Bank Ltd.
IDBI Bank Ltd.
Bank of Punjab
Ganesh Bank of
Kunundwad Ltd.
United Western Bank
Ltd.
Bharat Overseas Bank
Ltd.
Sangli Bank Ltd.
Lord Krishna Bank Ltd.
Centurion Bank of
Punjab Ltd.
State Bank of
Saurashtra
Bank of Rajasthan
State Bank of Indore
ING Vyasa

HDFC Bank Ltd.

Standard Chartered
ICICI Bank Ltd.
ICICI Bank Ltd.
Bank of Baroda
Punjab National Bank

February 2000
November 2000
March 2001
May 2002
June 2002
February 2003

Bank of Baroda

June 2004

Oriental Bank of
Commerce
IDBI Ltd.
Centurion Bank

April 2005
October 2005

Federal Bank Ltd.

September 2006

IDBI Ltd.

October 2006

Indian Overseas Bank

March 2007

ICICI Bank Ltd.

Centurion Bank of
Punjab Ltd.

April 2007

August 2004

August 2007

HDFC Bank Ltd.

May 2008

State Bank of India

August 2008

ICICI Bank Ltd.

State Bank of India
Kotak Mahindra

May 2010
August 2010
November 2014

At the Gyan Sangam held on January 2-3, 2015 the new NDA government has
brought up the consideration for restructuring the public sector banks to
increase their efficiency and capitalization needs due to increasing NPAs.
Fee-based and Fund-based Products/Services in Banking Sector

Banks offer different products and services to its individual customers, such as
cash deposits, interest on deposits, loans, etc. Besides individual customers,
banks also cater to corporates under their corporate banking department. Under
the corporate banking, banks offer various fund-based and non-fund based (feebased) products to its corporate customers. With this assignment we look at
some of the fee and fund based products/services in the banking sector. They are
as follows:
(I) Fee based Products/Services
a) Letter of Credit: When a buyer has to purchase/import goods from an
unknown seller/exporter, they can take assistance of banks in such transactions.
On the buyers credit worthiness, the bank issues a letter of credit- a document
from a bank guaranteeing that the seller (exporter) will receive payment is full,
as long as certain delivery conditions have been met. In an event, if the buyer
(importer) is unable to make the payment, the bank shall cover the outstanding
amount.
b) Bank Guarantee: A bank guarantee is a guarantee issued by the bank in case
of an occurrence or non-occurrence of a particular event, the bank guarantees to
make good the loss of money as stipulated in the contract. The bank analyses
the credit worthiness/ business capacity of the client and issues different types
of bank guarantees like financial guarantees, performance bank guarantees,
deferred payment guarantees, etc. Bank guarantee can be issues against cash
margin and mortgage of immovable property.
c) Credit Reports: The banks evaluate the credit worthiness of a debtor, business
or the government. Credit reports are the evaluation of the debtors ability to
pay back the debt in the likelihood of default. The bank collects the latest
audited financials, analyses them and the financial risk is weighed based on
various performance figures/financial ratios. Then the bank marks management

risk and market risk followed by judging and marking the compliance to
sanction terms and business consideration. After summing up the above
evaluations, the numeric rating is allotted assessing the credit risk.
d) Solvency Certificate: Solvency certificate is issued to individual/firms
declaring their financial standing for the purpose of standing surety in favor of
some body, securing loans, securing business contractors, etc. Solvency
certificate is issued on the basis of properties owned by the applicants in their
own name, salaries received by the individuals and the income tax/sales tax
returns.
e) Stock Broking: Stock broker is an individual/organization which is licensed to
participate in the securities market on the behalf of clients. The banks as
stockbrokers act as an agent to buy and sell securities and provide information
to assist its customers in making correct investment decision. Banks offer online
share trading facility for trading in Indian equity markets complying with RBI
guidelines and provide safe and secure transactions.
f) Loan Syndication: A loan offered by a group of lenders (syndicate) who work
together to provide funds for a single borrower. The borrower could be a
corporation, large project or sovereignty (govt.). The loan may involve fixed
amounts, credit line or combination of both. There is a lead bank/underwriter of
the loan, known as the arranger, agent or lead lender; which proportionally put
up a bigger share of the loan or disperse cash flow amongst other syndicate
members. The main goal of syndicated loans is spreading risk of borrower
default among multiple lenders (banks/institutions).
(II) Fund based Products / Services
a) Cash Credit: Cash credit is granted by banks on keeping a certain percentage
of the current assets value as margin money. The cash credit facility is generally
granted for one year and subject to review at the expiry of on year. The

