A

RESEARCH REPORT

On

“MERGER OF TWO BANKS INTO ONE”

SUBMITTED TO:-

KURUKSHETRA UNIVERSITY

KURUKSHETRA

In partial fulfillment for the degree of

M.B.A.
Session 2009-2011

UNDER THE GUIDANCE OF: - SUBMITTED BY:-

Mrs. ANIKA GUPTA RAJEEV KUMAR

Assistant Prof. MBA MBA Final

Roll No.

SWAMI DEVI DAYAL INSTITUTE OF ENGINEERING AND TECHONOLOGY

BARWALA (PANCHKULA) HARYANA

 Certificate
This is to be certify that Research work entitled “Merger of two Banks into one”
committed in partial fulfilment of the requirements for the degree of Master of Business
Administration (MBA) from “SWAMI DEVI DYAL INSTITUTION OF
ENGINEERING AND TECHONOLOGY” affiliated to Kurukshetra University
exclusive record of bonafied research work carried out by Mr.Rajeev kumar under
supervision and guidance of Mrs. Anika gupta.

It is also certify that while carrying out this research work Mr. Rajeev kumar was
constantly in touch with me for necessary guidance and essential direction.

This work done by her is found satisfactory and commendable.

We wish her great success in her career.

 DECLERATION

I do here by declare that the training report entitled “Merger of two Banks into One”
has been prepared under the guidance of Mrs.Anika gupta, (Assistant Professor)
submitted by me in the partial fulfillment of the requirement for the degree of Master of
business administration (MBA) from kurukshetra university, Kurukshetra is my original
work and the data & facts provided in report are authentic to the best of my knowledge.
I have not submitted this Research project report for the award of my any other degree,
diploma, fellowship, or any other similar title or prizes.

Rajeev kumar
 ACKNOWLEDGEMENT

All successful work needs large number of hands to accomplish any work. I acquire this
opportunity with much pleasure to thank all the people who have helped me through the
course of my journey towards this report. This research report required hard work,
sincerity and devotion which I tried my best to put in this report and in turn gained a lot
of knowledge and confidence from this report.

I would like to thank Mrs. Anika Gupta for her assistance and useful comments. Her
caring and supportive attitude gives me a lot of support in doing my research report.

Finally, this report would not have been possible without the confidence, endurance and
support of my family. My family has always been a source of inspiration and
encouragement. I wish to thank my family, whose love, teachings and support have
brought me this far.

Rajeev kumar
 PREFACE

The research studies are of a great help in enhancing the knowledge of a person.
Practical knowledge is a suffix to theoretical knowledge. Classroom lectures clarify the
fundamental concepts of management. But classroom lectures must be correlated with
the practical research situation. It is in this sense that the research project is made
compulsory for the curriculum and has a significant role to play in the field of business
management. Though this type of project one can understand the application of theory
into practical. But it is only difficulties, which makes the success dears. In this report I
have put a lot of effort to make it a success.
 TABLE OF CONTENTS

Chapter 1 Introduction PAGE NO.

A) Introduction to the Banking sector. 1-48

B) Introduction of the Project 49-51

Chapter 2 Review of literature 52-55

Chapter 3 Research Methodology 56-62

a. Research design 58
b. Data collection techniques 59
c. Statistical tools 60-61
d. Objective of study 62
e. Limitation of study 62

Chapter 4 Analysis & Interpretation 63-72

Chapter 5 Findings & Suggestions

a. Finding of the study 73-74

b. Suggestions 75-76

Chapter 6 Conclusion 77

Bibliography 78
 CHAPTER 1
INTRODUCTION
 STATEMENT OF PROBLEMS

In today’s scenario customer is king. So, for any organization to achieve goals has to
maintain customer satisfaction level. For this purpose many surveys are being conducted
for measuring customer satisfaction level and the ways to improve customer services.

Some of my batch mates too had conducted survey for measuring customer measuring
customer service level from customer point of view. Are they satisfied with the services
provided to them by the bank employees? Bank employees behave as intermediary
between the customer and top management. They play a vital role in any organization, as
they are the personnel who actually interact with the customer and the top management.
Policies are framed by the top management and implemented at the bank employee’s
level.

Therefore, they deal with the customer and tell their problem to higher authority. So,
keeping this aspect in mind, we had planned to conduct a survey related to customer
satisfaction level from the bank employee’s point of view.
Introduction to the industry

A bank is a concern, which carries on the business of keeping the money of some people
and leading money to other people. Banking signifies some form of dealing in money and
securities. It is essentially the business of playing go-between the lenders and borrowers.
It is the middling or intermediation function between the savings surplus and saving
deficit economic units within a society.

Definition of Bank
It is very difficult to give a precise definition of a bank due to the fact
that a modern bank performs a variety of functions. Different
economists have given different definitions of a bank. Some of the
definitions are as under:-

“A bank collects money from those who have it to spare or who are saving it out of
their incomes, and it lends this money to those who require it.”

G.Crowther

“ Under section 5(b) Banking means the accepting after the purpose of Indian
companies lending or investment, of deposits of money from the public, repayable on
demand or otherwise, and withdrawals by cheque, draft or otherwise.”
 The banking companies (Regulation) Act, 1949

“Under Section 5(c) “A Banking Company” is defined as any

company which transacts the business of banking in India.”

The banking companies

(Regulation) Act, 1949

Evolution of Banking:

Indian banking system, over the years has gone through various phases after
establishment of reserve Bank of India in 1935 during the British Rule, to function as
Central Bank of country.

Indian banking system has become a powerful instrument for economic development
today. As we all know about the economic development programs, which started from
1950 in India, at that time government was really conscious was about rural development.
During the 1950s in India, banks were very conservative and inward looking, concerned
with their profits. As a matter of fact, competition was not in existence. On the one side
of the fence was State Bank of India alone, enjoying Govt. patronage and on the other
side were private commercial banks, local by orientation, primarily serving the interests
of the controlling business houses. Therefore, neither State Bank of India nor others cared
much for the public they had limited range of services which included, current accounts,
Terms Deposit Accounts and Savings Bank Accounts in deposits area.

In the area of advances, limit were sanctioned on the basis of security by way of lock and
key accounts and bills purchased limits; their miscellaneous services included issuance of
drafts, collection of outstation cheques, executing standing instructions and lockers
facility at a few centers. It was the phase of select banking and even the communication
through the media was looked down upon with contempt as something against the tenets
of banking culture. Even the Advertisements released till 1966 were very few and far
between.

However, after nationalization of 14 major commercial banks in 1969, banks woke up

from their splendid isolation and found themselves placed in a highly competitive and
rapidly changing environment, with competition becoming fierce day by day. In the
above back-drop, banks approach towards customers and market underwent a change and
focus was gradually shifted to marketing their products. Banks were product oriented
organization, placing before the prospective customer, their range of services, expecting
him to choose, presuming that the customer had the knowledge, time, interest and skills
to pick out the service that would suit him. At the same time, banks also became
conscious of their corporate image and its projection and this introduced the public
relations philosophy in banks with the purpose of image projection.

The first major step in the direction of marketing was initiated by State Bank of India
when in 1972, it re-organized itself on the basis of major market segments, dividing the
customers on the basis of activity and carved out four major market segments,
commercial and institutional segment, small industries and small business segment, the
new organizational framework embodied the principle that the existence of an
organization is primarily dependent upon the satisfaction of customer needs.

Again in 1973, the State Bank of India took yet another major leap forward in the
marketing direction when it, out its own volition, took upon itself the responsibility of
involving itself in the neighborhood affairs and winning the cooperation of the
community in developmental efforts.
By 1947, the environment became more demanding with the emphasis on mass banking
and canalisation of credit into priority areas and lending’s at differential rates of interest
to the weaker sections of the society.

It was in early 1980, banks realized that marketing is more than that. They started
thinking in terms of product development market penetration and market development.
More importantly, banks also accelerated the process of equipping their staff with the
marketing capabilities, in terms of both skills and attitudes through internal and external
training interventions.

Bank is an institute which deals with the money and credit in such a manner that it
accepts deposits from the public and makes the surplus funds available to those who need
them, and helps in remitting money from one place to another safely.

