PRE- AND POST-MERGER FINANCIAL ANALYSIS

OF BANKS
CASE STUDY ON AMALGAMATION OF CANARA
BANK AND SYNDICATE BANK
BANKING LAW PROJECT

SUBMITTED BY-
NAME – DIKSHA SINGH
EKANTIKA SHAHA
ENROLMENT NO -A3211119011
A3211119048
SECTION- A
COURSE – BA LLB (H)
SEMSTER 8
 ACKNOWLEDGEMENT

I would like to extend my heartfelt gratitude to my teacher for giving us the opportunity to
make the project on the topic “Pre- And Post-Merger Financial Analysis Of Banks - Case
Study On Amalgamation Of Canara Bank And Syndicate Bank”. It helped doing a lot of
research and understand and analyse the happenings around the country and the world at
large. I would also like to thank our parents for their constant support and guidance. Last
but certainly not the least I would like to thank the almighty for keeping me in the hollow of
his palm as without his support this project would have been a distant reality.

INDEX
 CONTENT PAGE NO.
COVER PAGE 1

ACKNOWLEDGEMENT 2

INDEX 3

ABSTRACT, KEYWORDS & OBJECTIVE

INTRODUCTION TO THE TOPIC

REVIEW OF LITERATURE
RESEARCH METHODOLOGY

MERGER AND ACQUISITION IN BANKING

SECTOR: MEANING
PROS AND CONS OF MERGERS IN
FINANCIAL INSTITUTIONS
AMALGATION OF CANARA BANK AND
SYNDICATE BANK
ANALYSIS AND INTERPRETATION
SUGGESTIONS & RECOMMENDATIONS

CONCLUSION
BIBLOGRAPHY

PRE- AND POST-MERGER FINANCIAL ANALYSIS OF BANKS

: CASE STUDY ON AMALGAMATION OF CANARA BANK
AND SYNDICATE BANK
ABSTRACT
This article examines whether consolidation of banks is really a path of expected yields.
Mergers and acquisitions in the banking industry has been an ongoing research topic in
international trade.
It plans to examine the financial performance of the banks in our nation both before and after
the merger. These days, distressed banks have recourse in the form of acquisitions or
mergers. Banks are reorganised through mergers and acquisitions to boost efficiency and
competitiveness while boosting value for shareholders. Four bank mergers that took place
after liberalisation were used as examples in this study, and they were examined using
financial metrics such net profit margin (NPM), dividends per share (DPS), capital adequacy
ratio (CAR), return on assets (ROA), and credit deposit ratio.

KEYWORDS-
Merger& acquisition, Bank Mergers, Market Valuation of Mergers, financial parameter

OBJECTIVE –1
 To study the performance of the banks in the pre and post merger & acquisition
 To study the trends of M&A’s in Indian banking sector.
 To study merger canara bank and syndicate bank

INTRODUCTION2
Mergers and Acquisition has become a great way of corporate restructuring of a company and
the financial sector has to experienced mergers waves leading to the emergence of huge

1
https://www.legalserviceindia.com/legal/article-5207-mergers-and-acquisitions-in-the-indian-banking-sector-
impact-on-shares-and-performance-check.html

