Merger and Acquisition in Banking Sector

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SYNOPSIS
ON
MERGER & ACQUISITION IN BANKING SECTOR
(WITH REFERENCE TO GLOBAL TRUST BANK WITH ORIENTAL BANK OF

COMMERCE.)
Submitted to:
Guru jambheshwar University, Hisar in partial fulfillment for
the degree of Master Of Business Administration
(Session 2006-2008)
Under the Supervision of:- Submitted By:-

Dr. N.S. Malik Arun kumar
Professor Roll No 0610417
HSB (GJU) MBA-Final (finance)
CONTENTS
1. Introduction
a) Profile of Study
b) Justification of Study
2. Objective of Study
3. Research Methodology & Analytical Tools
a) Sampling & sample Survey
b) Analytical Tool
Statistical Tools
c) Data Collection
d) Limitations of Study
4. Result & Discussions/Findings
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INTRODUCTION
Banking Sector in India
According to the Annual Statement on Monetary Policy for the year 2007-08 released by
the Reserve Bank of India (RBI), the Indian economy has witnessed robust growth during
2006-07 for the fourth year in succession. The Central Statistical Organisation (CSO)
estimates that the real Gross Domestic Product (GDP) growth has accelerated from 9.0
per cent in 2005-06 to 9.2 per cent in 2006-07. The CSO’s estimates for 2005-06 places
gross domestic savings (GDS) above 32 per cent of GDP and gross domestic investment
(GDI) close to 34 per cent.
India could become the third largest banking hub in the world by 2040, according to a
PricewaterhouseCoopers (PwC) report. The potential banking market waiting to be
tapped in India is fairly huge. Out of the 203 million Indian households, three-fourths, or
147 million, are in rural areas and 89 million are farmer households. In this segment, 51.4
per cent have no access to formal or informal sources of credit, while 73 per cent have no
access to formal sources of credit. Similar data is not available for non-farm and urban
households.
Given the huge potential, corporate houses like the Tatas and Reliance - Anil Dhirubhai
Ambani Group, besides several others, are said to be interested in having a slice of the
banking pie. India's per capita income is expected to rise to US$ 1,000 by the end of the
2007/08 fiscal year on the back of a 9 per cent economic growth, Finance Minister P.
Chidambaram has said.
Per capita income stood at $797 in 2006/07, according to data from the central bank's
web site, nearly double from US$ 460 in 2000-01 thanks to robust economic growth.
Consumption, which today accounts for 60 per cent of India's gross domestic product, is
set to quadruple to US$1.5 trillion by 2025, overtaking Germany as the fifth-largest
consumer market, according to a forecast made by McKinsey.
INTRODUCTION TO THE STUDY
MERGERS
A merger is a combination of two or more firms in which only one firm would survive
and the other would cease to exist, its assets/ liabilities being taken over by the surviving
firm. Although the merger of firms in India is governed by the provisions of the
companies act, 1956, it does not define these terms.
SCHEME OF MERGER
The main contents of model scheme are as listed:-
? Description of the transfer and the transferee company and the business of the
transferor.
? Their authorized, issued and subscribed/ paid up capital.
? Change of the, object clause and accounting year.
? Protection of employment.
? Dividend position and prospects.
? Management: Board of Directors, their number and participation of transferee
Company’s directors on the board.
? Application under Section 391 and 394 of the Companies Act, 1956, to obtain
High Court’s approval
? Expenses of merger.
? Condition of the scheme to become effective and operative, effective date of
merger.
The basis of merger in the scheme should be the reports of the values of assets of both the
merger partner companies.
FEATURES OF SCHEME OF MERGER

The essential features or pre-requisites for any scheme of merger are enumerated as
below:-
I. Determination of the Transfer Date (Appointed Date)
II. Determination of the Effective Date.
III. Approvals for the Scheme.
IV. Approval from Shareholders.
V. Approval from Creditors/ Financial Institutions/ Banks.
VI. Approval from Respective High Courts(s).
The Following Are The Steps Used To Evaluate Merger Decision:-

