(i)What it is:

A merger is a corporate strategy of combining different companies into

a single company in order to enhance the financial and operational
strengths of both organizations.

(ii)How it works/Example:

A merger usually involves combining two companies into a single larger

company. The combination of the two companies involves a transfer of
ownership, either through a stock swap or a cash payment between the
two companies. In practice, both companies surrender their stock and
issue new stock as a new company.

There are several types of mergers. For example, horizontal mergers

may happen between two companies in the same industry, such as
banks or steel companies. Vertical mergers occur between two
companies in the same industry value chain, such as a supplier or
distributor or manufacturer. Mergers between two companies in
related, but not the same industry are called concentric mergers. These
mergers can use the same technologies or skilled workforce to work in
both industry segments, such as banking and leasing. Finally,
conglomerate mergers occur between two diversified companies that
may share management to improve economies of scale for both
companies.

A merger sometimes involves new branding or identity of the merged

companies. Otherwise, a merger may lead to a combination of the
names of the two companies, capitalizing on the brand identity of both
companies.
(iii)Why it matters:

Mergers may result in a stronger company with combined assets,

competencies, and markets. At the same time, mergers may result in a
dilution of the financial strengths of one of the companies, particularly
if the new company results in the issuance of more stock across the
same asset base of the two merged companies. Finally, mergers often
fail because of the clash of corporate cultures between the two
companies, a reluctance to restructure redundant management and
operations, incompatibilities of the technologies used by the
companies, and disruptions in the workforce.

Because mergers are difficult to implement, most ultimately take the

form of an acquisition, that is, the purchase of a weaker company by a
stronger company.

There are both advantages and disadvantages of merger of banks.

(iv)The advantages are:

*It reduces the cost of operation.

*The merger helps in financial inclusion and broadening the

geographical reach of the banking operation.

*NPA and risk management are benefited.

*Merger leads to availability of a bigger scale of expertise and that

helps in minimising the scope of inefficiency which is more in small
banks.

*The disparity in wages for bank staff members will get reduced.
Service conditions get uniform.
*Merger sees a bigger capital base and higher liquidity and that reduces
the government's burden of recapitalising the public sector banks time
and again.

*Redundant posts and designations can be abolished which will lead to

financial savings.

(v)The disadvantages of merger:

*Many banks have a regional audience to cater to and merger destroys

the idea of decentralisation.

*Larger banks might be more vulnerable to global economic crises

while the smaller ones can survive.

*Merger sees the stronger banks coming under pressure because of the
weaker banks.

*Merger could only give a temporary relief but not real remedies to
problems like bad loans and bad governance in public sector banks.

*Coping with staffers' disappointment could be another challenge for

the governing board of the new bank. This could lead to employment
issues.

(vi)LIST OF SOME BANKS MERGED IN INDIA:

Canara Bank and Syndicate Bank to be merged; Union Bank, Andhra

Bank and Corporate Bank to be merged

Punjab National Bank (PNB), Oriental Bank of Commerce (OBC) and

United Bank of India to be merged; Indian Bank and Allahabad Bank to
be merged