2
http://www.ijtrd.com/papers/IJTRD20776.pdf
banks and financial institution. Severe competition between businesses in the same sector,
which emphasises economies of scale, cost effectiveness, and profitability, is the main factor
driving merger activity. The "too big to fail" policy adopted by the authorities is another
reason for bank mergers. Weak banks were forcibly combined in some nations, like
Germany, in order to prevent the issue of financial difficulty brought on by bad loans and the
depletion of capital funds. The main goal of this decision is to achieve strategic expansion in
terms of customer base and company size. As a result of merger , the combined bank's ability
to create credit is greatly increased. Small banks that worry about an aggressive takeover by a
big bank occasionally merge to grow their market share and hedge against the acquisition
threat. Banks also favour mergers and acquisitions in order to maximise both economic and
non-economic benefits while achieving economies of scale through cost reduction. Due to the
fact that all banks engage in the same line of business of obtaining and distributing cash, bank
mergers fall under the vertical merger category. When a bank offers a service identical to
another financial institution's banking service, the latter may prefer to merge with it.The
removal of competition between banks is a further crucial issue. In this approach, a large sum
of money that was previously used to support competition might be directed towards
expanding the banking industry. A bank with a sizable bad debt portfolio and low revenue
may occasionally merge with another bank in an effort to survive. However, these mergers
often come with layoffs and a significant alteration to the organisational structure.
Consolidating the company also makes the bank strong enough to endure in the constantly
shifting commercial environment. They discover that it is simpler for them to develop swiftly
and compete in both domestic and foreign markets.
The elimination of bank rivalry is a further result of bank mergers. This makes it possible to
redirect a sizable sum of money that was previously given to the development banking
industry in order to foster competition. A bank with a big bad debt portfolio and little income
may merge with another bank in order to receive support and maintain its viability. In India,
mergers between failing banks should pick up speed so that the weak institutions can be
strengthened, providing job security for the workers, enabling the operation of assets held by
failing banks, and boosting the flow of money into the country's economy.

REVIEW OF LITERATURE 3
A variety of research papers were examined as part of this study to gain insight into the work
done on mergers and acquisitions. (M&As). After reading the pertinent literature that is
accessible on M&As, it is discovered that the majority of the work done has greatly
minimised the impact of M&As on various elements of the companies. Both internal and
external growth are possible for businesses. The company can grow internally by adding new
departments or divisions, and outside through mergers and acquisitions (M&As), takeovers,
joint ventures, amalgamations, etc. Numerous studies have examined the various factors that
influence mergers and acquisitions (M&As) to occur.4

3
. dr sarbapriya ray, g. c. (2017). impact of merger on efficiency of indian commercial banks. a study on merger
of
oriental bank of commercialbank of commerce and global trust bank. journal of poverty, investment and
development .
  IN THEIR 2014 STUDY, P. CHELLASAMY AND N. PONSABARIRAJ, looked
into the different drivers of merger and acquisition activity in the Indian banking
sector. With the aid of financial metrics like net profit to total income, net profit to
working capital, return on assets and return on equity, which include profitability
analysis, current ratio and liquidity ratio, which include liquidity analysis, it also
compared the pre and post merger financial performance of merged banks. The
performance review of mergers and acquisitions in the Indian banking sector from
1999–2000 to 2010–2011 is the subject of the study. The profitability and liquidity
performance of a few selected scheduled commercial banks in India were compared
before and after mergers and acquisitions using the paired t-test to determine the
significance of the association. The research found no impactful difference in pre and
post merger.
 ACCORDING TO JAGRITI KUMARI'S (2013) ANALYSIS, the main goal of
mergers and acquisitions is to lessen competition and safeguard the economy's
existing markets. Overall, there are advantages and disadvantages to mergers and
acquisitions. Mergers, however, are only beneficial for a country's growth and
development if they do not result in problems with competition. In order for an
industry to compete on the global market, mergers increase its competitive edge; yet,
the industry also becomes smaller as a result of the decreased number of enterprises.
Banks that merge are better able to enjoy tax advantages, improve their financial
standing, and have direct access to capital resources. While mergers and acquisitions
are used to consolidate strategies and broaden the operational area, the best possible
level of cooperation should be encouraged.
 DUTTA AND DAWN (2012) examine the success of combined banks in terms of
increase in total assets, profitability, income, deposits, and number of employees in
their study titled "Merger and acquisitions in Indian banks after liberalisation: An
analysis." Four years prior to the merger and four years after the merger are used to
compare the performance of the combined banks. According to the study's findings,
the post-merger phases of the Indian banking industry saw a successful rise in total
assets, profitability, income, deposits, and the number of workers of the acquiring
organisations.5
 GOYAL K.A. & JOSHI VIJAY (2011) in their research paper, gave an overview on
Indian banking industry and highlighted the changes occurred in the banking sector
after post liberalization. The need of Merger and Acquisition in India has been
examined under this study.