COUNTDOWN TO COLLAPSE OF GLOBAL TRUST BANK

This was a crisis in the making for the last three years.
KETAN PAREKH SECURITIES SCAM OF 2001
The genesis of the GTB collapses lies in now ousted promoter Ramesh Gelli’s
involvement in the Ketan Parekh securities scam of 2001, when he gave huge unsecured
loans to the stock broker and group companies of Zee Telefilms.
March 31, 2002
GTB’s audited balance sheet for march 31,2002, showed net worth of Rs.400.4 cr. & a
profit of Rs. 40 cr. However, RBI’s inspection revealed that net worth is negative.
LARGE VARIANCE IN GTB’S FINANCIAL POSITION AS
REPORTED BY AUDITORS
In view of very large variance in the assessment of GTB’s financial position as reported
by auditors and by RBI’s inspectors, an independent chartered accountant was appointed
to reconcile the position.
UNDESIRABLE ACTIVITIES
GTB was placed under directions relating to certain types of advances, certain premature
withdrawal of deposits, declaration of dividend and its capital market exposure. RBI also
started monitoring GTB on monthly basis
LOSSES IN ANNUAL ACCOUNTS

For statutory audit, RBI permitted GTB, time up to September 30, 2003 to publish the
annual accounts.
RESERVE BANK OF INDIA’S SCHEME OF AMALGAMATION OF GLOBAL

TRUST BANK WITH ORIENTAL
BANK OF COMMERCE
Global Trust Bank Ltd., (GTB) was placed under of Moratorium on July 24, 2004. The
option available with Reserve Bank was to compulsory merger under section 45 of the
Banking Regulation Act, 1949.
? The government of India has sanctioned the scheme for amalgamation of the
global trust bank ltd. With the oriental bank of commerce. The amalgamation came into
force on August 14, 2004.
? Before the wide interest of the different parties had considered i.e.
• Oriental bank of Commerce (OBC) interest was examined by the RBI keeping in
view its financial parameters.
• Its retail network and its synergies
• Strategic advantages
• Considered the interests of the millions of depositors of GTB
• Evaluated the bank’s strengths and weaknesses, the RBI prepared draft scheme of
amalgamation of GTB with OBC.
GLOBAL TRUST BANK IS NOW ORIENTAL

BANK OF COMMERCE
The Government of India has sanctioned the scheme for amalgamation of the Global
Trust Bank Ltd. With the Oriental Bank of Commerce. The amalgamation will come in to
force on August 14, 2004. All the branches of Global Trust Bank Ltd with function as
branches of Oriental Bank of Commerce with effect from this date.
CUSTOMERS/DEPOSITORS OF GTB
Customers, including depositors of the Global Trust bank Ltd. Will be able to operate
their accounts as customers of Oriental Bank of Commerce with effect from August 14,
2004. Oriental Bank of Commerce is making necessary arrangements to ensure that
service, as usual, is provided to the customers of the Global Trust bank Ltd.
PRO-DATA PAYMENT .IF ANY SURPLUS REMAINS

If any surplus remains after meeting all the liabilities out of the realization of the assets of
the Global Trust bank Ltd., the shareholders may receive pro-data payment.
INCOME TAX EXEMPTIONS

As part of the merger proposal, the OBC would get income tax exemptions in
transferring the assets of GTB in its book during the merger process, while all the bad
debts of the merged entity would be adjusted against the cash balances and reserves of
the Hyderabad-based bank.
JUSTIFICATION OF THE STUDY
Indian economy clipping at 9 per cent, consumption levels soaring and investment
riding high, the Indian banking sector is on an upswing. India could become the third
largest banking hub in the world by 2040, according to a PricewaterhouseCoopers (PwC)
report With the changing scenario of the banking industry in the liberalised era, the
importance of efficiency has assumed a critical significance for the viability of the banks
in India. Narasimham Committee on banking sector reforms has recommended drastic
changes in the banking system. My study is confined to merger and acquisition in the
banking industry and effect of this on the efficiency of the banks . I choose two banks
which are as follows:-
? Global trust bank
? Oriental bank of commerce

OBJECTIVES OF THE STUDY
Each study is carried out with some objectives and the objectives of this report are:
• Analyze parameters for evaluation of both the companies.