The banking industry which started in the olden days with merchants lending money has
today developed to a very great extent.

The nationalization of banks in 1969 led to the identification of banking institutions as

organizations that they are meant to take the country towards development. Today banks
are not mere suppliers of money but they have become providers of services such as
selling insurance, mutual funds, investment opportunities etc. Today is the age of
specialization and they can find specialization in all fields including banking.
 BANKING IN INDIA

Banking in India has its origin as early as the Vedic period. It is believed that the
transition from money lending to banking must have occurred even before Manu, the
great Hindu jurist, who has devoted a section of his work to deposits and advances & laid
down rules regarding too rate of interest.

During the days of east India Company, it was the turn of the agency houses to carry on
the banking business. The general bank of India was the first joint stock bank to be
established in the year 1786. From 1786 till today, the journey of Indian banking system
can be segregated into three distinct phases. They are as mentioned below:

 Early phase from 1786 to 1969 of Indian banks.

 Nationalization of Indian banks and up to 1991 prior to Indian banking sector
reforms.
 New phase of Indian banking system with the advent of Indian financial &
banking sector reforms after 1991.
 Today, the journey of Indian banking system can be segregated into
three distinct phases.

PHASE 1:
The general bank of India was set up in the year 1786. Next came
back of Hindustan and Bengal bank. The east India Company
established bank of Bengal (1809), bank of Bombay (1840), bank of
Madras (1843) as independent units & called it Presidency Banks.
These three were amalgamated in 1920 & Imperial bank of India was
established.

In 1865 Allahabad bank was established. Punjab national bank was set
up in 1894. Between 1906 & 1913, Bank of India, central bank of India,
bank of Baroda, Canara bank, Indian bank were set up. Reserve Bank
of India came in 1935.

PHASE 2:

Govt. took major steps in this Indian banking sector reform after independence. In 1955,
it nationalized imperial bank of India. It formed state bank of India to act as the principal
agent of RBI and to handle banking transactions.

Seven banks forming subsidiary of state bank of India was nationalized in 1960 on 19th
July, 1969, major process of nationalization was carried out. It was the effort of Mrs.
Indira Gandhi. The following are the steps taken by govt of India to regulate banking
institutions in the country:

 1949: enactment of banking regulation act.

 1955: nationalization of SBI.
 1959: Nationalization of SBI subsidiaries.
 1961: insurance cover extended to deposits
 1969: Nationalization of 14 major banks.
  1971: creation of credit guarantee corporation.
 1975: creation of regional rural banks.
 1980: Nationalization of 7 banks with deposits over 200 crore.

PHASE 3:

This phase has introduced many more products & facilities in the banking sector. In
1991, under the chairmanship of M. Narasimham, a committee was set up his name
which worked for the liberalization of banking practices.

The country is flooded with foreign banks & their ATM stations. Efforts are being put to
give satisfactory services to customers.

The financial system of India has shown a great deal of resilience. It is sheltered from any
crisis triggered by any external macro economics shock as other East Asian Countries.

The name of bank was borrowed in Middle English from Middle French banque, from
Old Italian banca, from Old High German banc, bank "bench, counter". Benches were
used as desks or exchange counters during the Renaissance by Florentine bankers, who
used to make their transactions atop desks covered by green tablecloths.

In fact, the word traces its origins back to the Ancient Roman Empire, where
moneylenders would set up their stalls in the middle of enclosed courtyards
calledmacella on a long bench called a banco, from which the words banco and bank are
derived.

Without a sound and effective banking system in India it cannot have a healthy economy.
The banking system of India should not only be hassle free but it should be able to meet
new challenges posed by the technology and any other external and internal factors.
For the past three decades India’s banking system has several outstanding achievements
to its credit. The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even
to the remote corners of the country. This is one of the main reasons of India’s growth
process.

The government regular policy for Indian bank since 1969 has paid rich dividends with
the nationalization of 14 major banks in India. Long ago most efficient banks were taking
two days to transfer money from one branch to another but now it is as simple as ordering
a pizza. The first bank in India, though conservative, was established in 1786. From 1786
till today, the journey of Indian banking system can be segregated into three distinct
phases.

In India the banks are being segregated in different groups. Each group has its own
benefits, limitations, target market. Few of the working only in rural sector while others
in both rural and urban sector.

Major Banks in India

 Allahabad bank
 Bank of India
 Bank of Punjab
 Dena bank
 Bank of Baroda
 Federal bank
 Indian overseas bank
 Oriental bank of commerce
 State bank of Indore
 Syndicate bank.
  Bank of Rajasthan
 Bank of Maharashtra
 CITI bank
 Corporation bank
 Punjab & Sind bank

INTRODUCTION
We have been learning about the companies coming together to from another company
and companies taking over the existing companies to expand their business.

With recession taking toll of many Indian businesses and the feeling of insecurity surging
over our businessmen, it is not surprising when we hear about the immense numbers of
corporate restructurings taking place, especially in the last couple of years. Several
companies have been taken over and several have undergone internal restructuring,
whereas certain companies in the same field of business have found it beneficial to merge
together into one company.

In this context, it would be essential for us to understand what corporate restructuring and
mergers and acquisitions are all about.

All our daily newspapers are filled with cases of mergers, acquisitions, spin- offs, tender
offers, & other forms of corporate restructuring. Thus important issues both for business
decision and public policy formulation have been raised. No firm is regarded safe from a
takeover possibility. On the more positive side Mergers & Acquisition’s may be critical
for the healthy expansion and growth of the firm. Successful entry into new product and
geographical markets may require Mergers & Acquisition’s at some stage in the firm's
development. Successful competition in international markets may depend on capabilities
obtained in a timely and efficient fashion through Mergers & Acquisition's. Many have
argued that mergers increase value and efficiency and move resources to their highest and
best uses, thereby increasing shareholder value.

To opt for a merger or not is a complex affair, especially in terms of the technicalities
involved. We have discussed almost all factors that the management may have to look
into. Before going for merger, Considerable amount of brainstorming would be required
by the managements to reach a conclusion. E.g. A due diligence report would clearly
identify the status of the company in respect of the financial position along with the net
worth and pending legal matters and details about various contingent liabilities. Decision
has to be taken after having discussed the pros & cons of the proposed merger & the
impact of the same on the business, administrative costs benefits, addition to
shareholders' value, tax implications including stamp duty and last but not the least also
on the employees of the Transferor or Transferee Company.

WHAT IS MERGER?

Merger is defined as combination of two or more companies into a single company

where one survives and the others lose their corporate existence. The survivor acquires all
the assets as well as liabilities of the merged company or companies. Generally, the
surviving company is the buyer, which retains its identity, and the extinguished company
is the seller.

Merger is also defined as amalgamation. Merger is the fusion of two or more existing
companies. All assets, liabilities and the stock of one company stand transferred to
Transferee Company in consideration of payment in the form of:

•Equity shares in the transferee company,

•Debentures in the transferee company,
•Cash, or
•A mix of the above modes.

PURPOSE OF MERGERS
The purpose for an offeror company for acquiring another company shall be reflected in
the corporate objectives. It has to decide the specific objectives to be achieved through
acquisition. The basic purpose of merger or business combination is to achieve faster
growth of the corporate business. Faster growth may be had through product
improvement and competitive position.

Other possible purposes for acquisition are short listed below:

(1) Procurement of supplies:

a. To safeguard the source of supplies of raw materials or intermediary product;

b. To obtain economies of purchase in the form of discount, savings in transportation

costs, overhead costs in buying department, etc.

c. To share the benefits of suppliers economies by standardizing the materials.

(2) Revamping production facilities:

a. To achieve economies of scale by amalgamating production facilities through more

intensive utilization of plant and resources;

b. To standardize product specifications, improvement of quality of product, expanding

c. Market and aiming at consumers satisfaction through strengthening after sale Services;

d. To obtain improved production technology and know-how from the offered company

e. To reduce cost, improve quality and produce competitive products to retain and
Improve market share.

