Wednesday, June 29, 2022

The Future of the Indian Banking Sector: Mergers and Acquisitions

Indian Banking Industry
Indian Banking Industry Indian Banks – JN Bank, Axis Bank, ICICI Bank Indian Banks – JN Bank, Axis Bank, ICICI Bank Indian Banks – JN Bank, Axis Bank, ICICI Bank Indians spend nearly ₹ 60,000 crores per year on gold jewelry, in an organized market. One of the reasons why Indians prefer gold jewelry is its presence in their everyday lives – they buy it to celebrate achievements, to seek acceptance as part of a family, or to accentuate certain events in their lives. Gold and jewelry have always been a part of Indian culture. It is the desire of almost every Indian to have gold as part of their everyday lives. Most Indians have gold ornaments as household icons – a display of wealth and status. Gold remains an aspirational commodity in the minds of most Indians.

Mergers and Acquisitions
By Aman Gaurav Post demonetization, the banking sector saw a flurry of developments, wherein the government announced the proposed merger of 2 large PSU banks with each other, three state-run private banks and the sale of its 51 percent stake in the insurance major National Insurance Co. to a foreign financial institution. The NITI Aayog also recommended merging State Bank of India (SBI) and its associate banks with itself and selling off the government’s stake in the public-sector units (PSUs) to a strategic partner such as Life Insurance Corp. of India (LIC) or American Express.

What Factors Make a Good M&A Candidate?
For FII Research’s coverage of the Indian M&A Market, kindly click here FY18 ended with a dry period for M&A in the Indian banking sector. With several stressed assets under the government’s control, banks will be extremely cautious when reviewing new deals. According to domestic analysts, this is an opportunity for IndusInd Bank and its acquisition of City Union Bank Limited (CUBL). Since February 2018, the Reserve Bank of India (RBI) has given the approval to close 3x takeover deals worth ₹500 crore and above. To provide clarity on the transaction, the RBI has also provided clarity regarding loan recast requirement on transfer of ownership of stressed assets to the acquirer. This has made M&A transactions challenging for banks in the current scenario.

Deal Process
According to Mahesh Vyas, CFO of Ujjivan Financial Services, the merger of three companies would create the largest banking network in the country. But most analysts agree that the task ahead of the proposed bank is considerable. On 26 April, RBI had issued the guidelines for the merger of Vijaya Bank, Dena Bank, and Bank of Baroda. This meant a consolidation of about 40% of the entire banking industry. The process is expected to be completed in the next two years. When asked about the business strategy of the new bank, J.N. Gupta, co-founder and managing director of said that the bank would have to target tier I and tier II cities where most of the financial services are dominated by private banks.

Challenges in Mergers and Acquisition
Are mergers and acquisitions always a good idea? In the Indian context, it is not always such. Any combination of organizations will have inherent costs and risks. The basic question is whether it is a sustainable combination or not. The chief challenge in merger and acquisition is the integration of two completely different cultures, governance systems, cultures, and systems. This is not the only challenge that is there. The combined entity has to increase its size by 4x or more. This means that the workforce of the two organizations will need to be increased by 40-50 percent, which will lead to an increase in the overall cost of a successful combination. Further, there is always the risk that the brand identity of the two organizations may be compromised.

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