RESEARCH METHODOLOGY
The study is analytical in nature and it is based on the secondary data. The information has
been retrieved from annual report of Canara Bank Ltd. To test the hypotheses, financial ratios
4
dr veena p, p. s. (2017). pre and post merger performance on assets quality of banking sector. a case study of
ING
vysya bank and kotak mahindra bank. journal og humanities and social science.
5
Jain, N. A. (2017). A Management Research Project on mergers and acquisition in Indian banking sector.
were produced before and after the merger and compared to determine whether there were
any significant statistical changes in financial performance. There is no significant progress
in Key Performance Ratios of the Canara Bank Ltd.

MERGER AND ACQUISITION IN BANKING SECTOR: MEANING 6

Mergers and acquisitions (M&A) in the banking sector refer to the consolidation of two or
more financial institutions into a single entity through a purchase or merger of one or more
companies by another. These transactions are often driven by strategic considerations, such as
cost savings, increased market share, access to new markets, and enhanced competitive
positioning.
The banking sector has seen a significant number of mergers and acquisitions over the years,
with many of them occurring as a response to changes in the regulatory environment and the
increasing competitive pressures within the industry. M&A activity can range from small-
scale acquisitions of individual branches to large-scale mergers involving major financial
institutions.
One of the primary benefits of M&A in the banking sector is the potential for cost savings
through economies of scale. By combining operations, banks can reduce redundant staffing
and infrastructure, streamline operations, and achieve greater efficiency. Additionally, M&A
can offer expanded product offerings and improved geographic reach, allowing banks to
better serve their customers.
However, there are also potential drawbacks to M&A in the banking sector. Integration can
be challenging and expensive, and there may be cultural differences between the merging
entities that can lead to conflicts. Additionally, M&A can lead to reduced competition in the
marketplace, potentially resulting in higher prices and decreased choice for consumers.
Overall, M&A in the banking sector can offer significant benefits for the companies involved
and their stakeholders, but it is important to carefully consider the potential risks and
challenges before proceeding with any such transaction.

PROS AND CONS OF MERGERS IN FINANCIAL INSTITUTIONS 7

Mergers in financial institutions, like any other industry, have both advantages and
disadvantages. Here are some of the pros and cons of mergers in financial institutions:
Pros:
1. Increased scale and scope: Mergers can result in larger and more diversified financial
institutions that can offer a wider range of products and services to customers. This
can lead to increased efficiency and profitability for the merged entity.

6
https://www.legalserviceindia.com/legal/article-5207-mergers-and-acquisitions-in-the-indian-banking-sector-
impact-on-shares-and-performance-check.html

7
http://www.ijtrd.com/papers/IJTRD20776.pdf
 2. Economies of scale: Merging two financial institutions can create economies of scale,
which can result in lower costs for the merged entity. For example, the merged entity
can share back-office functions, which can reduce overhead costs.
3. Improved risk management: Merged entities can benefit from improved risk
management processes and systems, which can help mitigate risks and reduce losses.
4. Enhanced competitiveness: A merger can create a stronger and more competitive
financial institution, which can better compete with other large financial institutions in
the market.
Cons:
1. Integration challenges: Merging two financial institutions can be a complex and
challenging process, particularly if they have different cultures, systems, and
processes. Integration challenges can result in delays and additional costs.
2. Reduced competition: Mergers can result in reduced competition in the market,
particularly if the merged entity becomes dominant in the market. This can lead to
higher prices and reduced innovation.
3. Increased risk: Mergers can increase the risk profile of the merged entity, particularly
if the financial institutions being merged have different risk profiles. This can result in
increased regulatory scrutiny and higher capital requirements.
4. Cultural clashes: Merging two financial institutions with different cultures can lead to
cultural clashes, which can result in decreased employee morale and productivity.

AMALGATION OF CANARA BANK AND SYNDICATE BANK

ABOUT CANARA BANK-

Canara Bank is a public sector bank in India, headquartered in Bengaluru, Karnataka. It was
established in 1906 and nationalized by the Government of India in 1969. The bank offers a
wide range of financial products and services, including retail banking, corporate banking,
investment banking, and more. Canara Bank operates through a network of branches and
ATMs across the country and also has a presence in other countries through its overseas
branches. The bank has been consistently ranked among the top banks in India in terms of
customer service, technology adoption, and financial performance.