(3) Market expansion and strategy

a. To eliminate competition and protect existing market;

b.To obtain a new market outlets in possession of the offeree;

c. To obtain new product for diversification or substitution of existing products and to

enhance the product range;

d. Strengthening retain outlets and sale the goods to rationalize distribution;

e. To reduce advertising cost and improve public image of the offeree company;

f. Strategic control of patents and copyrights.

(4) Financial strength:

a. To improve liquidity and have direct access to cash resource;

b. To dispose of surplus and outdated assets for cash out of combined enterprise;

c. To enhance gearing capacity, borrow on better strength and the greater assets backing;

d. To avail tax benefits;

e. To improve EPS (Earning Per Share).

(5) General gains:

a. To improve its own image and attract superior managerial talents to manage its affairs;

b. To offer better satisfaction to consumers or users of the product.

(6) Own developmental plans:

The purpose of acquisition is backed by the offer or company’s own developmental

plans. A company thinks in terms of acquiring the other company only when it has
arrived at its own development plan to expand its operation having examined its own
internal strength where it might not have any problem of taxation, accounting, valuation,
etc. But might feel resource constraints with limitations of funds and lack of skill
managerial personnel’s. It has to aim at suitable combination where it could have
opportunities to supplement its funds by issuance of securities, secure additional financial
facilities, eliminate competition and strengthen its market position.

(7) Strategic purpose:

The Acquirer Company view the merger to achieve strategic objectives through
alternative type of combinations which may be horizontal, vertical, product expansion,
market extensional or other specified unrelated objectives depending upon the corporate
strategies. Thus, various types of combinations distinct with each other in nature are
adopted to pursue this objective like vertical or horizontal combination.

(8) Corporate friendliness:

Although it is rare but it is true that business houses exhibit degrees of cooperative spirit
despite competitiveness in providing rescues to each other from hostile takeovers and
cultivate situations of collaborations sharing goodwill of each other to achieve
performance heights through business combinations. The combining corporate aim at
circular combinations by pursuing this objective

(9) Desired level of integration:

Mergers and acquisition are pursued to obtain the desired level of integration between the
two combining business houses. Such integration could be operational or financial. This
gives birth to conglomerate combinations. The purpose and the requirements of the
offeror company go a long way in selecting a suitable partner for merger or acquisition in
business combinations.
 TYPES OF MERGERS

Merger or acquisition depends upon the purpose of the offeror company it wants to
achieve. Based on the offerors’ objectives profile, combinations could be vertical,
horizontal, circular and conglomeratic as precisely described below with reference to the
purpose in view of the offeror company.

(A) Vertical combination

A company would like to takeover another company or seek its merger with that
company to expand espousing backward integration to assimilate the resources of supply
and forward integration towards market outlets. The acquiring company through merger
of another unit attempts on reduction of inventories of raw material and finished goods,
implements its production plans as per the objectives and economizes on working capital
investments. In other words, in vertical combinations, the merging undertaking would be
either a supplier or a buyer using its product as intermediary material for final production.

The following main benefits accrue from the vertical combination to the acquirer
company i.e.

1. It gains a strong position because of imperfect market of the intermediary products,

scarcity of resources and purchased products;

2. Has control over products specifications.

(B) Horizontal combination:

 It is a merger of two competing firms which are at the same stage of industrial
process. The acquiring firm belongs to the same industry as the target company. The mail
purpose of such mergers is to obtain economies of scale in production by eliminating
duplication of facilities and the operations and broadening the product line, reduction in
investment in working capital, elimination in competition concentration in product,
reduction in advertising costs, increase in market segments and exercise better control on
market.

(C) Circular combination:

Companies producing distinct products seek amalgamation to share common

distribution and research facilities to obtain economies by elimination of cost on
duplication and promoting market enlargement. The acquiring company obtains benefits
in the form of economies of resource sharing and diversification.

(D) Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries like DCM and

Modi Industries. The basic purpose of such amalgamations remains utilization of
financial resources and enlarges debt capacity through re-organizing their financial
structure so as to service the shareholders by increased leveraging and EPS, lowering
average cost of capital and thereby raising present worth of the outstanding shares.
Merger enhances the overall stability of the acquirer company and creates balance in the
company’s total portfolio of diverse products and production processes.
ADVANTAGES OF MERGERS

Mergers and takeovers are permanent form of combinations which vest in management
complete control and provide centralized administration which are not available in
combinations of holding company and its partly owned subsidiary. Shareholders in the
selling company gain from the merger and takeovers as the premium offered to induce
acceptance of the merger or takeover offers much more price than the book value of
shares. Shareholders in the buying company gain in the long run with the growth of the
company not only due to synergy but also due to “boots trapping earnings”.

Mergers and acquisitions are caused with the support of shareholders, manager’s ad
promoters of the combing companies. The factors, which motivate the shareholders and
managers to lend support to these combinations and the resultant consequences they have
to bear, are briefly noted below based on the research work by various scholars globally.

(1) From the standpoint of shareholders

Investment made by shareholders in the companies subject to merger should enhance in

value. The sale of shares from one company’s shareholders to another and holding
investment in shares should give rise to greater values i.e. The opportunity gains in
alternative investments. Shareholders may gain from merger in different ways viz. From
the gains and achievements of the company i.e. Through:

(a) Realization of monopoly profits;

(b) Economies of scales;

(c) Diversification of product line;

(d) Acquisition of human assets and other resources not available otherwise;

(e) Better investment opportunity in combinations

.One or more features would generally be available in each merger where shareholders
may have attraction and favour merger.

(2) From the standpoint of managers.

Managers are concerned with improving operations of the company, managing the affairs
of the company effectively for all round gains and growth of the company which will
provide them better deals in raising their status, perks and fringe benefits. Mergers where
all these things are the guaranteed outcome get support from the managers. At the same
time, where managers have fear of displacement at the hands of new management in
amalgamated company and also resultant depreciation from the merger then support from
them becomes difficult.

(3) Promoter’s gains

Mergers do offer to company promoters the advantage of increasing the size of their
company and the financial structure and strength. They can convert a closely held and
private limited company into a public company without contributing much wealth and
without losing control.
(4) Benefits to general public

Impact of mergers on general public could be viewed as aspect of benefits and costs to:

(a) Consumer of the product or services;

(b) Workers of the companies under combination;

(c) General public affected in general having not been user or consumer or the worker in
the companies under merger plan

(a) Consumers

The economic gains realized from mergers are passed on to consumers in the form of
lower prices and better quality of the product which directly raise their standard of living
and quality of life. The balance of benefits in favour of consumers will depend upon the
fact whether or not the mergers increase or decrease competitive economic and
productive activity which directly affects the degree of welfare of the consumers through
changes in price level, quality of products, after sales service, etc.

(b) Workers community

The merger or acquisition of a company by a conglomerate or other acquiring company

may have the effect on both the sides of increasing the welfare in the form of purchasing
power and other miseries of life. Two sides of the impact as discussed by the researchers
and academicians are:fir stly, mergers with cash payment to shareholders provide
opportunities for them to invest this money in other companies which will generate
further employment and growth to uplift of the economy in general.Secondly, any
restrictions placed on such mergers will decrease the growth and investment activity with
corresponding decrease in employment. Both workers and communities will suffer on
lessening job Opportunities, preventing the distribution of benefits resulting from
diversification of production activity.
(c) General public

monopolists affect social and political environment to tilt everything in their favour to
Mergers result into centralized concentration of power. Economic power is to be
understood as the ability to control prices and industries output as monopolists. Such
maintain their power ad expand their business empire. These advances result into
economic exploitation. But in a free economy a monopolist does not stay for a longer
period as other companies enter into the field to reap the benefits of higher prices set in
by the monopolist. This enforces competition in the market as consumers are free to
substitute the alternative products. Therefore, it is difficult to generalize that mergers
affect the welfare of general public adversely or favorably. Every merger of two or more
companies has to be viewed from different angles in the business practices which protects
the interest of the shareholders in the merging company and also serves the national
purpose to add to the welfare of the employees, consumers and does not create hindrance
in administration of the Government polices.
 Procedure of Mergers

Public announcement:

To make a public announcement an acquirer shall follow the following procedure:

1. Appointment of merchant banker:

The acquirer shall appoint a merchant banker registered as category – I with SEBI to
advise him on the acquisition and to make a public announcement of offer on his behalf.

