Indian Institute of Management Lucknow

M&A in the Indian Banking Sector: An
analysis of private and public bank

transactions
Keywords: Banking, Mergers & Acquisitions, CAR, Banking Regulation, Control, Horizontal mergers,
Target returns, Bidder returns, India, Event Studies, 2006-2016, Abnormal Returns, Targets, Acquirers,
Restructuring, Kotak Mahindra Bank, ING Vysya Bank, Market Power
By
Amit Mittal
FPM 15003
Date: April 29, 2016
Submitted to:
Prof. Ajay Garg
Indian Institute of Management

Lucknow
CERTIFICATE OF AUTHENTICITY
This is to certify that the term paper entitled M&A in the Indian Banking Sector: An
analysis of private and public bank transactions by Amit Mittal is an original work and
has not been submitted earlier either to Indian Institute of Management , Lucknow
or any other Institutions in PARTIAL or complete fulfilment of the requirements for
the Term paper/Assignment report for a Doctoral Degree. None of the material here
is presented or approved for any other purpose than a report on the subject of
Banking M&A undertaken by him for Dissertation in Term VI of the FPM program at
Indian Institute of Management, Lucknow.
Sd/-
AMIT MITTAL
29-04-2016
Lucknow
ACKNOWLEDGEMENTS
Over the past two years I have received support and encouragement from a great
number of individuals. Prof. Ajay K. Garg has been a mentor, colleague, and friend.
His guidance has made this a thoughtful and yet incomplete, rewarding journey. I
would like to thank Professor Vikas Sriva stava for his support over the last year as I
discovered the joys of deciphering Banking and Corporate Finance memes and
moved this idea to my completed study for the dissertation. In addition, Prof Vipul
and Prof Karmakar provided valuable econometric inputs and practical nuances in
Indian studies. My coursework in the first two years and an enthusiastic cohort of
PGP students made it a very rewarding two years with able guidance in a breadth of
subjects I carry forth into my long academic journey. I would also like to thank the
teachers who took part in this study for generously sharing their time and ideas. I
have learned much though our conversations and soaked much in time sneaked to
add courses in Quantitative Applications of Finance and Economic Policy and
Analysis classes which were in addition to credit work . Much of my engagement in
reading and updating on rewa rding technology would amount to nought without
these valuable inputs from these teachers. The Library at IIML and Prof Raina
enabled my first efforts in academia and continue to provide exemplary support.
Finally, thanks to near and dear ones for letting me the time to embark and sail on
this long journey.
AMIT MITTAL
29-04-2016
Lucknow
M&A in the Indian Banking Sector
Contents
CERTIFICATE OF AUTHENTICITY .............................................................................................................. 2

ACKNOWLEDGEMENTS ............................................................................................................................. 3
Problem Statement ....................................................................................................................................... 8
Structure of the Dissertation ........................................................................................................................ 9
Introduction .............................................................................................................................................. 9
Primary themes for analysis........................................................................................................................ 11
Large impact strategy ............................................................................................................................. 12
Bank mergers present a financing ease .................................................................................................. 13
The Post-crisis global Economic fundamentals and a new opportunity set ........................................... 16
Event Studies........................................................................................................................................... 17
Literature Review ........................................................................................................................................ 18
The established advantages of an M&A strategy in the Global literature ............................................. 18
Financing the deal ................................................................................................................................... 18
Industry wise impact of M&A ................................................................................................................. 19
Deal Time to completion......................................................................................................................... 19
Banking M&A .............................................................................................................................................. 19
Modelling Banking Business specific impact and Corporate Finance & Strategy ................................... 21
Impact of Banking Capital constraints .................................................................................................... 22
Run in with regulators............................................................................................................................. 22
Other supporting literature and closing arguments ................................................................................... 24
Bank mergers are Horizontal mergers .................................................................................................... 25
Issues of Ownership and Control ............................................................................................................ 26
Success in M&A ....................................................................................................................................... 26
Multiple Bidders.................................................................................................................................... 28
Acquisition of Private firms ................................................................................................................... 28
Banking markets across the world .......................................................................................................... 29
Market Power and Concentration/fragility ............................................................................................ 31
Government Policy and Regulatory superstructure ................................................................................... 33
Discussion from the literature for policy imperatives .......................................................................... 34
Creation of Cross Border FDI in Asia and a Banking crisis ...................................................................... 35
Comparing Restructuring and divestments with downsizing as a strategy ............................................ 36
29-04-2016 Amit Mittal Page 4 of 65

Methodology............................................................................................................................................... 37
Event studies ............................................................................................................................................... 37
Bidder and Target Abnormal returns ...................................................................................................... 38
Success and valuation of targets and acquirers ...................................................................................... 38
Hubris, Synergies and other models of M&A theory .............................................................................. 39
Trading on News and Pricing .................................................................................................................. 39
Event Studies to measure Post merger performance............................................................................. 40
Alternate Methodologies to be considered ............................................................................................ 41
Experiment Design .................................................................................................................................. 43
Sample Selection ..................................................................................................................................... 44
Results and Discussion ................................................................................................................................ 45
Specific Observations and Implications ...................................................................................................... 48
Ease of financing Bank mergers .................................................................................................................. 48
Institutional ownership ........................................................................................................................... 48
International M&A .................................................................................................................................. 49
Differences in PSU Bank mergers and Private mergers .......................................................................... 49
Beneficial impact of government............................................................................................................ 49
Pricing the acquisition ............................................................................................................................. 50
Financing costs in Emerging Market M&A .............................................................................................. 50
Succeeding in Large Deals ....................................................................................................................... 50
Government Policy and Us vs Them ....................................................................................................... 51
References .................................................................................................................................................. 52
APPENDIX .................................................................................................................................................... 58
TABLE 1: Chronological list of Deals considered in the sample for the Event study .............................. 58
TABLE 2. Sample Set and Analysis Dimensions to use for Bidder Wealth / Target returns appropriation
................................................................................................................................................................ 62
TABLE 3: Cumulative Abnormal Returns ................................................................................................. 63

List of Tables
Table 1: Chronological deals as recovered from the SDC database ........................................................... 58

Table 2: Sample Set and Analysis ................................................................................................................ 62
Table 3:Cumulative Abnormal Returns ....................................................................................................... 64

Dissertation: M&A in the Indian Banking Sector
M&A in the Indian Banking Sector: An

analysis of private and public bank
transactions
Abstract: The Indian economic environment provides an advantage to banks and also uniquely accretes
value to M&A based transactions proving benefits to bidders unlike in other Bank M&A regimes in the
USA. This work provides deeper insight into the linkages between Bank M&A and M&A literature with
Indian Banking M&A and reviews the evidence. In a study of 23 M&A transactions in Indian Banks during
the period 2006 -2015, we find strong evidence for both bidder and target gains that are used to specify
points of comparison in Global US and European markets. These gains reflect on economic conditions
advantaging larger mergers, foreign bank exits from India and global policy imperatives advantaging the
banking superstructure. Our study shows foreign portfolio exits are significant opportunity losses for
Global players and may not be justified by myopic short term responses to a new policy superstructure.
The 2014 Kotak ING merger produces a 13.47% CAR in the 0 to +15 event window and 23.8% in the longer
range window till trading stops in the ING Groups’ India subsidiary. Large Bank mergers produce large
Bidder benefits that are neither obfuscated in event studies nor lost in large value transactions because
of ultimate losses to the Bidder in the deal and the purported Merger gains being appropriated by target
shareholders and the considered set of transactions show how Indian Bank M&A contributes to the Global
Banking M&A literature.

Problem Statement
Since the integration of Universal Banking memes in 1999, global mergers and acquisitions account for a
significant proportion of value created in the industry.
Banking M&A are large impact strategies that are frequently proved to be counter-productive in the
literature with contradictory results in the US and the UK. Event studies have also become infrequent in
the literature believing the worst to be true and in line with the low Abnormal Returns for bidders being
contrary to the perceived and observed gains of synergy and the attractiveness of the inorganic large
impact strategies.
We propose to investigate Indian Banking M&A in the available transactions and assume results consistent
with Corporate Finance Theory are possible. In particular, we propose to show the following:
A. Banking M&A is a viable large impact strategy
B. Banking sector M&A is economical and needs a low barrier of Opportunity costs to execute and
overcomes specific deal level outcomes that guarantee M&A success:
a. Reducing time to completion.
b. Larger deals are easy to consummate and extraordinary synergies realized with ease.