borrower is require to submit a cash credit proposal to the bank along with
CMA data through which the bank analyses the working capital gap of the
borrower that can be funded by the bank. Cash credit can be secured by either
hypothecation of stock of goods or offering adequate collateral security in the
form of immovable properties acceptable to the bank. Cash credit can be taken
for buying raw materials, meeting business expenses, overheads, etc.
b) Overdraft: Overhead is a credit facility in the nature of a credit account from
which the borrower can avail the funds anytime at his/her convenience, but, the
upper limit is fixed depending on the value of the security offered by the
borrower to the bank. Overdraft can be availed against any financial assets
(FDs, bonds, shares), physical assets and immovable properties (godowns,
residential houses, commercial office space, etc.)
c) Bill Discounting: Bill discounting is a short tenure financing instrument for
companies willing to discount their purchase/sales bulls to get funds for the
short run and as for the investors in them. While discounting a bill, the bank
buys the bill before its due and credits the value of the bill after a discount
charge to the customers account. The amount of the discount depends on the
amount of time left before the bill matures and on the perceived risk attached to
the bill.
d) Export Credit: Export credit is the loan facility extended to an exporter by a
bank in the exporters country. It can be of 2 types:
Export Packing Credit: It is a loan/advance granted to an exporter for
financing

the

purchase,

processing,

manufacturing,

packing

of

goods/services prior to the shipment. It is granted on the basis of credit or

a confirmed and irrevocable order for the export of goods/services from
India or any other evidence of an order for export from India. Packing
credit can be extended as working capital assistance to meet expenses

such as wages, utility payments, etc. to the companies engaged in export

services.
Post-shipment Credit: It is the loan or advance granted or any other credit
provided by a bank to an exporter of goods / services from India from the
date of extending credit after shipment of goods / rendering of services to
the date of realization of export proceeds as per the period of realization
prescribed by RBI and includes any loan or advance granted to an
exporter, in consideration of, or on the security of any duty drawback
allowed by the Government from time to time.

e) Project Finance: The financing of long-term infrastructure, industrial projects

and public services based upon a non-recourse or limited resource financial
structure where project debt and equity used to finance the project are paid back
from the cash-flow generated by the project. Project financing is a loan structure
that relies primarily on the project's cash flow for repayment, with the project's
assets, rights, and interests held as secondary security or collateral.
f) Working Capital Finance: Working capital finance comprise of a spectrum of
funded and non-funded facilities ranging from cash credit to structured loans, to
meet the different demands from all segments of industry, trade and the services
sector. Funded facilities include cash credit, demand loan and bill discounting.
Demand loans are considered also under the FCNR (B) scheme. Non-funded
instruments comprise letters of credit (inland and overseas) as well as bank
guarantees (performance and financial) to cover advance payments, bid bonds
etc. Working capital loans can help your company in financing inventories,
managing internal cash flows, supporting supply chains, funding production and
marketing operations, providing cash support to business expansion and
carrying current assets

g) Factoring: Factoring is a financial transaction and a type of debtor finance in

which a business sells its accounts receivables (invoices) to a third party (factor)
at a discount. A business will sometimes factor its receivable assets to meet
present and immediate cash needs.
h) Equipment leasing: Obtaining the use of machinery, vehicles or other
equipment on a rental basis. This avoids the need to invest capital in equipment.
Ownership rests in the hands of the financial institution or leasing company,
while the business has the actual use of it.
i) Structured Finance: A service that generally involves highly complex
financial transactions offered by many large financial institutions for companies
with very unique financing needs. These financing needs usually don't match
conventional financial products such as a loan.
j) Term Loans: A loan from a bank for a specific amount that has a specified
repayment schedule and a floating interest rate. Term loans almost always
mature between one and 10 years. For example many banks have term-loan
programs that can offer small businesses the cash they need to operate from
month to month. Often a small business will use the cash from a term loan to
purchase fixed assets such as equipment used in its production process.