2. Use of media for announcement:

Public announcement shall be made at least in one national English daily one Hindi daily
and one regional language daily newspaper of that place where the shares of that
company are listed and traded.

3. Timings of announcement:

Public announcement should be made within four days of finalization of negotiations or

entering into any agreement or memorandum of understanding to acquire the shares or
the voting rights.

4. Contents of announcement:

Public announcement of offer is mandatory as required under the SEBI Regulations

Procedure for Bank Merger

• The procedure for merger either voluntary or otherwise is outlined in the

respective state statutes/ the Banking regulation Act. The Registrars, being the
authorities vested with the responsibility of administering the Acts, will be
ensuring that the due process prescribed in the Statutes has been complied with
before they seek the approval of the RBI. They would also be ensuring
compliance with the statutory procedures for notifying the amalgamation after
obtaining the sanction of the RBI.
• Before deciding on the merger, the authorized officials of the acquiring
bank and the merging bank sit together and discuss the procedural modalities
and financial terms. After the conclusion of the discussions, a scheme is
prepared incorporating therein the all the details of both the banks and the area
terms and conditions.
 • Once the scheme is finalized, it is tabled in the meeting of Board of
directors of respective banks. The board discusses the scheme thread bare and
accords its approval if the proposal is found to be financially viable and
beneficial in long run.
• After the Board approval of the merger proposal, an extra ordinary general
meeting of the shareholders of the respective banks is convened to discuss the
proposal and seek their approval. After the board approval of the merger
proposal, a registered valuer is appointed to valuate both the banks. The valuer
valuates the banks on the basis of its share capital,market capital, assets and
liabilities, its reach and anticipated growth and sends its report to the respective
banks.
• Once the valuation is accepted by the respective banks , they send the
proposal along with all relevant documents such as Board approval, shareholders
approval, valuation report etc to Reserve Bank of India and other regulatory
bodies such Security & exchange board of India(SEBI) for their approval.
• After obtaining approvals from all the concerned institutions, authorized
officials of both the banks sit together and discuss and finalize share allocation
proportion by the acquiring bank to the shareholders of the merging bank
• After completion of the above procedures , a merger and acquisition
agreement is signed by the bank

Other motives For Merger

Merger may be motivated by other factors that should not be classified

under synergism. These are the opportunities for acquiring firm to
obtain assets at bargain price and the desire of shareholders of the
acquired firm to increase the liquidity of their holdings.
1. Purchase of Assets at Bargain Prices

Mergers may be explained by opportunity to acquire assets, particularly land

mineral rights, plant and equipment, at lower cost than would be incurred if
they were purchased or constructed at the current market prices. If the
market price of many socks have been considerably below the replacement
cost of the assets they represent, expanding firm considering construction
plants, developing mines or buying equipments often have found that the
desired assets could be obtained where by heaper by acquiring a firm that
already owned and operated that asset. Risk could be reduced because the
assets were already in place and an organization of people knew how to
operate them and market their products. Many of the mergers can be
financed by cash tender offers to the acquired firm’s shareholders at price
substantially above the current market. Even so, the assets can be acquired
for less than their current casts of construction. The basic factor underlying
this apparently is that inflation in construction costs not fully rejected in stock
prices because of high interest rates and limited optimism by stock investors
regarding future economic conditions.

2.Increased Managerial Skills or Technology

Occasionally a firm will have good potential that is finds it unable to develop
fully because of deficiencies in certain areas of management or an absence
of needed product or production technology. If the firm cannot hire the
management or the technology it needs, it might combine with a compatible
firm that has needed managerial, personnel or technical expertise. Of course,
any merger, regardless of specific motive for it, should contribute to the
maximization of owner’s wealth.

3. Acquiring new technology –

To stay competitive, companies need to stay on top of technological
developments and their business applications. By buying a smaller company
with unique technologies, a large company can maintain or develop a
competitive edge.

i. Economy of scale: This refers to the fact that the combined

company can often reduce its fixed costs by removing duplicate
departments or operations, lowering the costs of the company relative
to the same revenue stream, thus increasing profit margins.

ii. Operating economies:-arise because, a combination of two or

more firms may result in cost reduction due to operating economies. In
other words, a combined firm may avoid or reduce over-lapping
functions and consolidate its management functions such as
manufacturing, marketing, R&D and thus reduce operating costs. For
example, a combined firm may eliminate duplicate channels of
distribution, or crate a centralized training center, or introduce an
integrated planning and control system

iii. Increased revenue or market share: This assumes that

the buyer will be absorbing a major competitor and thus increase its
market power (by capturing increased market share) to set prices.

iv. Cross-selling: For example, a bank buying a stock broker could

then sell its banking products to the stock broker's customers, while
the broker can sign up the bank's customers for brokerage accounts.
Or, a manufacturer can acquire and sell complementary products.
1.4 Procedure for evaluating the decision for
mergers and acquisitions

The three important steps involved in the analysis of mergers and

acquisitions are:-

1. Planning:- of acquisition will require the analysis of industry-

specific and firm-specific information. The acquiring firm should review
its objective of acquisition in the context of its strengths and
weaknesses and corporate goals. It will need industry data on market
growth, nature of competition, ease of entry, capital and labour
intensity, etc. This will help in indicating the product-market strategies
that are appropriate for the company. It will also help the firm in
identifying the business units that should be dropped or added. On the
other hand, the target firm will need information about quality of
management, market share and size, capital structure, profitability,
production and marketing capabilities, etc.

2. Search and Screening:- Search focuses on how and where to

look for suitable candidates for acquisition. Screening process short-
 lists a few candidates from many available and obtains detailed
information about each of them.

3. Financial Evaluation:- a merger is needed to determine the

earnings and cash flows, areas of risk, the maximum price payable to
the target company and the best way to finance the merger. In a
competitive market situation, the current market value is the correct
and fair value of the share of the target firm. The target firm will not
accept any offer below the current market value of its share. The
target firm may, in fact, expect the offer price to be more than the
current market value of its share since it may expect that merger
benefits will accrue to the acquiring firm.

3.NEED FOR MERGER AND ACQUISITION

The South East Asian crisis and the earlier economic turmoil in several
developing nations demonstrated that strong banking system is critical.
Throughout the world, banking industry has been transformed from highly
protected and regulated to competitive and deregulated. Globalization
coupled with technological development has shrinked the boundaries. Trade
has become transactional from international. Due to this, there is no
difference between domestic and foreign currency. As a result innovations
and improvement assumed greatest significance in institutional performance.

This trend of global banking has been marked by twin phenomena of

consolidation and convergence. The trend towards consolidation has been
driven by the need to attain meaningful balance sheet size and market share
in the face of intensified competition. The trend towards convergence is
driven by a move across industry to provide most of the financial services
under one roof.

Indian banking experienced wide ranging reforms in the last decade and
these reforms have contributed to a great extent in enhancing their
competitiveness. The issue of bank restructuring assumes significance from
the point of view of making Indian banking strong and sound apart its growth
and development to become suitable.

International evidence also strongly indicates greater gains to banking

industries after the restructuring process. With the impending capital account
convertibility, cross border movement of financial capital would become a
reality. If we cannot consolidate our size, it is rather difficult to find reasons
that could prevent Indian banks from being swallowed by the powerful
foreign banks in the long run, under the free for all environments. The core
objective of restructuring is to maintain long term profitability and strengthen
the competitive edge of banking business in the context of changes in the
fundamental market scenario. Restructuring can have both internal and
external dimensions.

The pace of change in the financial market world over and in the external
economic environment, in which we work, shows no sign of slowing down.
Commercial banks now have to think “global” to service the requirements of
the highly sophisticated multinationals that are increasingly dominated the
industrial world.