Structure of the Dissertation

Introduction
Mergers & Acquisitions remain an attractive inorganic strategy for banks to scale up in product markets
and support the economy from within an efficient and well-regulated banking system.
Banking M&A remains specialized from other M&A because of industry specific features of banks including
their valuation, their means to profit and their treatment of capital, using deposits and funds as raw
material for profit generating products.
Despite mixed evidence from event studies, event studies remain an effective analysis tool to value
mergers. The gains from M&A are shared between bidders and targets. The M&A strategy becomes key
for growth in Emerging Markets and Asia. Our references to economic gains and strategy are implied in
reference to the Corporate Finance literature spawned in the tradition of Jensen and Meckling (1976)
Agency Theory, O’Hart and Moore (1990), Property rights and Ownership of the Firm and Williamson
(1988). The merger waves are described as proven by Rhodes-Kropf et al (2004) and the neo classical
theory evidenced first in Maksimovic and Philips(2001).
Banking Mergers & Acquisitions are frequently criticized as a large ticket strategy that does not deliver
gains. Frequent problems cited in M&A relate to post closing integration and lack of synergy gains;
planned growth in profitability not panning out because of unseen roadblocks; intractable attempts at
reduction in operating costs and the harassment and issues around labor cuts. Agency explanations of
M&A strategies adduce conflicts of interest between managers’ and owners’ interests and support
information and power motives. These take on interesting dimensions in the presence of institutional
shareholders. Banking valuations and merger financing however separate the study of other M&A in
Corporate Finance from Banking M&A. This is backed by event study data for India where merger gains
are not seen to be obfuscated by near zero or negative returns to acquirers while the undervalued target

or the smaller target company frequently walks away with gains. We also employ a market model based
event study, including an information leakage period, to capture the diffusion of information into prices
before the eventual deal announcement. The success of an M&A strategy gets tougher to recognize in
some industries vis-a-vis others. As mentioned before, In Banking challenges arise because of a perfect
horizontal merger being in both market and tender transactions and valuations involving intangible assets
and human capital (Damodaran, 2012).
We provide an overview of the theories that ascribe the motivation of Mergers and Acquisitions and back
the reasons that motivate the transaction for the bank acquirer. We posit that Acquirers do gain from the
strategy in Banking M&A, specifically analyzing Indian M&A bank transactions for a 10 year period from
2006 to 2016. We also investigate if the advantages are specific to parameters observed in the literature
such as corporate governance, state ownership and institutional investors or if they are specific only to
the economic environment.
Global Economics dictate large benefits of bank mergers and acquisitions around economies of scale and
oligopolistic competition that translate to lower costs and higher profitability. Mergers also ally the firm
with a better portfolio of Markets and strategic knowledge that allows the firm to improve its product
market portfolio and deliver large gains to stakeholders. However these gains are contingent on successful
post-merger integration and deal completion in good time. These gains are additionally contingent on
regulatory complexity. Adherence to regulatory pronouncements is critical to successful private or public
enterprise in banking in India, even as Merger and Acquisition transactions become large impact strategies
as they directly impact the economy positively.

Primary themes for analysis
As presented in the introduction, M&A are critically analyzed because they are a Large impact strategy.
That will remain one of the primary themes of this study. We would posit that Indian growth memes make
it more likely for M&A strategies to work for banks. Our literature review also establishes that since the
integration of Universal Banking memes in 1999 allowing investment banks and commercial banks to work
under a single roof, global merger and acquisitions accounted for a significant part of bank expansions
into new markets and products.
Banking markets are largely horizontal, especially in India and the phenomena of horizontal mergers
presents an ease of financing meme that becomes a critical theme of our analysis.
A recent study by Tom Piskula(2011) recognizes the availability of new rich data from since the 2000s
utilizing a Corporate Governance Index from ISS(MSCI Barra) to establish a new convolution in Merger
analyses using event based studies. Piskula’s work for example shows that weak governance could be the
reason many acquirers face an adverse reaction to merger announcement leading them also to infer that
this is based on shareholders’ knowledge of higher CEO compensation incentives in targeting mergers and
acquisitions during their tenure.
In light of the lack of a viable CG index for Indian banks and other restrictions of time and resources, we
would review only the role of regulation and policy imperatives in these large impact strategies in the
third primary theme for analysis. Thus we propose to carry out our analyses of the Banking M&A
phenomena on the basis of three underlying themes. Primarily we analyze the viability of the large impact
strategy and discuss the available literature in this regard.

Large impact strategy
As a large impact strategy, Mergers and Acquisitions invite considerable attention in research, Undue
criticism is likely because of the visibility of the transaction and the complexity introduced in
organizational terms. The literature reviewed also shows that this implies an experiential learning for
acquirers, making it easy to isolate winners and predict the probability of success of the deal. If the same
is indeed true, results will also be borne out in event studies in bidder gains. However, it is imperative
that accurate valuation be available to make comparisons and thence only public companies’ transactions
can be considered in any eventual study confirming the primary hypothesis that Indian Banking M&A is a
viable large impact strategy and large gains accrue to Bidders in the transaction.
We show the advantages assumed by the acquirer in undertaking a Merger deal, and in light of the
literature, review the specifics introduced by key variables such as Corporate Governance, Time of deal
completion, Mode of Financing and others presented in the section devoted to specific causal variables in
the M&A literature.
We also propose to show that this holds with the event study done on Indian Banking M&A transactions.
Using the event study data for abnormal returns, we critically analyze the structure of the various
transactions in consideration. (The classification in Table 2 will help show the various dimensions of the
structure)
Hypothesis 1: Indian Banking M&A is a viable large impact strategy and large gains accrue to bidders
in a M&A transaction.
The Indian economic environment demands higher growth and rewards performers proportionately as
larger gains accrue and the same are anticipated by markets. Banks create larger opportunities for growth
and while M&A reflects directly on the Economic growth of a nation/sector, Banking M&A more

pertinently favors economic growth and these gains add to the value of the combined company shared
between the acquirer and the target. The expected gains for the acquirer are unlikely to be masked by
other challenges in a high growth environment.
Bank mergers present a financing ease

The second primary theme of this study proposes to identify the characteristics of the Banking M&A
transaction that prioritize the strategy for CXOs and Boards to decide in favor of the strategy to achieve
growth. While we analyze the literature in this regard we find that the primary nature of merger in the
industry is a horizontal merger. As a merger between equals that assimilates two different organizations
in the same product markets, diversification gains are ruled out in a banking merger. As we discuss later,
regulators also frown upon diversification deals specifically. In that banking mergers are horizontal
mergers, it also clarifies that certain other success adducing characteristics of the deal are facilitated in a
banking merger transaction, adding to the attractiveness of the deal. Cost of funds are critical to the
banking business valuations and imply a economy of scale dimension. Financing the deal is a critical M&A
dimension supporting a successful merger and weaning out the failed ones. In particular, Cash as a source
of financing defines both commitment to the deal and as a scarce commodity. Let’s assume transaction
between two firms A and B where A and B are in the same Industry but not in Financial Services or Banking.
If A and B choose to agree to a merger transaction where A acquires the promoter stake of B, the markets
will value the deal in traded stocks of A and B such that based on the means of financing the deal, a cash
component in the deal increases the value of the merger transaction, proving commitment of A to
complete the deal and based on other factors of deal completion and synergy forecasts made by analysts
and A, increasing the combined value of both firms. It is known that overbidding concerns will mar the
transaction’s prospects or increase optimism for the deal. It is also assumed that A will finance the deal
with new debt or equity. The use of a stock swap is painless for the acquirer, and it has been shown in the
literature that this will be seen as a lack of commitment and surer concerns of overbidding for the