ABOUT SYNDICATE BANK -

Syndicate Bank was a public sector bank in India, with its headquarters in Manipal,
Karnataka. It was founded in 1925 and was one of the oldest and major commercial banks in
India. Syndicate Bank offered a wide range of banking and financial products and services to
its customers, including personal banking, corporate banking, agricultural banking,
international banking, and more.
In 2020, Syndicate Bank was merged with Canara Bank, another public sector bank, as part
of a government-led consolidation of banks in India. As a result, all of Syndicate Bank's
branches and operations were integrated into Canara Bank, and the Syndicate Bank brand
ceased to exist.
Prior to its merger, Syndicate Bank had a network of over 3,900 branches across India and
had a strong presence in rural and semi-urban areas. The bank had also established a
significant international presence, with branches in London, Dubai, and Hong Kong, among
other locations.

WHY DID SYNDICATE BANK AMALGAMATED WITH CANARA BANK 8

With the merger of Canara Bank and Syndicate Bank, India now has the third-largest branch
network and the fourth-largest bank in terms of revenue (15,2 lakh crores). The central
government thinks that combining banks will help recover and reduce troublesome NPAs in
the current environment. A lower number of banks will make it easier for the RBI to keep an
eye on them. The cost-cutting aspect of bank mergers is another. Iflex, the financial software
that both Syndicate Bank and Canara Bank use, helped to bring the two banks together.
The Honourable Finance Minister announced the merger with the following goals in mind:
 Creating Next Gen Banks through consolidation to realise potential
 Repositioning PSBs with the capacity to create a $5 trillion economy
 Big banks with improved ability to expand credit
 Establishing banks with extensive national and international reach Increasing
operational effectiveness to lower lending costs
 Better ability to raise resources from the market, expanded offerings with more
personalization, and increased risk appetite

ANALYSIS AND INTERPRETATION

8
http://www.ijirset.com/upload/2021/november/51_A%20Study_NC.pdf
In 2020, Canara Bank and Syndicate Bank were merged together to form the fourth-largest
public sector bank in India, with a combined business of around Rs. 15.20 lakh crore. The
amalgamation aimed to strengthen the banking sector and enhance operational efficiency by
leveraging the strengths of both banks.
Some of the key factors that were analyzed in the amalgamation of Canara Bank and
Syndicate Bank:
o Asset Size: Canara Bank and Syndicate Bank were both major public sector banks in
India, with a strong presence in different parts of the country. The amalgamation
resulted in the creation of a larger bank with a combined asset size of around Rs.
15.20 lakh crore.
o Branch Network: The merger of Canara Bank and Syndicate Bank brought together a
significant branch network of over 10,000 branches across India, which will provide
the new entity with a wider reach and access to customers across the country.
o Human Resources: The amalgamation of the two banks has also led to a larger
workforce of around 90,000 employees, which would allow the new entity to leverage
the expertise and experience of both banks to deliver better services to customers.
o Technology and Digitalization: The merger of Canara Bank and Syndicate Bank is
expected to enhance the technological capabilities of the new entity, which is essential
in today's digital world. The combined strength of the two banks would help the new
entity to adopt new-age technologies and to better compete with private sector banks.
o Synergy and Cost Savings: The amalgamation of Canara Bank and Syndicate Bank is
expected to lead to significant synergies and cost savings for the new entity. By
combining their resources and expertise, the banks can reduce operational costs and
improve their profitability.

LIQUIDITY RATIOS
 All important performance ratios have fallen since the merger. These ratios are
dropping, indicating the bank's weakening condition and inability to earn more
income and reduce costs in the first quarter of 2020. The null hypothesis H (0) =
There is no significant advancement in Canara Bank Ltd's Key Performance Ratios is
accepted based on the findings of the t-test (95 percent significance level).
VALUATION RATIOS
• Earning Yield has been reduced to -0.24 following the merging. This means that the bank
achieved a high return per share in relation to the amount invested. • After the merger, the
Price to Sale ratio was reduced to 0.19. It demonstrates that the bank's stock is undervalued.
The null hypothesis H (0) = There is no significant advancement in Canara Bank Ltd's
valuation ratios is accepted based on the findings of the t-test (95 percent significance level).