Bank mergers would be the rule rather than exception in times to come and
there is a need for banks to check their premises before embanking on their
future plans. There are synergies to be leveraged through consolidation
where factors such as size, spread, technology, human resource and capital
can be reconciled. We could hence think of a situation where we have 4-5
global players which are really large, a handful of regional banks which will
gradually set to merger and some other players which will get to acquire
special niche to serve limited market. But it involves the sorting of various
issues such as legal, regulatory, procedural etc. This is statement of SH. V.
Leeladhar, chairman, IBA on 28th aug, 2004.
History has improved beyond doubt that strong banking systems are critical
for sound economic growth. It is important to improve the
comprehensiveness and quality of the banking system to bring efficiency in
the performance of the real sector in India. Throughout the world, banking
industry has been transferred from a highly protected and regulated situation
to competitive and deregulated. Globalization coupled with technological
development has shrinked the boundaries. Financial services and products
are being provided to the customers across the length and breadth of the
globe.

Due to this, domestic and foreign currency, banking and non banking
financial services are getting closer. Correspondingly innovations and
improvements assumed greater significance in institutional performance. This
trend of global banking has been marked by twin phenomena of consolidation
and convergence. The trend towards consolidation has been driven by the
need to attain meaningful balance sheet size and market share in the face of
intensified competition. The trend towards convergence is driven by a move
across industry to provide most of the financial service viz., banking,
insurance, investment etc, to the customers in

one roof. Consolidation of banking industry is critical from several aspects.

The factors inducing mergers and acquisition include technological progress,
excess capacity, emerging opportunities and deregulation of geographic,
functional and product restrictions. It may also bring the performance of
public sector banks to a remarkable level without variation between banks in
public sector.

The following are the important aspects for staying in the market:

1) Competition from global majors.

2) Competition from new Indian banks.
3) Disinter mediation and competition resulting into pressure or spread.
4) Qualitative change in the banking paradigm.
5) The competencies required from a banker would be sharper information
technology and knowledge centric.
In order to compete with the new entrants effectively, Indian commercial
banks need to posses matching financial muscle, as a fair competition is
possible only among the equals. Size has therefore, assumed critically. A
bank’s size is really to be determined by the size of its balance sheet. The
question before major commercial banks, therefore, is how to acquire a
competitive size. Mergers and acquisition route provides a quick step forward
in this direction offering opportunities to share synergies and reduce the cost
of product development and delivery. Different type of banks, even through
they themselves belong to the public sector, spend considerable time
competing themselves without increasing commensurate benefits to the
system as a whole. As a result, the focus on banks has shifted away from the
areas of real productivity. The present system is not ideal for simultaneously
retaining separate identities as well as preserving the very characteristics of
competitiveness. Our banks are really small in terms of business size or
capital when compared with banks in the west or even China.. The lesson
here is to think of consolidation of our efficient banks to build up global scale
institutions. Consolidations would also enable us to go for global technologies
benefiting the customers and efficiency of our banks.

If Indian banks are to be made more effective, efficiency and comparable

with their counterparts from abroad, they would need to be more capitalized,
automated and technology oriented, even while strengthening their internal
operations and systems. Further in order to make them comparable with their
competitors from abroad with regard to the size of their capital and asset
base, it would be necessary to structure these banks. Merger and acquisitions
are considered useful to achieve the requisite size in the short run.

MERGER IN INDIAN BANKING SECTOR

Mergers and acquisitions encourage banks to gain global reach and better
synergy and allow large banks to acquire the stressed assets of weaker
banks. Merger in India between weak/unviable banks should grow faster so
that the weak banks could be rehabilitated providing continuity of
employment with the working force, utilization of the assets blocked up in the
weak/unviable banks and adding constructively to the prosperity of the
nation through increased flow of funds.

In the banking sector, important mergers and acquisitions in India in recent

years include the merger between IDBI (Industrial Development bank of
India) and its own subsidiary IDBI Bank. The deal was worth $ 174.6
million (Rs. 7.6 billion in Indian currency). Another important merger was that
between Centurion Bank and Bank of Punjab. Worth $82.1 million (Rs.
3.6 billion in Indian currency), this merger led to the creation of the Centurion
Bank of Punjab with 235 branches in different regions of India, another
merger was HDFC bank and Centurion bank of punjab.

Some of the past merged banks are Grind lay Bank merged standard
charated Bank, Times Bank with HDFC Bank, bank of Madura with ICICI Bank,
Nedungadi Bank Ltd. With Punjab National Bank and Global Trust Bank
merged with Oriental Bank of Commerce.

The small and medium sized banks are working under threats from economic
environment which is full of problem for them, viz. inadequacies of resources,
outdated technology, on systemized management pattern, faltering
marketing efforts and weak financial structure. Their existence remains under
challenge in the absence of keeping pace with growing automation and
techniques obsolescence and lack of product innovations. These banks
remain, at times, under threat from large banks. Their reorganization through
consolidation/merger could offer succor to re-establish them in viable banks
of optimal size with global presence.

Merger and amalgamation in Indian banking so far has been to provide the
safeguard and hedging to weak bank against their failure and too at the
initiative of RBI, rather than to pay the way to initiate the banks to come
forward on their own record for merger and amalgamation purely with a
commercial view and economic consideration.
As the entire Indian banking industry is witnessing a paradigm shift in
systems, processes, strategies, it would warrant creation of new
competencies and capabilities on an on going basis for which an environment
of continuous learning would have to be created so as to enhance knowledge
and skills.

There is every reason to welcome the process of creating globally strong and
competitive banks and let big Indian banks create big thunders
internationally in the days to come.

In order to achieve the INDIAN VISION 2020 as envisaged by Hon’ble

president of India Sh. A.P.J.Addul Kalam much requires to be done by banking
industry in this regard. It is expected that the Indian banking and finance
system will be globally competitive. For this the market players will have to
be financially strong and operationally efficient. Capital would be key factor in
the building a successful institution. The Banking and finance system will
improve competitiveness through a process of consolidation either through
mergers and acquisitions or through strategic alliances. There is need to
restructure the banking sector in India through merger and amalgamation in
order top makes them more capitalized, automated and technology oriented
so as to provide environment more competitive and customer friendly

RISKS ASSOCIATED WITH MERGER

There are several risks associated with consolidation and few of
them are as follows: -

1) When two banks merge into one then there is an inevitable increase in
the size of the organization. Big size may not always be better. The
size may get too widely and go beyond the control of the
management. The increased size may become a drug rather than an
asset.
2) Consolidation does not lead to instant results and there is an
incubation period before the results arrive. Mergers and
acquisitions are sometimes followed by losses and tough
intervening periods before the eventual profits pour in. Patience,
forbearance and resilience are required in ample measure to
make any merger a success story. All may not be up to the plan,
which explains why there are high rate of failures in mergers.
3) Consolidation mainly comes due to the decision taken at the top.
It is a top-heavy decision and willingness of the rank and file of
both entities may not be forthcoming. This leads to problems of
industrial relations, deprivation, depression and demotivation
among the employees. Such a work force can never churn out
good results. Therefore, personal management at the highest
order with humane touch alone can pave the way.
4) The structure, systems and the procedures followed in two banks
may be vastly different, for example, a PSU bank or an old
generation bank and that of a technologically superior foreign
bank. The erstwhile structures, systems and procedures may not
be conducive in the new milieu. A thorough overhauling and
systems analysis has to be done to assimilate both the
organizations. This is a time consuming process and requires lot
of cautions approaches to reduce the frictions.
5) There is a problem of valuation associated with all mergers. The
shareholder of existing entities has to be given new shares. Till
now a foolproof valuation system for transfer and compensation
is yet to emerge.
6) Further, there is also a problem of brand projection. This
becomes more complicated when existing brands themselves
have a good appeal. Question arises whether the earlier brands
should continue to be projected or should they be submerged in
 favour of a new comprehensive identity. Goodwill is often
towards a brand and its sub-merger is usually not taken kindly.

MERGER STORY SO FAR

YEAR BANK MERGED WITH

1969 Bank Of Bihar State Bank Of India

1970 National Bank Of Lahore State Bank Of India

1971 Eastern Bank Ltd. Chartered Bank

1974 Krishnaram Baldeo Bank State Bank Of India

Ltd.