transaction as A prefers to overpay as long as equity is well priced in the markets to ease the completion
of the deal. The other determinants of deal complexity being primarily the size of A and B, and
organizational cultures with the technology of the industry equally applicable for both A and B. The
induced leverage in A may be evaluated by concerned shareholders’ while evaluating the suitability of the
transaction and the value accretion to A from the deal.
Now Consider AB and BB are two banks considering a merger transaction. Leverage constraints specified
by the regulator are 1:5 for NBFCs and 1:10 for Banks for each dollar of equity. Even if AB and BB are
leveraged 1:6 each they require the leverage for their cost of funds strategy as they maintain a loan book
and take deposits to reduce the cost of funds. The banks also increase their value from fee based income
and trading in Fixed Income and Equity within prescribed limits. They regularly use Derivatives for Off
Balance sheet management of their exposure and leverage is within norms with a controlled NPA
exposure with Gross NPA under 1%. These conditions ensure that this is not a Tender offer mediated by
the Central Bank(regulator). We posit that in such a bank merger, AB and BB shareholders will not question
the stock swap and merger valuation will not be contingent on use of cash to show commitment or use
reasonable debt strategies (including LBO) for financing the deal. A stock swap for such a deal can be
arrived at using market valuations and other asset based valuations. Promoters of the Target BB may stay
on as shareholders and exit later much after the merger has been completed at then market valuations
of the combined bank.
Hypothesis 2: Horizontal mergers , especially Banking M&A are economical and present low
Opportunity cost barriers for a large impact strategy making it extremely attractive to managers,
owner-promoters and shareholders.

In a mandated merger under a tender offer, where independent valuation of both banks is established by
an approved valuation method to determine the swap ratio, any semblance of negotiation that adversely
affect the timelines of the deal is not within parties but with the regulator alone.
As more value is anticipated in the bank merger despite use of a 100% stock swap to complete the
transaction, pending successful post-merger integration, the bank merger transaction is especially
economical for Managers and Promoters and is approved by the shareholders. This reduces opportunity
cost barriers for operationalizing the strategy. Other Large impact strategies may impact the composite
funding strategy of the bank. This does not preclude the need for all large impact strategies to be well
thought and planned for maximizing the benefit of the strategy to owners/shareholders. Agency conflicts
of managers are however directly assuaged in a stock swap strategy and while diversifications will be
frowned upon by shareholders and regulators alike and reduce value, horizontal mergers accrete large
value and are exceptionally rewarding in any comparable large impact strategies. The use of stock swaps
raise issues of dilution of control. However, with promoter stakes capped at 10-15%, these issues are also
of lesser concern in Bank M&A with voting rights of owner promoters protected. As we will see, promoters
can thus use the M&A route to bring down their personal equity in the bank as new banks are required to
hold higher promoter equity. Certification effects required from Advisors are also ignored in bank
mergers, but advisors may still be employed and do not change the cost structure of bank M&A strategies
vis-a-vis other large impact strategies. Horizontal mergers raise industry concentration concerns which
have to be validated with the bank regulator.
These two primary themes drive the dissertation study. We review and analyze the impact of these large
impact strategies on real gains for the acquirer and we look at reasons why banking mergers are
especially value creating when compared with other large impact strategies that traditionally require
large investments, knowledge of new markets and technologies leading to capital outlay and
considerable lead times for seeing the gains of the strategies.

Our third theme of the study is to prove the advantages accruing to Banking from being a regulated
industry and the discipline of the M&A transaction within the same Corporate Governance framework
defined by the banking regulator. We explain the determinants of the deal in the section below pertaining
to the regulatory superstructure and examine if banking M&A satisfy policy perspectives for a regulatory
commitment. Such a commentary must however keep in mind that banking reforms are a moving target.
As such the regulator is dealing with a banking sector that is 70% specified by public sector undertakings
while the government is committed to reducing its stakes in these Public Sector Banks.
Finally, we determine the impact of the current Global economic environment on the banking M&A
transaction superset. In particular we note the added opportunity for private sector players in particular
to gain from new opportunities presented by global players leaving the shores of profitable Asian domains
in face of a crisis of capital.
The Post-crisis global Economic fundamentals and a new opportunity set
The last decade has seen the opposite with challenges of credit markdowns creating a steady flow of
distress sales in the Asian and Latin American Markets with players like Bank of America retreating from
many banking markets in Asia while attending to restructuring and rejuvenating their business model at
home and many emerging market banks like HSBC and ING leaving shores of the USA and contemplating
change of their global headquarters showing the stresses of a more aware and demanding regulatory
landscape including recapitalization along national boundaries and portfolios, TBTF surcharges on Capital
and Liquidity requirements, and large scale restrictions in taking banking risk ( both in Credit and Market
books) off Balance sheet, restricting and creating opportunities for Mergers and acquisitions as a tour de
force in the CEO’s quiver of strategies.
As deposits return to play a stronger role in bank liabilities (Buehler, 2013) and Europe continues to
struggle with inadequate capital in the new regime and with larger plans of consolidated regulation across

the EA-17(Euro zone countries), mergers remain a key options for private players and bank regulators to
ensure growth and access to a lower cost of capital. Limitation of inter-bank funding by Basel III regulation
and the concurrent reduction of repos and illiquid collateral(ibid.) also improves the prospects of the use
of mergers as a strategy to strengthen a bank’s balance sheet than rush to reduce cost of funding using
these erstwhile strategies. Due to non-availability of portfolio sales and purchase data in the inter-bank
markets one may face issues` in negating the impact of such ‘regular’ balance sheet management activity
on bank performance while measuring the impact of a merger, consolidation or restructuring strategy.
Indian private sector banks face a distinctly appealing opportunity set in these turbulent times as Indian
acquirers find it easier to consider valuable bids for international banking assets in India and increase
market power and control within the prevailing RBI regime. We also discuss the overages of the strategy
from the bid for regulatory harmony essential for the bidder. Any Indian group bidding for banking assets
in India for example may need a new set of Corporate governance structures mandated by the Reserve
Bank of India apart from the newly minted NOHFC structure to manage Banking and other Financial
services assets. Large promoter groups may find such diversification infeasible just from extensive
regulatory stricture.
Event Studies
While Event Based studies are a common device for studying Bank mergers, they use equity prices in a
defined window before and after the merger and have to settle for evidence of abnormal returns. Earlier
studies evidenced in the literature (Berger, 2009) have shown that such abnormal returns are rare and it
is seen that larger acquirers return negative returns after a merger while the targets usually show
abnormal equity returns after the merger announcement. We include a defined window in our market
model based event study to account for information leakage before the announcement date for the deal.
We also present event study literature justifying the use of the market model and consider other

modifications proposed in Kolari and Fraser (2011). It is important to note that inelasticity in deposit rates
that are yet to be liberalized in India, mean the changes to borrowers are likely more inelastic on the
relationship banking side when separating effects from the bank merger on borrowers, so we stay with
valuing gains. Kolari and Pynnonen(2010) presents an adjusted t – statistic to account for event clustering
that can be used in our Event study analysis incorporating the Boehmer, Musumeci and Poulsen statistic
used in Global M&A event studies. We use the OLS Market Model for the analysis accordingly. This
adjusted statistic specifies corrections for event induced variance and event clustering. Non parametric
analysis can also be considered in event studies as per Kolari and Pynnonen(2007).
Literature Review
The established advantages of an M&A strategy in the Global literature
Rhodes-Kropf and Vishwanathan(2004) discuss the presence of Merger waves and relate it to periods of
overvaluation in stock markets in line with literature that describes industry specific waves that relate to
long lulls in M&A Activity followed by waves of high activity also verified in IPO firms, Hovaikimian and
Hutton(2009) are primarily motivated by a rush for low hanging fruit reduction and reduction of frictions
as financing becomes available to acquirers for bigger growth plans and stock is used as acquisition
currency .
M&A literature is also influenced by merger motivations around Productivity shocks as explained by
Maksimovic and Philips(2001).
Financing the deal