PER SHARE RATIOS

The Per Share ratios have been reduced since the merger. It's due to a decline in net profit. In
the first quarter of 2020, the bank made poor financial decisions and tactics, negatively
impacting the book value and cash EPS. The null hypothesis H (0) = There is no significant
advancement in Canara Bank Ltd's Per Share Ratios is accepted based on the findings of the
t-test (95 percent significance level).

SUGGESTION AND RECOMMENDATIONS

The Indian government approved the merger of Canara Bank and Syndicate Bank in 2019,
and the combined company took effect on April 1, 2020. Here are some advice and
recommendations in relation to this combination:
o Integration of systems and processes: The integration of systems and processes is one
of the most difficult aspects of any merger. To guarantee a smooth transition for
consumers and workers, the combined organisation should concentrate on
synchronising its IT systems, rules, and procedures.
o Training and development opportunities for workers are crucial in order to help both
banks' staff members adjust to the new organisational culture and working conditions.
Additionally, it will improve employee morale and aid in talent retention.
o Customer retention: By supplying good customer service and appealing products and
services, the combined company should put its attention on keeping its current
clientele. Building customer loyalty and trust will be facilitated by a seamless
transition process and open communication with clients.
o Branch network rationalisation: The combination offers a chance to streamline both
banks' branch networks, particularly where there is a lot of overlap. This will increase
productivity and lower operating expenses.
o Capitalization and lending: To support development and expansion, the merged
business should concentrate on enhancing its capitalization and lending capabilities.
Strategic alliances, cutting-edge product creation, and efficient risk management can
all help with this.
o Marketing and branding: To raise visibility and foster client trust, the merged
company needs to establish a strong brand identity. This will help the bank stand out
from its rivals and draw in new clients.
Overall, the combination of Syndicate Bank and Canara Bank offers a considerable chance
for growth. To achieve a smooth transition and the formation of a strong, competitive
business that provides value to all stakeholders, meticulous preparation and execution will be
necessary.

CONCLUSION
An important development in the Indian banking sector was the combination of Canara Bank
and Syndicate Bank. The goal of the merger, which became effective on April 1, 2020, was to
build a stronger, more effective banking organisation that could better meet the interests of
stakeholders and customers. The united company now has a larger consumer base, a broader
geographic reach, and a more varied range of goods and services. Additionally, operational
efficiencies and cost savings are anticipated as a result of the combination, which may
ultimately improve financial performance. Although some unions and employees initially
opposed the merger, the banks have sought to allay these worries and ensure a seamless
integration process. Both banks are well-established and have a long history. In conclusion,
the combination of Canara Bank and Syndicate Bank has the potential to produce a more
competitive, stronger financial organisation that can better meet the needs of clients and
stakeholders. While there might be some obstacles along the way, it is anticipated that the
merger's long-term advantages will surpass any immediate ones. Overall, the amalgamation
of Canara Bank and Syndicate Bank is expected to create a stronger and more efficient public
sector bank, with a wider reach and better technological capabilities. The new entity is
expected to offer a wider range of products and services to customers and contribute to the
growth of the Indian banking sector.

BIBLOGRAPHY

I have taken help from the following-

1. http://www.ijtrd.com/papers/IJTRD20776.pdf
2. https://blog.ipleaders.in/mergers-and-acquisitions-in-the-banking-sector-of-india/
3. dr sarbapriya ray, g. c. (2017). impact of merger on efficiency of indian commercial
banks. a study on merger of oriental bank of commercialbank of commerce and global
trust bank. journal of poverty, investment and development .
4. dr veena p, p. s. (2017). pre and post merger performance on assets quality of banking
sector. a case study of ING vysya bank and kotak mahindra bank. journal og
humanities and social science.
5. ishwarya. (2019). a study on merger and aquisition of bank and a case study on SBI
and its associates . international journal of trend research and development .
6. Jain, N. A. (2017). A Management Research Project on mergers and acquisition in
Indian banking sector.
7. ujwala, p. (2019). A study on bank of borada merger with dena bank and vijaya bank.
international journal for research in applied science and engineering technology .