1976 Belgaum Bank Ltd. Union Bank Of India

1984-85 Lakshmi Commercial Bank Canara Bank

1984-85 Bank Of Cochin State Bank Of India

1985 Miraj State Bank Union Bank Of India

1986 Hindustan Commercial Punjab National Bank

Bank

1988 Trader’s Bank Ltd. Bank Of Baroda

1989-90 United Industrial Bank Allahabad Bank

1989-90 Bank Of Tamilnad Indian Overseas Bank

1989-90 Bank Of Thanjavur Indian Bank

1989-90 Parur Central Bank Bank Of India

1990-91 Purbanchal Bank Central Bank Of India

1993-94 New Bank Of India Punjab National Bank

1993-94 Bank Of Karad Bank Of India

1995-96 Kasinath Seth Bank State Bank Of India

1996 SCICI ICICI

1997 ITC Classic ICICI

1997 BARI Doab Bank Oriental Bank of Commerce

1998 Punjab Co-operative Bank Oriental Bank of Commerce

1998 Anagram Fianance ICICI

1999 Bareilly Corporation Bank Bank of Baroda

1999 Sikkim Bank ltd. Union Bank

2000 Times bank HDFC Bank

2001 Bank of Madura ICICI

2002 Benaras state bank Bank of Baroda

2003 Nedungadi Bank Punjab national Bank

2004 South Gujarat Local Area Bank of Baroda

Bank

2004 Global Trust Bank Oriental Bank of Commerce

2005 Bank of Punjab Centurion bank

2005 IDBI bank IDBI

2008 HDFC bank Centurion bank of punjab

8.BANK MERGER/AMALGAMATION UNDER

VARIOUS ACTS

The relevant provisions regarding merger, amalgamation and acquisition of

banks under various acts are discussed in brief as under:

Mergers- banking Regulation act 1949

Amalgamations of banking companies under B R Act fall under categories are

voluntary amalgamation and compulsory amalgamation.

Section 44A Voluntary Amalgamation of Banking Companies.

Section 44A of the Banking Regulation act 1949 provides for the procedure to
be followed in case of voluntary mergers of banking companies. Under these
provisions a banking company may be amalgamated with another banking
company by approval of shareholders of each banking company by resolution
passed by majority of two third in value of shareholders of each of the said
companies. The bank to obtain Reserve Bank’s sanction for the approval of
the scheme of amalgamation. However, as per the observations of JPC the
role of RBI is limited. The reserve bank generally encourages amalgamation
when it is satisfied that the scheme is in the interest of depositors of the
amalgamating banks.

A careful reading of the provisions of section 44A on banking regulation act

1949 shows that the high court is not given the powers to grant its approval
to the schemes of merger of banking companies and Reserve bank is given
such powers. Further, reserve bank is empowered to determine the Markey
value of shares of minority shareholders who have voted against the scheme
of amalgamation. Since nationalized banks are not Baking Companies and
SBI is governed by a separate statue, the provisions of section 44A on
voluntary amalgamation are not applicable in the case of amalgamation of
two public sector banks or for the merger of a nationalized bank/SBI with a
banking company or vice versa. These mergers have to be attempted in
terms of the provisions in the respective statute under which they are
constituted. Moreover, the section does not envisage approval of RBI for the
merger of any other financial entity such as NBFC with a banking company
voluntarily.

Therefore a baking company can be amalgamated with another banking

company only under section 44A of the BR act.

Sector 45- Compulsory Amalgamation of banks

Under section 45(4) of the banking regulation act, reserve bank may prepare
a scheme of amalgamation of a banking company with other institution (the
transferee bank) under sub- section (15) of section 45. Banking institution
means any banking company and includes SBI and subsidiary banks or a
corresponding new bank. A compulsory amalgamation is a pressed into
action where the financial position of the bank has become week and urgent
measures are required to be taken to safeguard the depositor’s interest.
Section 45 of the Banking regulation Act, 1949 provides for a bank to be
reconstructed or amalgamated compulsorily’ i.e. without the consent of its
members or creditors, with any other banking institutions as defined in sub
section(15) thereof. Action under there provision of this section is taken by
reserve bank in consultation with the central government in the case of
banks, which are weak, unsound or improperly managed. Under the
provisions, RBI can apply to the central government for suspension of
business by a banking company and prepare a scheme of reconstitution or
amalgamation in order to safeguard the interests of the depositors.

Under compulsory amalgamation, reserve bank has the power to

amalgamate a banking company with any other banking company,
nationalized bank, SBI and subsidiary of SBI. Whereas under voluntary
amalgamation, a banking company can be amalgamated with banking
company can be amalgamated with another banking company only. Meaning
thereby, a banking company can not be merged with a nationalized bank or
any other financial entity.

Companies Act

Section 394 of the companies act, 1956 is the main section that deals with
the reconstruction and amalgamation of the companies. Under section 44A of
the banking Regulation Act, 1949 two banking companies can be
amalgamated voluntarily. In case of an amalgamated of any company such
as a non banking finance company with a banking company, the merger
would be covered under the provisions of section 394 of the companies act
and such schemes can be approved by the high courts and such cases do not
require specific approval of the RBI. Under section 396 of the act, central
government may amalgamate two or more companies in public interest.

State Bank of India Act, 1955

Section 35 of the State Bank of India Act, 1955 confers power on SBI to enter
into negotiation for acquiring business including assets and liabilities of any
banking institution with the sanction of the central government and if so
directed by the government in consultation with the RBI. The terms and
conditions of acquisition by central board of the SBI and the concerned
banking institution and the reserve bank of India is required to be submitted
to the central government for its sanction. The central government is
empowered to sanction any scheme of acquisition and such schemes of
acquisition become effective from the date specified in order of sanction.

As per sub-section (13) of section 38 of the SBI act, banking institution is

defined as under “banking institution” includes any individual or any
association of individuals (whether incorporated or not or whether a
department of government or a separate institution), carrying on the
business of banking.

SBI may, therefore, acquire business of any other banking institution. Any
individual or any association of individuals carrying on banking business. The
scope provided for acquisition under the SBI act is very wide which includes
any individual or any association of individuals carrying on banking business.
That means the individual or body of individuals carrying on banking
business. That means the individual or body of individuals carrying on
banking business may also include urban cooperative banks on NBFC.
However it may be observed that there is no specific mention of a
corresponding new bank or a banking company in the definition of banking
institution under section 38(13) of the SBI act.

It is not clear whether under the provisions of section 35, SBI can acquire a
corresponding new bank or a RRB or its own subsidiary for that matter. Such
a power mat have to be presumed by interpreting the definition of banking
institution in widest possible terms to include any person doing business of
banking. It can also be argued that if State Bank of India is given a power to
acquire the business of any individual doing banking business it should be
permissible to acquire any corporate doing banking business subject to
compliance with law which is applicable to such corporate. But in our view, it
is not advisable to rely on such interpretations in the matter of acquisition of
business of banking being conducted by any company or other corporate.
Any such acquisition affects right to property and rights of many other
stakeholders in the organization to be acquired. The powers for acquisition
are therefore required to be very clearly and specifically provided by statue
so that any possibility of challenge to the action of acquisition by any
stakeholder are minimized and such stakeholders are aware of their rights by
virtue of clear statutory provisions.

Nationalised banks may be amalgamated with any other nationalized bank or

with another banking institution. i.e. banking company or SBI or a subsidiary.
A nationalized bank cannot be amalgamated with NBFC.

Under the provisions of section 9 it is permissible for the central government

to merge a corresponding new bank with a banking company or vice versa. If
a corresponding new bank becomes a transferor bank and is merged with a
banking company being the transferee bank, a question arises as to the
applicability of the provisions of the companies act in respect to the merger.
The provisions of sec. 9 do not specifically exclude the applicability of the
companies act to any scheme of amalgamation of a company. Further section
394(4) (b) of the companies act provides that a transferee company does not
include any company other than company within the meaning of companies
act. But a transferor company includes anybody corporate whether the
company is within the meaning of companies act or not. The effect of this
provision is that provision contained in the companies act relating to
amalgamation and mergers apply in cases where any corporation is to be
merged with a company. Therefore if under section 9(2)(c) of nationalization
act a corresponding new bank is to merged with a banking
company( transferee company), it will be necessary to comply with the
provisions of the companies act. It will be necessary that shareholder of the
transferee banking company ¾ the in value present and voting should
approve the scheme of amalgamation. Section 44A of the Banking Regulation
Act which empowers RBI to approve amalgamation of any two banking
companies requires approval of shareholders of each company 2/3rd in value.
But since section44A does not apply if a Banking company is to be merged
with a corresponding new bank, approval of 3/4th in value of shareholders will
apply to such merger in compliance with the companies act.