Literature on cash and stock financing of the deal also clarifies the components of the Financing to be
motivated by the power equation between the acquirer and the target as also the reliance on a shorter
time to completion in more cash deals. Derivatives provide sweeteners to the target firm to sweeten the

acquisition. Control issues also affect choice of mode of financing with owners favoring use of leverage
instead of equity (Bouzgarro, 2014).
Andrade et al(2001) and Rappoport(1999) show the move from stock financed acquisitions to cash
financed acquisitions in the 90s. Stock financed acquisitions raise issues of who is the eventual owner. Use
of stock also affects shareholder returns, eased by the use of stock splits and divestments.
As per the Free Cash Flow hypothesis, the use of debt constrains managers misusing the free cash flows
(Where applicable only Free cash flows to Equity are intended for banks).
Industry wise impact of M&A
Recent literature confirms that factors studied early in the M&A literature continue to be important.
Industry concentration drives M&A activity as evidenced in Geiger and Schiereck(2014) for gaining market
share in concentrated industry and increasing conglomerate presence in fragmented industry.
Deal Time to completion

Luypaert and Maeseneire(2015) analyse the gains from the deal. They find the deal time to completion is
affected adversely by deal complexity and hostility as well as the size of the deal. Stakeholder support is
critical to reducing these timelines and delivering deal benefits. Also, the study shows that experienced
acquirers make a positive difference to their deal completion rates and time to completion.
Banking M&A
Hostile Takeovers and Leveraged Buy outs are very uncommon in the confines of the Banking Industry.
Also, Piskula (2011) represents a thin body of literature that actually compares Banking Industry M&A
with other industries and looks at Agency Theory and Corporate Governance issues. However, Banks
remain strategic critical assets for Political establishments of the time and age and are highly regulated
with the taxpayer revenues time and again being called upon to solve the banks’ distress and insolvency

concerns as has been habitually proved in the growth of Deposit insurance mechanisms and .larger Bank
bailouts in the USA or the continuing crisis of confidence in Europe, leading to changes in global bank
regulation.
The Thomson SDC Platinum database provides an established reference for Indian, Asian and Global data
on banking M&A deals consummated and will remain our reference point for data in future studies.
An opportunity from the literature emerges in the paucity of available recent banking industry studies in
Emerging Market literature as acknowledged by the existence of few qualified Indian studies like Anand
and Singh (2008) and Chinchwadkar (2015). Issues of tractable global leadership for India and China and
a higher trajectory of growth are central to discussions in Boardrooms looking at the next two decades
and revival of banking industry growth is critical to the survival strategies of all business corporations.
The differences of the banking industry lead to it being ignored or excluded from most general population
studies of Mergers and Acquisitions and patriotic concerns of each banking regulator with living wills of
Global systemically important banks lead to more business contractions from seemingly profitable
markets. These are both issues of critical importance to us in conducting this review of methodologies
and a canvas for future research. Bank strategy decisions with or without use of M&A strategy affect
macroeconomic variables in the larger economy and also impact the level of risk and focus on
development in the economy.
Other important behavioral and market based barriers found to moderate these merger decisions in
studies till date include depth of local financial markets and cross border acquisitions or withdrawals as
well as regulatory or risk remapping requirements that necessitate these merger deals. The rest of the
paper outlines research analyses done within this framework and their various applicable results.
There are also key differences in bank behavior and performance across national boundaries not
attributable to differences in regulatory regime or just technology and different studies are required in

areas of focus for the executive boardroom looking to make its mark on global growth esp in Asia and
other Emerging markets
Modelling Banking Business specific impact and Corporate Finance & Strategy
While the academic literature is replete with event based studies and frontier analyses, they rely a great
deal on US data especially in the pre-crisis period. Carletti (2007) attempt to model banking specific
lending competition, reserve holding and liquidity shocks in the internal market created by a merger.
They have worked through multiple studies updated with cross country data comparable and based on
the modeling of reserves and liquidity requirements impacting consumer pricing and bank performance
(OECD, 2010). Merged banks can in a competitive scenario excluding forced provisions of reserves by
providing in excess of regulatory requirements can alternatively increase their reserve requirements as
well as aggregate liquidity demanded from the central bank proven in larger banks or decrease their
reserve requirements from the merger because of diversification effects.
Bastie (2013) looks at a new comparison of start-up modes of strategy in gaining a new market vs
takeover. The analysis can be used as a starting point when the analysis of true Economies of Scope are
undertaken at a future prognosis demanded by my research
Hankins (2011) has analyzed Financial businesses at a holding company level, and assessed the impact of
acquisition strategy on reduction of cash flow volatility and improve the risk management of the firm with
Financial and Operational hedging and equating operational decisions with buying Options discovers
financial firms with reputational and thus higher human capital costs and Financial exposure depend more
on such strategies to substitute Financial hedging.
In a distinct approach, Vallascas(2011) employ the Merton DTD model on a sample of 134 European banks
to show mergers to be risk neutral. They find, to add to the knowledge of the body of literature, that safe

banks face a significant increase in default risk from use of the strategy. They note in the literature that
earlier studies have explored diversification strategies of geography and activity (banking and insurance
firms) where the risk should have decreased.
Impact of Banking Capital constraints
Beltratti and Paladino (2011) provide an analysis of how healthy banks are in apposition to purchase
banking assets on the cheap during a crisis and also quote other studies along those lines including the
literature on propensity of governments for public intervention. They also examine the case if public
intervention to prevent bank failures should be limited in any case.
DeYoung(2013) extend their earlier comparison of merger literature on efficiency between North
American and European mergers to compare new banking business streams and compare fee based
income from brokerage and insurance sales with asset based services in venture capital and securitization
that increase risk of failure. This study provides a basis for further analysis of bank mergers as many in the
current scenario have contributed to new technology in fee based businesses in banks
Brune(2015) extend the studies relating positive post-merger performance to the paucity of capital for
the acquirer to the banking industry. This reiterates the view that when there is a shortage of capital
better decisions are made because of the twin effects of better target selection and lower acquisition
premium
Run in with regulators
Many reasons have been ascribed to the banking crises of 2008 that engulfed the entire global economy
for a period of 8 years and counting. One of the first fallouts for the banks apart from federal Government
acquiring non-controlling stakes in banks like Citi and Bank of America that impacted their payout plans
for a few years was JP Morgan’s purchase of WaMu and Bear Stearns’ in March 2007 and Wells Fargo’s
purchase of Wachovia in the Eastern seaboard. While the first few discussed cases are ongoing, JP Morgan

is for all purposes paying dearly for the purchase, not generating any regulatory arbitrage and paying fines
on the acquired mortgage and securities portfolios, Wells Fargo has prima facie shown that larger mergers
can be fruitful for the bank and for the general economy. Our review shows that many have questioned
the veracity of market power ambitions and effects of increased market concentrations that may
intercede in most jurisdictions and in the Indian case most such acquisitions done by Private Banks like
ICICI Bank and Bank of Rajasthan have indeed boosted productivity of the acquirer.
In the specific Indian scenario, there is the added restrictions of new Private Banks licensed in the 1994
edition and later in 2000 having been recently requested by the Central Bank to preen promoter holdings
to stable 15% from 40% allowed during incorporation and initial listing on the exchanges. This will also
impact any study of change of control in our case as new banks circa 2015 will again start under a new
FOHC structure and with higher promoter stakes of 40%. Both of these present us with an opportunity to
study market transactions of banks and to – be banks, which prima facie are value destroying only because
of the regulatory uncertainty perceived in public markets.
Expectations of transparency by the regulator also makes more data available in the public domain.
Cebenoyan(2008) use the 1994 and 1999 changes in US Bank regulation to analyse a unified industry
model post deregulation, as profit motives are replaced by scaling up strategies, necessitating changes in
industry structure.