• To find it out the basis of merger and acquisition.
• To trace it out the related issues in both pre and post merger case.
• To study why the banks are going towards Merger & Acquisitions.
• To study the measures taken by the government to increase Merger & Acquisition
in Banking Sector.
RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the problem. It may be

understood has a science of studying how research is done scientifically. In it we study
the various steps that all generally adopted by a researcher in studying his research
problem along with the logic behind them. The scope of research methodology is wider
than that of research method.
Meaning of Research
Research is defined as “a scientific & systematic search for pertinent information on a
specific topic”. Research is an art of scientific investigation. Research is a systemized
effort to gain new knowledge. It is a careful inquiry especially through search for new
facts in any branch of knowledge. The search for knowledge through objective and
systematic method of finding solution to a problem is a research.
Research Design
The research design is the conceptual structure within which research is conducted; it
constitutes the blue print of the collection, measurement and analysis of the data. As
search the design includes an outline of what the researcher will do from writing the
hypothesis and its operational implication to the final analysis of data.
Research design can be of three types:
? Exploratory Research Design
? Descriptive Research Design
? Experimental Research Design
The research methods which are going to be used are:

1) Explorative research
2) Case study (comparative analysis)
i. Whole case is divided into parts.
ii. Organizations position before merger & acquisition traced.
iii. Organizations position after merger & acquisition traced.
iv. Comparison of both.
v. Comparative evaluation of results is given.
In the explorative research, our objective is going to:
i. Expand understanding of the dilemma or problem.
ii. Gather background information on topic to refine the research problem.
iii. Identify sources for and actual questions that might be used as
Measurement questions.
Explorative phase begin with the literature search-a review of books as well as articles in
journals or professional literature that relates to our dilemma. A literature search requires
that use of library online catalog and one or more bibliographic databases or indexes. For
some topics it may be useful to consult a handbook or specialized encyclopedia first to
establish a list of key terms, people or events that have influenced our topic and also to
determine what the major publications are and who the foremost authors are. Other
reference materials should be incorporated into research strategy as needed.
Sampling and sample design
Sampling method is that method in which data is collected from the sample of items
selected from the population and conclusions are drawn from them. The method of
selecting a sample out of a given population is called sampling. In other words, sampling
denotes the selection of a part of the aggregate statistical material with a view to
obtaining information about the whole. Nowadays, there are various methods of selecting
a sample from a population in accordance with various needs.
DATA COLLECTION:
PRIMARY DATA: -
The primary data are those, which are collected afresh and for the first time and thus
happened to be original in character. Sources of primary data are:
? Questionnaire
? Observation
? Personal interview
SECONDARY DATA: -
The secondary data on the other hand, are those which have already been collected by
someone else and which have already been passed through the statistical processes.
Sources are:. Books, magazines, newspaper, publications, Websites.
For my study, I will be using Secondary data.

Data collection is, in infact, the most important aspect of a statistical survey. The term
data as used in statistics means quantitative data. In other words, in data, we include that
information which is capable of numerical expression. The type of data used in the
present study is secondary data. The various sources of data collection includes
? Internet
? Newspapers
? Magazines and journals
? Books
LIMITATIONS OF THE STUDY:
? Lack of Time
? Window Dressing
? Lack of experience
? No Primary data
Findings
After merger of the Global Trust Bank and Oriental Bank of Commerce following
changes has been take place:
? Change in management
? New ways of providing services to customers. (e-payment-railway tickets )
? Change in debt recovery policy.
Further findings will be included after doing the whole research.

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http://www.final-yearprojects.co.cc/ http://troubleshoot4free.

MERGER & ACQUISITION IN BANKING SECTOR

(WITH REFERENCE TO GLOBAL TRUST BANK WITH ORIENTAL BANK OF

Under the Supervision of:- Submitted By:-

INTRODUCTION TO THE STUDY

FEATURES OF SCHEME OF MERGER

The Following Are The Steps Used To Evaluate Merger Decision:-

COUNTDOWN TO COLLAPSE OF GLOBAL TRUST BANK

LOSSES IN ANNUAL ACCOUNTS

RESERVE BANK OF INDIA’S SCHEME OF AMALGAMATION OF GLOBAL

GLOBAL TRUST BANK IS NOW ORIENTAL

PRO-DATA PAYMENT .IF ANY SURPLUS REMAINS

INCOME TAX EXEMPTIONS

JUSTIFICATION OF THE STUDY

? Oriental bank of commerce

OBJECTIVES OF THE STUDY

• Analyze parameters for evaluation of both the companies.

Research methodology is a way to systematically solve the problem. It may be

The research methods which are going to be used are:

Sampling and sample design

For my study, I will be using Secondary data.

Further findings will be included after doing the whole research.

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