MERGER OF

HDFC BANK AND CENTURIAN

BANK OF

PUNJAB

A CASE STUDY
The Reserve Bank of India has approved the scheme of

amalgamation of Centurion Bank of Punjab Ltd. with HDFC Bank

Ltd. with effect from May 23, 2008.

All the branches of Centurion Bank of Punjab will function as

branches of HDFC Bank with effect from May 23, 2008. With RBI’s

approval, all requisite statutory and regulatory approvals for the

merger have been obtained.

The combined entity would have a nationwide network of 1167

branches; a strong deposit base of around Rs.1,22,000 crores and

net advances of around Rs.89,000 crores. The balance sheet size of

the combined entity would be over Rs.1,63,000 crores.

 Merger with Centurion Bank of Punjab Limited

On March 27, 2008, the shareholders of the Bank accorded their

consent to a scheme of amalgamation of Centurion Bank of Punjab

Limited with HDFC Bank Limited. The shareholders of the Bank

approved the issuance of one equity share of Rs.10/- each of HDFC

Bank Limited for every 29 equity shares of Re. 1/- each held in

Centurion Bank of Punjab Limited. This is subject to receipt of

Approvals from the Reserve Bank of India, stock exchanges and

Other requisite statutory and regulatory authorities. The shareholders

Also accorded their consent to issue equity shares and/or warrants

convertible into equity shares at the rate of Rs.1,530.13 each to

HDFC Limited and/or other promoter group companies on preferential

basis, subject to final regulatory approvals in this regard. The

Shareholders of the Bank have also approved an increase in the

authorized capital from Rs.450 crores to Rs.550 crores.

Promoted in 1995 by Housing Development Finance Corporation

(HDFC), India's leading housing finance company, HDFC Bank is one

of India's premier banks providing a wide range of financial products

and services to its over 11 million customers across hundreds of

Indian cities using multiple distribution channels including a pan-India

network of branches, ATMs, phone banking, net banking and mobile

banking. Within a relatively short span of time, the bank has emerged

as a leading player in retail banking, wholesale banking, and treasury

operations, its three principal business segments.

The bank's competitive strength clearly lies in the use of technology

and the ability to deliver world-class service with rapid response time.

Over the last 13 years, the bank has successfully gained market

share in its target customer franchises while maintaining healthy

profitability and asset quality.

As on March 31, 2008, the Bank had a network of 761 branches and

1,977 ATMs in 327 cities. For the year ended March 31, 2008, the

Bank reported a net profit of INR 15.90 billion (Rs.1590.2crore),

up 39.3%, over the corresponding year ended March 31, 2007.

As of March 31, 2008 total deposits were INR 1007.69 billion,

(Rs.100,769 crore) up 47.5% over the corresponding year ended

March 31, 2007. Total balance sheet size too grew by 46.0% to INR

1,331.77 billion (133177 crore). Leading Indian and international

Publications have recognized the bank for its performance and

quality.
Centurion Bank of Punjab is one of the leading new generation

private sector banks in India. The bank serves individual consumers,

small and medium businesses and large corporations with a full

range of financial products and services for investing, lending and

advice on financial planning. The bank offers its customers an array

of wealth management products such as mutual funds, life and

general insurance and has established a leadership 'position'.

The bank is also a strong player in foreign exchange services,

personal loans, mortgages and agricultural loans.

Additionally the bank offers a full suite of NRI banking products to

Overseas Indians. On 29th August 2007, Centurion Bank of Punjab

merged with Lord Krishna Bank (LKB), post obtaining all requisite

statutory and regulatory approvals. This merger has further

strengthened the geographical reach of the Bank in major towns and

cities across the country, especially in the State of Kerala, in addition

to its existing dominance in the northern part of the country.

Centurion Bank of Punjab now operates on a strong nationwide

franchise of 404 branches and 452 ATMs in 190 locations across the

country, supported by employee base of over 7,500 employees.

In addition to being listed on the major Indian stock exchanges,

the Bank’s shares are also listed on the Luxembourg Stock

Exchange.

REVIEW OF LITRETURE

Before examining the applications of the three approaches enumerated above, a

practical issue arises namely what should be the label of analysis. To primary
approaches to defining merger exist in the literature. Mergers as defined at the bank
level and at the holding company level. Financial institution efficiency bank level
merger occurs when previously distinct banks are consolidated into one institution.
Consolidation of individual banks under the name holding company is often included
in samples of mergers defined this way. Analyzing mergers at the bank level is
appealing for several reasons. Not only have their been a great number of mergers at
this levels but because the FDIC report of income and report of condition measure
performance at the bank level , data are easily obtained for these types of mergers .
However studying bank level mergers centres the study on the impact of changes
organizational structure. It does not clearly assess the gains brought about the new
ownership which economists general view as the centre piece of the analysis of
mergers an acquisition. Therefore most studies focus of mergers of holding company.
A merger at the holding company level is defined by a change in ownership of a
subsidiary bank or a group of subsidiary banks. This type of merger is viewed in the
same manner regardless of whether the newly acquired banks are consolidated into a
single institution or continue to operate as separate entities under new ownership. By
construction analysis of this type of merger is particularly useful in examining the
effect of changes of ownership.

A large portion of the empirical work examining the benefits of mergers focuses on
changes in cost efficiency using available accounting data. Berger and Humphrey
(1992), for example, examine merger occurring in the 1980 that involved banking
organizations with at least $1 billion in assets. The results of their paper are based on
data aggregated to the holding company level, using frontier methodology and the
relative industry rankings of banks participating in mergers. Frontier methodology
involves econometrically estimating an efficient cost frontier for a cross-section of
banks. For a given institution, the deviation between its actual costs and the minimum
cost point on the frontier corresponding to an institution similar to the bank in
acquisition measures X-efficiency. The author fined that, on average, mergers led too
significant gains in X-efficiency.

Humphrey also concludes that the amount of market overlap and the difference
between acquirer and target X-efficiency did not affect post-merger efficiency gains.
In addition to testing X-efficiency, they also analyze return on assets and total costs to
assets and reach a similar conclusion: no average gain and no relation between gains
and the relative performance of acquirers and targets. Non- interest costs yield
significant results, but the findings are opposite of expectations that the operations of
an inefficient target purchased by an efficient acquirer should be improved.

Akhavein, Berger, And Humphrey (1997) analyze changes in profitability

experience in the same set of large mergers as examined by Berger and Humphrey.
They find that banking organisation significantly improved their profit efficiency after
mergers. However, rankings based on more traditional ROA and ROE measures that
excludeb loan loss provisions and taxes from net income did not change significantly
following consolidation.

De Young (1993) also utilizes frontier methodology to examine cost efficiency and
reaches similar conclusion as Berger and Humphery. Cost benefits from mergers did
not exist for bank level mergers taking place in 1986 and 1987. In addition to the lack
of average efficiency gains, improvements were unrelated to the difference between
acquirer and target efficiency.

Srinivasan and Wall (1992) examine all commercial bank and bank holding
company mergers occurring between 1982 and 1986. They find that mergers did not
reduce non interest expenses. Srinivasan (1992) reaches a similar conclusion. Both of
these studies focus solely on non interest expenses resulting in an incomplete picture
of the cost savings associated with mergers. In order to gain a complete view of bank
costs, the total of interest and non interest expenses must be examined. Various
funding and investment strategies have different impacts on thetwo cost components.
For example, an increase in purchased funds raises interest costs, but lowers non
interest costs. Therefore, to void attributing efficiency gains.