Other supporting literature and closing arguments

Deal making in a recession
Chung(2015) expands on the literature stream that shows macroeconomic impacts on the acquisition
decision as one affecting deals with target companies overladen with debt or whose growth options are
no longer good during a recession.
Tse and Soufani (2001) show how macroeconomic conditions impact Bidder and target returns in merger
activity terms and that targets are expected to respond to restructuring. VECM models directly measure
key boosting impact of M&A activity on the Macroeconomic indicators as in Ali(2010)
Global environment presents a unique advantage to Indian bidders with Foreign banks deprioritizing Asia
despite the loss of earnings potential in this key geography. The chances of a successful value bid also
increase chances of complete deal making.
Financial Independence
As ticket sizes of mergers increase and stock market overpricing supports formation of merger waves,
bidder returns remain challenged by key deal characteristics like the Financial independence of the target,
more likely in larger targets.
Jindra and Moeller(2015) identify targets that have lesser dependence on external finance and find in
favor of lesser deal completion and higher premiums. This goes to traditional event study literature
ascribing lower returns to bidders in response to concerns on overpricing and hubris in the bid, overtaking
explicit and implicit deal synergies. This also corresponds to lower valuations for private companies and
the related Pre merger IPO literature. Again, as we see from Hypothesis 2, banking mergers do depend
less on external finance but chances of overbidding and unsuccessful

Financing the deal

Staying with Cash and Stock financing of deals, IPOs are not only used as a defense against hostile
takeovers, but also continue to be important means of financing a deal. A cash component of an
acquisition usually ensures deal completion and an effective time to completion. Stock Financing usually
follows overpriced stock markets and recent IPOs, the latter of which is expected by investors to be similar
to fairly priced cash bid takeover financing as in Hovakimian and Hutton(ibid.).
Effects of using Cash to sweeten the deal are likely become more adverse in such value deal making in
larger acquisitions especially in a recession as Cash is scrounged from Working Capital flows (Aktas et al,
2015) to reduce debt and interest costs. As we review cross border emerging market acquirers, this fallacy
shows itself as a key determinant of deal financing given the added pressures of weak currencies in
determining optimum borrowing to finance the large deal.
Pricing
Vladimorov(2015) studies the financing methods of cash bids and finds overbidding by acquirers with
easier access to financing. As we consider the case of banking M&A the issue of overbidding remains
connected more to multiple bidders, crossing the last highest price on the target stock and agency theory
rationale
Bank mergers are Horizontal mergers
Diversification attempts are not expressly forbidden as the Takeover code and CCI oversight is applicable
under the New Companies Act. Such attempts are unlikely to be successful as the Bank regulator takes
care to ensure such diversification does not compromise the specific corporate governance architecture
proposed for banks in India. They are thus also unlikely to be available in data. This is in consonance with
global literature showing the higher failure rate of diversification deals, i.e. those not horizontally joining
two banks with adequate capital. Of course bad banks with specific capital requirements entail additional
financing.

Issues of Ownership and Control
As informed earlier, banking markets are regulated for a tapered ownership control limitation where the
individual promoters through the NOHFC in the latest edition of the licenses. Also, individual promoters
find bringing fresh capital in extremely unwieldy and at cross purposes with business execution. Past
experiences in the banking sector also make it pertinent that regulatory control on required capital
continue. However protected ownership of banks needs to be evaluated for the beneficial operational
impacts. Policy imperatives here will remain fluid because of misuse of regulatory discretion by newer
players.
Success in M&A
Holl et al(1997) provided an assessment of failed mergers also evidenced in other literature that shows
mergers more likely to fail across unrelated industries (asymmetric information effects). Building on
success in cheap valuations of Targets, Cross Border M&A can benefit from localized crises as we discuss
later from Makaew(2010). Sources of overbidding have been discussed in Aktas, Bodt and Roll(2013) with
inferential priority to controlling bidding as a key to account for uncertainty in post-merger integration
and ensure real synergy forecasts.
Baker and Wurgler(2012) show the importance of crossing previous highs for targets in increasing the
probability of completing a deal. While this negatively impacts bidder announcement returns, it also
allows them to explain the better returns in a stock market required on a consistent basis to create
industry wide waves. This also biases the pricing of a target to its historical stock performance.
Size effects
Moeller et al(2004) find the size effect to be a determinant of differences between abnormal returns made
by bidders. This indicates size of the bidder is a proxy for risk that varies with size and hence diversification
of business and inability therefore to benefit from a horizontal merger in a specific industry target.

Spin offs and Reverse mergers
As in Maksimovic and Phillips(ibid.), the literature depends on Spin off and sell off data to comment on
deal success. Independent abnormal returns of these events’ announcements remain highly positive from
the realized improved valuations for the divested units/ wrong undone.
Reverse mergers remain an attractive sell off option for private firms despite its recent misuse by Chinese
firms for cross listing and financing considerations for expansion in the US.
Efficient Contracting
A key to success in M&A apart from financing and time to completion considerations, and key to the deal
is Contracting mechanisms from Hart (1990) and Williamson (1988). Markets for Corporate control remain
sensitive in market perceptions to real advantages accruing from control. A new flexible payout contract
makes payments to target investors contingent on post- merger performance (Cain et al., 2011).
Serial acquirers
Aktas, de Bodt and Roll(2012) find evidence in favor of the same acquirers making consecutive deals in
the markets for corporate control. However, the learning from deal making effectively brings down
abnormal returns for acquirers even over the lifetime of the same CEO. Lower CARs are evidenced in the
fourth or fifth acquisition by the same company from 1.5% CAR in the first deal to only 0.5% as more
aggressive deals are priced correctly by the firm owing to its experience.

Innovation
Banking M&A however is found to be more detrimental for borrowers in pricing terms with increase in
concentration post-merger. Indian deposit rates are currently inelastic but deregulation of rates is but a
step away after the new marginal bank rate specification, thus ensuring better visibility in transaction data
in the future and a better calibration of concentration effects. This synergy is neglected and does not lead
to deal success when the firms are in the same product markets. Innovation and R&S are information
sensitive and increase the intangible assets incidence in combining firms. However, branch investments
and other technology and human capital investments are arguably more efficient for the merged entity
and should lead to tangible returns for the acquirer. Bena and Li(2014) discover the pattern of
innovation synergies in large M&A deal from related R&D. We include banking innovation in the sense of
provision of technology updated products to improve market traction.
Multiple Bidders
In the world of M&As, one finds that the presence of multiple bidders can have a deleterious impact on
the timeline for the deal. The impact of this extended timeline is yet to be studied in the literature and
provides an excellent opportunity to measure the persistence of the higher abnormal returns evidenced
for bidders. Deal success is directly likely to be affected as overbidding is constrained in developed market
targets even for larger acquisitions in presence of a Financial crises or an industry specific failure
concomitant to a lack of growth in mature industries in developed markets. Expectedly, emerging market
bidders may be circumspect and avoid overbidding , leading to early withdrawal in bidding contests.
Acquisition of Private firms
Eije and Wiegerinck(2010) note the differences in cross border acquisitions of private firms for bidders in
the EU , comparing acquisitions in both China and the USA and notice differences in law regime in the

style of Laporta et al in the literature differentiating between Civil code and common law countries in
favour of the latter. In fact for common law firms, larger acquisitions generate better bidder returns on
announcement. Thus for acquisitions in China there are no bidder returns while bigger returns are
generated for acquisitions in the US. This is likely to be similar to effects for India and other Emerging
market multinationals as they distinctly prefer making acquisitions in developed markets like the US.
Banking markets across the world
Deyoung (2010) reviews the differences in banking M&A in the US and Europe. While efficiency gains are
likely for both bidders and targets in the US in the post 90s analysis because of a large scale restructuring,
results from Europe may be more valid for cross border acquisitions in and out of Emerging markets
because of active regulatory participation in all aspects of deal making. European M&A studies reveal a
larger efficiency gain in targets after a merger that requires an isolated analysis of gains for bidders and
targets in specific event study construction.
Becher(2000) underscores the importance of choosing the right event windows and the inclusion of pre
announcement periods in Banking M&A.
Deal process
Gomes et al(2013) discuss the requirement of perfect information across the laborious M&A process. A
lack of post closing integration and miscommunication of deal objectives is frequently cited a s a key
reason for failure of a merger to prove the expected gains.
Synergy Forecasts
Certain jurisdictions require bidders to share expected synergies everytime they bid in the defined
calendar enforced by the regulator where multiple bidders are involved( e.g. UK)