In Rhoades (1990), a similar study to Rhoades (1993) is conducted with acquisitions

involving billion dollar banks. Consistent with his other work , Rhoades finds no
performance effects due to mergers.
The works of Linder and Crane (1992) is also note worthy. They analyse the
operating performance of 47 bank level intrastate mergers that took place in New
England between 1982 and 1987. Of the 47 mergers in the sample, 25 were
consolidated of bank subsidiaries owned by the same holding company. The authors
aggregate acquirer and target data one year before the merger and compare it to
performance one and two years after consolidation. The performance of merged banks
is adjusted by the performance of all non merging banks in the same state as the
merging entities. The results indicate that mergers did not results in improved
operating income, as measured by net non interest income to assets.

Several studies find evidence of merger gains, but the results of these studies must be
scrutinized carefully,

Spindt and Tarhan (1993) find gains in their sample of 192 commercial bank
mergers completed in 1986, non parameters tests comparing the performance changes
of merged banks with a group of matched pairs indicate that mergers led to operating
improvements. The results, however may be due primarily to economies of scale. The
existing evidence in the literature suggests that scale economies do exist for
institutions holding less than $100 million in assets have to be market driven. Banks
also should rake into account regional and ethnic consideration and maximize
synergies.

RESEARCH METHODOLOGY
Research has its significance in solving various operational and planning problems of
business and industry. Operational Research and market research along with
Motivational Research are considered crucial and their results exist in more that one
way in taking business decision.

Market research is the investigation of the structure and development of market for
the purpose of formulating efficient policies for the purchasing, production and sales.
Operational research refers to the application of mathematical, logical and analytical
techniques to the solution of business problems for cost minimization or
maximization for the profit, which can be termed as optimization problems.

Motivational Research of defining why people behave as they do is mainly concerned

with the determination of motivations underlying their consumer behavior.

As there are of great help to people in business and industry who are responsible for
taking business decisions.

The present study, which attempts to estimate the market share of the different
insurance companies, plays a very crucial role.

For a good research and for proper and authentic results research methodology plays a
crucial role.

Research Methodology is a way to systematically solve the research problem, which

is a science of studying how research is done scientifically. Thus research
methodology encompasses the research methods or techniques research results are
capable at being evaluated either by the research himself or by others.

The project also covers Descriptive Research which includes surveys and fact
findings from various inquiries.

The relationship between the customers and the market players must be established
and explored to make the marketing effort fruitful and profitable. Thus, it is reflected
in the above wording that the present study shall be useful in meeting and exploring
the proposed objectives. Therefore to make the present study meaningful the data
shall be collected from various sources such as questionnaire, journals, newspapers,
and internet etc. that will serve as the base for the primary and secondary data and for
interacting with the respective users of the insurance/mutual fund.

Research design

In the present study the exploratory-cum-descriptive research design will be followed

which help in exploring the specified objectives of the present study.

A research design is an arrangement of condition for collection and analysis of data in

a manner that aims to combine relevance to research purpose with economy in
procedure.

In fact the research design is the conceptual structure with in which the research is
conducted. Research design is needed because it facilitates the smooth sailing of the
various research operations. Thereby making research as efficient as possible yielding
maximal information with minimal expenditure of efforts, time and money.

Research design , in fact has a great bearing on the reliability of the results arrived at
and as such constitutes the firm foundation of the entire evidence of the research
work. In the other words we can say that research design is advance planning of
research.

A good research design should be flexible, appropriate, and efficient and so on. It
should try to minimize biases and maximize reliability of that collected and analyzed
is considered a good design.

The design must give the smallest experimental error and it should yield maximum
information.

Data collection
The task of data collection begins after the research programs has been defined and
research design plan checked out. The data collection is and important part of the
research.

Data collection method

In the data collection method different methods are adopted for primary data
collection and secondary data collection.

Primary Data Collection

Primary data collection, which is collected through observation or direct

communication with the respondent in one form or another. These are several
methods for primary data collection.

Observation Method.

Interview Method.

Through Questionnaire.

But as the time was limited I used the Observation Method for data collection.

Secondary Data

Secondary data is also collected by me various document of the company from the
internet.
 OBJECTIVE OF THE STUDY

This study is important because it put right on the effects of the company which before
and after its merger and acquisition. Following are the major objectives:

• To study the concept of merger in the banking industry companies

• To point-out the deficiencies which forced the company to merge with the
target company.
• To study the effect on shareholder’s of the company
• To analysis and interpretation of market share, return of assets and total
assets of the target company
• It’s impact on the Indian scenario.
 Scope of the study

Every bank try to increase its customer base only and they only want to get more and
more money. But some not only want to increase its customers but also provide security
to their customers.

The study will be done to understand the financial position so

that we can get a clear view of how the institution performed; do they want only the
money of the customers? Or they also provide any real security to the money invested by
them.

In the study I will try to check the customer perception about private bank.

Significance of Study
The study of the project will be beneficial for both the banks and customers. As banks
will know about the level of service which they are providing to the customer and how to
improve so as to reach up to the standard of customers.

From customer point of view it will

be beneficial as customer will come to know that what actually the bankers expect that
customers should interact with them.

LIMITATIONS OF THE STUDY

Being based on collected facts and personal judgments ,the following

limitations should be taken into sented

Incomplete and inexact information:

Since the analysis are done on the basis of the annual reports of business,
therefore, the information presented them is in complete. Actual financial
position of the firm can be known only after the close

Qualitative information:

These statements of financial analysis express only that information which

can be denoted in the form of money. Qualitative information , which cannot
be expressed in money, are ignored although some of this business
information is quite significant.

Time constraint:

Time was another because report was prepared with in the period of two
month which were too less to have a complete and accurate view of the
complete industry.

------------------- in Rs. Cr. -------------------

Balance Sheet of HDFC Bank

Mar '06 Mar '07 Mar '08 Mar '09 M

12 mths 12 mths 12 mths 12 mths 12

Capital and Liabilities:

Total Share Capital 313.14 319.39 354.43 425.38 4

Equity Share Capital 313.14 319.39 354.43 425.38 4

Share Application Money 0.07 0.00 0.00 400.92

Preference Share Capital 0.00 0.00 0.00 0.00

Reserves 4,986.39 6,113.76 11,142.80 14,226.43 21,0

Revaluation Reserves 0.00 0.00 0.00 0.00

Net Worth 5,299.60 6,433.15 11,497.23 15,052.73 21,5

Deposits 55,796.82 68,297.94 100,768.60 142,811.58 167,4

Borrowings 4,560.48 2,815.39 4,478.86 2,685.84 12,9

Total Debt 60,357.30 71,113.33 105,247.46 145,497.42 180,3

Other Liabilities & Provisions 7,849.49 13,689.13 16,431.91 22,720.62 20,6

Total Liabilities 73,506.39 91,235.61 133,176.60 183,270.77 222,4

Mar '06 Mar '07 Mar '08 Mar '09 M

12 mths 12 mths 12 mths 12 mths 12

Assets

Cash & Balances with RBI 3,306.61 5,182.48 12,553.18 13,527.21 15,4

Balance with Banks, Money at Call 3,612.39 3,971.40 2,225.16 3,979.41 14,4

Advances 35,061.26 46,944.78 63,426.90 98,883.05 125,8

Investments 28,393.96 30,564.80 49,393.54 58,817.55 58,6

Gross Block 1,589.47 1,917.56 2,386.99 3,956.63 4,7

Accumulated Depreciation 734.39 950.89 1,211.86 2,249.90 2,5

Net Block 855.08 966.67 1,175.13 1,706.73 2,1

Capital Work In Progress 0.00 0.00 0.00 0.00

Other Assets 2,277.09 3,605.48 4,402.69 6,356.83 5,9

Total Assets 73,506.39 91,235.61 133,176.60 183,270.78 222,4

Contingent Liabilities 138,898.60 202,126.73 582,835.94 396,594.31 466,2

Bills for collection 5,239.26 7,211.88 17,092.85 17,939.62 20,9

Book Value (Rs) 169.24 201.42 324.38 344.44 4