Dutordoir et al(2014) show synergy disclosures in 345 deals in a sample of 2000 deals. Synergy disclosures
improve the market reception of the deal and frequently include operational cost benefits from post
closing integration that may not account for cultural and institutional differences
Dutordoir et al show synergy gains to be 5% higher after synergy disclosures.
Economies of Scale and Scope
Bastie(2013) looks at a new comparison of start up modes of strategy in gaining a new market vs takeover.
The analysis can be used as a starting point when the analysis of true Economies of Scope are undertaken
at a future prognosis demanded by my research.
Contrary to SCP hypothesis, bank consolidation can actually increase the incidence of relationship lending
as well, and investments in franchise technology lead to greater access to credit, however there is
evidence that this credit is thus now biased towards larger borrowers, who can produce evidence testable
by the hands off underwriting process as well as invest in key relationships at the bank, in both cases
reducing the role of the credit officer, found to be critical in measuring the stability of a lending client
traditionally. Post Consolidation, larger entities are however likely to offer the same prices across most
of their markets.
Critical to establishment of Economies of scale are studies of Net Interest Margin and Profitability of
banks. Important and lesser easily available are instances of vertical mergers like the case study of Axis
Bank and Enam Securities, where the bank added Investment Banking business and thus avenues for more
advisory and fee based income from the acquisition. Economies of scale have been found to be ambivalent
in domestic markets despite creation of concentrated markets seen by increase in the Lerner index/HHI.
Beccalli(2007) use data from Europe during 1990-2005 to disprove the ambivalent evidence from earlier
studies using a translog function to better measure Profitability gains with Cost and Profit Cross

efficiencies in a merger of two banks as per intuitive decisions made in the boardrooms. Also post crises
data shows that specific deal based factors may influence both expected abnormal returns because of a
merger. Here (ibid.) the authors use the Healy method in the general literature to separate the industry
adjusted performance into both α and β components and improve the specificity of  across deal specific,
bank specific and institutional variables used to control the measurement of performance.
Beccalli and Frantz (ibid.) use the Thomson ONE M&A database analogous to the SDC Platinum data
chosen by us and include Cross efficiencies as the measurement of managerial best practices. They also
note the persistence of inefficiencies across the first 5 -6 years post deal and lay the ground for measuring
short term effects independently of the long term expectation.
Schmeider(2010) follows a stream of literature that observes and verifies stunted access to SMEs after
consolidation as the leap in technology creates more process dependent relationships.
Market Power and Concentration/fragility
While many banking studies affirm the existence of monopolistic competition, competition authorities
like the CCI or the EBA arm of the European Commission are faced with problems of verification in each
merger or consolidation deal independent of the Central Bank. Regulators have to be alert on issues of
subverting competition, the US market however unique in laying down target ratios in each market, that
typify the allowed market share boundaries in a consolidation.
Also there are contradicting views till date of both Concentration-stability and Concentration fragility, in
that existence of a few large banks after consolidation leads to better profits and more diversified banks
vs the view that increased concentration leads to use of TBTF policies taking higher risks and endangering
the taxpayer’s money with a bailout from governments. However most studies affirm that markets remain

truly monopolistic in competition in the SCP paradigm even with the consolidation of banking markets
into a few large players. Also, studies agree to the fact that the cost of managing crises is manageable
where monopolies exist and such costs are higher under competition (Berger, 2010).
The Literature Review by Berger et al(2010) notes the various methodological approaches to the study of
Concentration and healthy competition points to the litany of articles from the 90s and in the oughts
where the HHI Index is used to test the performance on the Structure Conduct Power hypothesis(SCP
framework). Concentration can also be measured by the Lerner Index made tractable in bank research
literature through basic mathematical treatment. Herschfindal index proffers the simple addition of the
squares of the shares of two merging banks, if s1 and s2 be the two shares, the merger will produce an
additional industry concentration of 2s1s2 from (s1+s2)2 for the merged bank, whereas s12 and s22 would
be their concentration components before merger. The RBI may choose such and other concentration
measures to guide on the required merger or otherwise. The CCI independently guides each proposed
transaction. The Lerner Index uses the interest income based measures for calibrating shares of the loans
markets from personal loans to corporate loans.
The various results vary according to Bank performance in MSA areas and non MSA (rural areas) in US
studies, a majority of literature being based in the US supplemented by some Cross border evidence in
European markets where domestic markets have been largely immune to any impacts from horizontal
mergers. This is probably related to other studies in the literature on the impact of larger brands and
larger banks in developed markets on pricing and access to SMEs.
Thus large banks (that may also result from consolidation) also become more process oriented in credit
underwriting decisions and are more accessible to larger corporates with hard financials than SMEs. One
still cannot pinpoint any integration of processes from a consolidation as the author’s personal experience
and evidence on the ground lays testimonial to the lack of integration in large mergers, and the same may

also contradict to cross efficiency data, a subject to be explored in future studies. This may also be
impacted by the changed capital regulation of Off Balance sheet assets in twin Capital and Liquidity
regimes that have created new interest in larger competitors in creating SME businesses.
Weiss(2014) analyses the tail risk effects to measure the increase in systemic risk for the acquirer as
recommended by Acharya(2010) and finds increasing systemic risk, after allowing for Countercyclical
Capital treatment.
Government Policy and Regulatory superstructure
The emerging market deals could prefer effective government support because of linkages with domestic
currency and multilateral trade flows. As Indian Multinationals bid for larger acquisitions, they benefit
from a uniform government policy favoring them. Popli and Sinha(2014) present the detailed timeline of
regulatory policy changes in the takeover code. India for example provides a custom regime for requisite
approvals and is consistent in execution for aspiring multinationals.
Rossi and Valopin(2004) confirmed in the tradition of Laporta et al that M&A Activity is significantly larger
in countries with better accounting standards and stronger shareholder protection. Markets in India are
also favored by another institutional characteristic similar to that of the US in provision of deep and liquid
financial markets that provision better information flows. This is likely to signify a better calibration of
market event studies over a chosen estimation period, an information leakage period (pre announcement
returns) and announcement returns for both bidders and targets.
European M&A frequently sees adverse interventions in the deal even as developed markets reach a
situation where most horizontal mergers within the industry which lead to efficiency are actually rejected
by anti-trust considerations. A commonly ascribed reason for better bidder returns in Europe relates to
acquisition of international licenses

Discussion from the literature for policy imperatives
The concentration issues of concern we take away from the Indian environment, are primarily related to
the bureaucratic complexities and the capabilities of the banking regulator, as India has successfully
calibrated its growth in the banking sector with the help of some iron clad regulatory pronouncements,
increasingly relating to a market determined flexibility in line with the managerial capabilities of the banks.
However, the recent NPA crisis shows that the lack of large ticket borrowers has created a gap in the
corporate governance mesh weaved by the banking regulator and that its superstructure even while
actively reforming the banking structures, needs to be carefully calibrated to global regulation and
macroeconomic forces. The deliberations of the regulator need to be quicker, and at the same time more
topical, yet not overpowering the execution infrastructure in place.
At this time all decision timelines have been calibrated to 90 days after being shortened and granting of
banking licenses on tap is being considered. Both significantly impact large impact strategies by improving
their time of completion and thus topicality of benefits from the transaction. The provision of
differentiated banking licenses may not impact large impact strategies but to a certain extent they may
increase frailty in the system and invite diversification based large impact strategies and later
consolidation into more diversified conglomerates that do not show the same degree of success in the
topic of M&A.
However, there are important observations given the policy imperatives today, with the banking regulator
hopeful of reforms including reduction of government ownership in PSU banks to below 50% thru
legislative reforms and divestment. This complicates the achievement of one primary policy prescription,
that of reaching the unbanked, which will use other motives that dilute the cause of large impact
strategies.

Ongoing consolidation of Regional Rural Banks also does not impact the concentration map even as these
banks become administratively tractable, yet Urban cooperative banks that attempt conversion to
scheduled commercial banks get stuck in simple shareholder approvals.
Creation of Cross Border FDI in Asia and a Banking crisis
This may not be a primary theme for the dissertation and is just included for completeness. We observe
that Asia, especially in India and China has become the fount of outward FDI comprising nearly half the
global M&A activity in Outward FDI flows. As such the enhanced opportunity has already been discussed
earlier. Asia has become the focus of higher capital flows in these few years yet to be tested by withdrawal
of global liquidity as interest rates return to normal level in 2016. However, even as Banks likely lead the
era of higher growth in Asia and other South markets in Latin America and Africa, Asian countries have
seen a lot of demergers and exits as foreign banks hampered by a capital redressal problem exited key
markets while China and India markets in particular prepare for a period of high growth of above 7% and
banking franchises look at a lot of consolidation activity.
It would be interesting to measure if there are opportunities for foreign banks with a conventional banking
charter to earn good abnormal returns in this market negating their decision to exit profitable regimes for
distress sales to raise capital in many case to pay off their national governments. Foreign Brands’
acquisitions in the local markets and resultant strategies (Berger, 2010) have typically varied in the use of
technology and in ready access for multinational clients whilst one can probably explore their use of
innovative technology in financing using swaps and CDOs to a greater extent than domestic players, as
also their use of more affirmative compensation strategies. One can also explore the 90s proposition that
such foreign banks or mergers in general invest more consequently in technology and improved service
quality and variety in branch banking e.g. ATMs(ibid.)

Also such inorganic strategies are increasingly employed by Emerging Economy Multinationals including
a case of China Construction Bank and or ICBC buying market access in Brazil and Argentina.
Comparing Restructuring and divestments with downsizing as a strategy
As the global economic environment presents unique value opportunities in the banking sector, an
increased incidence of business sell offs dot the landscape in Asia including India. We believe these unique
opportunities will be specific winners for Indian Banking enterprises. However internal restructurings are
management specific decisions that are long term strategies. The literature on restructuring may involve
strategy and analytic commentary that is not evidenced by event studies in all cases and only specific
business sell offs and purchases can be considered for public parties in such an event study.
In particular, these selloffs reduce the incidence of default risk in the sector and immediately improve
market valuations. Anticipated gains of the transaction are borne out by announcement gains and post
transaction gains accreting to the parties in the transaction. Downsizing gains however, are not considered
by us, in light of specific regulatory forbearance on these matters in the Indian domain arising from welfare
considerations. Similarly, some of these transactions may be analyzed alongside other literature, but will
be precluded from the market model based event study as the unlisted multinational businesses sold off
and acquired by willing parties. However, for consistency in methodology, event clustering from such
excluded transactions is considered as required.
Restructuring transactions may also involve Tender offers. These are mandated for Private and public
sector bidders mandated by the government for managed restructuring transactions to support bad banks
into continuing operations as per the requirements of the sector. This increases the use of tender bids in
Banking M&A especially in M&A transactions initiated in the preceding decade. Large events around M&A
transactions from Private banks include promoter stake sell downs in line with regulatory requirements
that seem to impact the ownership status of these banks but is not likely so, because of regulatory support

and stricture limiting the stakes of individual promoters. These also complicate IPO transactions for
Private Banks like YES Bank, Kotak and Indusind Bank including Qualified Institutional Institutional
placements. However, these vary in nature from M&A as a large impact strategy and need not be
considered along with our analysis of questions of ownership and control as the mandated ownership
concentration norms are binding on all. The same may be ignored in our study except when they do
warrant issues of concentration and control preceding and post a successful M&A transaction. Similarly
they may be considered in a germaine analysis of a failed M&A transaction in our study and elsewhere.
Methodology
This being a complete dissertation study of the relevant topics, we include first a literature review of the
methodologies that can find traction in our analysis.
Event studies are a simple and yet robust statistical construct that allow us to measure the impact of any
events including earnings announcements, mergers or other corporate announcements
Event studies
Kolari and Fraser(2012) and Kolari and Pynnonen (2010) provide the base for use of event studies for the
study of Banking M&A. Event studies also provides data for Non Parametric tests in event studies that can
be optionally employed by us to improve the results. We primarily choose a market model based event
study to execute our empirical review.
Event studies have traditionally favored the analysis of merger and acquisition values to investors in both
short horizon and long horizon event studies. Dynamic panel regressions are otherwise employed in
Corporate Finance Literature to study trends delineated in time series and cross sectional models and
often used in determining fixed effects. In order to analyse the market impact of announcements, one
needs to determine a coherent estimation period often from -200 to -30 days and a pre announcement

period may be valid for announcements where market rumors are expected to make an impact between
-10 to -1 days. The Announcement day return is computed either in a short 0, +1 window or from -2 to +2
when a staggered impact is expected in the market. Event contamination is a key consideration as event
clustering frequently confounds multiple impacts and due considerations may be made in selection of the
data without such contamination by excluding data from firm with other key announcements in the
period. The daily returns may be standardized using the Patell (1976) model or other well explained
models as discussed in Campbell, Lo and Mackinlay(1997) and pertaining to Boehmer(1991) and others.
These achieve robustness required across cross sectional variation and improve the effective power of
the test. Availability of a well sized sample and a definite level of returns also improves the power of the
test and makes the determined results valid for prediction models. Multinomial logit models may be
employed then to discover the causation and size of the effects in pooled and cross sectional regression.
Aktas, Bodt and Cousin(2007) discuss event contamination in detail though their correction for event
contamination is not required.
Fraser and Kolari(2011) reference their own widely accepted methodology for event studies. Here they
measure welfare of customers consequent to bank mergers.
Bidder and Target Abnormal returns
As discussed in the literature, Bidder return are smaller in domestic M&A. However this effect is not
standard across jurisdictions. In certain jurisdictions in Europe and Australia, bidder returns are higher.
These also depend on the requirement of information sharing with the target investors as that implies
sharing of more of the merger gains with the target in CBA.
Success and valuation of targets and acquirers
Deal completion in M&A has been traced to various factors including means of financing and industry
commonness of acquirer.

Unfortunately, overbidding is a required characteristic is domestic M&A to enhance chances of deal
completion and leading to a Winner’s curse formulation in the literature with the target gaining most of
the value gains from the merger transaction.
Hubris, Synergies and other models of M&A theory
The specific merger theories in the Corporate Finance literature rely on markets for Corporate control and
the free cash flow hypothesis of Jensen et al in the tradition of the agency theory of the firm. Managers
are expected to act in their self-interest. The synergy from a Merger transaction can be a determinant
when the managers do not have a play in the market for control and the firm may bid according to the
profits from the combination of the two firms, leading to synergies on the deal. Bidding may be led by
hubris of markets are efficient as bidders need to bid over the fair value of the transaction and the efficient
markets have already valued the target fairly.
Trading on News and Pricing
Many studies assume that merger announcements have a different life in trading and thus that sentiment
has a different inferential invocation for the researcher. However the announcements return seem to
diverge along the lines of bidder and target, differentiated by relative size of bidder vis a vis the target, a
weaker target in terms of size or regulatory lackings has much more to gain from being acquired.
There is an interesting study in the general literature on M&A (Siougle, 2013) that relates the presence of
announcements regarding M&A to be related to the larger size of such a deal or the acquirer and such
announcements dull options trading in the stock because of the smoothened information flow in the
market. Regulators use such mergers in Banking industry to calm down depositors and citizens on any
manifestation of a crises brokering deals of the weaker player. Higher disclosure quality also leads to
improved credit ratings.

Another study in the general literature on M&A (Zhu, 2014) relates higher acquisition premium in deal
pricing to the higher idiosyncratic volatility of a listed target especially in information poor economies.
The study was focused on emerging markets. Idiosyncratic volatility measures are highly lnked to Private
information incorporated in stock prices of a target.
Rosen(2006) summarizes the M&A waves in the General M&A Literature and discovers that studies of
merger announcements should also factor in a momentum from merger sentiment in the recent past.
Diaz(2009) explores a quadratic formulation between Merger premium and post-merger returns to
constrain the M&A premium of his sample at 21% relative premium using 49 M&A deals from 1995 – 2004
setting a bar based on the overinvestment hypothesis, taking off from studies that find acquirers
consistently being perceived as overpaying for future synergies in the literature.
Event Studies to measure Post merger performance
Goddard(2012) extend the DeYoung(2009) study with an event study of the impact of bank M&As on
shareholder value in emerging markets, and a multivariate analysis of the determinants of changes in
acquirers’ shareholder value.
Anand and Singh(2008) conducts an event study on Indian Bank data to provide evidence in the Indian
market while Jaydev(2007) satisfices with case study analysis of specific deal based determinants of
Indian mergers up to the period of the study.
A factorization of post-merger performance can also be based directly on regressions to changes in
Financial ratios to provide critical static analysis. Wu(2011) separate the Harmony effects, Merger
efficiency measures and Scale effects. These studies require panel data from financial and market data for
the banks.

Though later literature is silent on the same as the relevance of such studies vanished, it is a sine qua non
that merger led structural changes lead to more services for depositors leading to increased consumer
welfare for depositors (Berger, 2010). Evidence on prices post-merger have tried to distinguish between
short and long term effects as data shows low impact of consolidation of banks in the immediate
aftermath. Current M&A literature incudes many texts however that point to a new found respect to
integration of processes in Larger M&A that can only be effected in the long term, if at all.
More related to earnings management by firms, larger firms typically incorporate their estimates of
merger costs and synergies in analyst conferences before and during a merger to advantage themselves
from the smoothing of market sentiment by such announcements. We may ignore such analyses while
they prove the accuracy of such estimates of synergy. Dutordoir (2013) looks at such announcements of
synergy impacting bidder returns.
Traditional event based studies of bank mergers studying Cumulative Abnormal Returns including Anand
and Singh (2008) find direct linkages between a destruction of value for the bidder and a gain in value for
targets in banking M&A.
Alternate Methodologies to be considered
Hanaan and Pilloff (2006) established a risk hazard model using a change in control boundary to identify
potential determinant of a bank acquisition , showing a surprise dependency on the ability of the acquirer
to use a higher capital – asset ratio in the target effectively apart from the much reviewed profitability
and operating efficiency dimensions of the target. Here a dummy variable identifying state intervention
may clarify cases where targets become vulnerable because of near default capital asset ratios.
In Glenn(2006), the author successfully adduces merger premium valuations to macroeconomic and
market factors while not displacing financial and operating variables of the bidder and the target banks.
One can thus explore a qualitative and quantitative review of bank mergers based on Efficient Market and

Pecking Order theories as well as Self interest, Shareholder value, Synergy and Free Cash Flow hypothesis
controlling or accounting for the influence of macroeconomic determinants in a post crisis scenario while
the author has established such a study at the height of the pre-crisis hubris in Banking
Campa (2006) and Spyrou(2010) are used as the base for studying event based studies. As these studies
are targeted to measure bidder and target abnormal returns controlling for industry return and the
market return to macroeconomic factors from the common return for the industry and market (index
sample) and tailoring the return period around announcements and merger completion. Accordingly as
mentioned in the first section, Beltratti (2011) use the abnormal returns to investigate the determinants
of such returns during the ongoing crisis using a cross sectional analysis of the returns.
One of the earliest studies on a strategy comparison of bidders and targets in the Banking industry
(Ramaswamy, 1997) established the predominance of performance advantages of a horizontal merger.
However as we have mentioned above , the evidence for the same from mergers in related markets and
products is clearly non effective and Economies of scale are established only where differing technology
is employed or the use of a Cross border brand to gain market access provides other advantages.
VAR/VECM frameworks can be used with ease to link M&A activity to the Economic environment. We can
also review different factors elucidated by M&A Abnormal returns in a simple OLS construction with
named factors. Once can experiment with other methodologies that hitherto used in Financial markets
such as Principal Component Analysis and other SDF/CCAPM theory linked technologies reviewed in the
markets literature.
The use of such technologies may not yield tractable results for Corporate Finance literature.
Ravichandran(2010) use the robust CAMELS framework including Resource raising ability or funding ability
to enunciate CRAMEL(Capital Adequacy, Resources Raising Ability, Asset Quality, Management
Quality,Earnings Quality, Liquidity) methodology to analyse efficiency and performance of Indian Financial

institutions using factor analysis to identify bidder and target characteristics before merger and after the
merger.
Studies of operational efficiency as outlined in various Berger et al papers not referred here but included
in most reviews of merger analysis of banks, have been rigorously explained and developed in Wu(2011)
using best in sample ratios to create a variable performance frontier sensitive to returns to scale
assumption and terms of errors and inefficiency.
Experiment Design
We choose a Market model based event study and have retrieved market models from the OLS
regressions on computed returns Ri and Rm as under:
Ri =t +  tRm
We then compute Abnormal Returns based on the model as
ARi = Ri -i -  iRm
In this edition we may find large negative correlations ( coefficient) for one of the largest deals in the
sample, that of the Kotak ING merger. We may thus further consider an alternate model in due course
to retrieve specific deal information in this case from Kolari and Pynnonen (2010).
We choose Abnormal returns according to the following schema, including longer range Cumulative
Abnormal Returns measures.
Target Cumulative Abnormal Returns are computed from -20 to +75 closing with acquisition being
completed (The timelines are measured in trading days)
Bidder/Acquirer Cumulative Abnormal Returns are computed across pre announcement, announcement
and post announcement to the completion of the acquisition (Date of Effective Merger) More than one
Announcement window is chosen to compare results.

Pre Announcement: Information Leakage period from -15 to +0
Announcement period: -2 to +2 and -1 to +1
Post Announcement Period: 0 to +15 and +15 to +75
Standard errors are adjusted using the Robust Standard error as per the requirement.
Sample Selection
We choose 22 mergers and acquisitions from the SDC Platinum database reported for Indian Banks and
eligible Financial Companies (such as Holding Investment companies) where the Deal Value is available in
the database denoting the purchase price paid by a public acquirer, and at least the Public Acquirer is a
listed entity, traded on one of the Indian stock exchanges BSE or NSE. The Date of Announcements inked
on these merger bids lie between January 2006 to December 2015. Deals occurring later may not be
selected without a complete analysis of the post-merger announcement period. We also ignore smaller
deals in the interests of time and efficiency yet including one deal with Microfinance companies to explore
any special characteristics of such acquisitions that become important for new Bank licensees looking to
increase their rural footprint. We thus start from the United Western Bank acquisition by the publicly
listed IDBI Limited and continue till the acquisition of Annapurna Microfinance by the DCB Ltd. . Business
unit and Loan portfolio sales are included as Targets if Deal Value data is available from the SDC Platinum
database and the Acquirer/ Bidder is a listed Bank / Bank Holding Company. Simultaneous / joint bids for
the same target is included in one case (IFCI is the Target). We include bids for part stakes made by Bank
Acquirers in case of a listed acquirer (ING Vysya bid to acquire stakes in Kotak and Centurion Bank of
Punjab)
We also have final data available to separate the characteristics of PSU and Private Bidders/Acquirers. The
data is structured in Table 2. The reverse chronological deal data with dates of announcement, effective

merger and Deal Value are included in Table 1 to make a coherent analysis in line with industry and
country based environmental factors.
The major mergers include CBOP acquisition by HDFC Bank Ltd, Bank of Rajasthan acquisition by ICICI Bank
Ltd, and the Kotak Mahindra and ING Vysya Bank Ltd merger.
Results and Discussion
Table 3 specifies the Cumulative Abnormal returns, read in from market models constructed for 20
transactions. Target returns were enumerated in the 7 valid cases over the two chosen windows. The
longer range window stops at the occasion of trading being suspended in the target on the recognized
stock exchange. Acquirer/Bidder returns were obtained in all cases. The Deal value can be used in addition
to classify transactions as per the requirements of the analysis.
The couple of transactions that are not presented in Table 3 were not considered material after evaluating
the other cases. The Transactions have not been pooled and thence the CARs were not additionally
verified with overall SARs/SCARs as specified in the literature.
An alternative methodology was considered using pooled SARs and separate PSU and Private Sector Bank
transactions and was discarded for lack of additional value. This methodology would have entailed the
use of an OLS regression on the computed SCAR statistic, using a Dummy variable.
The Kotak ING merger produced very large Positive Acquirer Returns in both the 0 to +15 days and the
+15 to +75 day event windows. The CAR returns are 13.4755% in the Post Announcement 0 to +15 event
window. I t keeps most of its gains in the longer horizon estimation period, adding another 10.3292% in
the +15 to +75 window.
The earlier stake purchase in 2007 by ING Vysya Bank in Kotak Bank Ltd, challenging the regulation limits
produced a -10.9522% CAR in the acquirer, ING Vysya Bank and a large 34.87058% gain in Kotak Mahindra

Bank as Target. Interestingly Kotak Mahindra Bank’s coefficients in the market model, vary extremely.
The i is -4.0294 in the 2007 transaction period and -0.4488 in the 2014 transaction period.
The pre announcement gains are reflected in a CAR of 8.062% in the -15 to +0 window. The Announcement
returns that are found generally positive in the bidder wealth M&A literature are 8.29% in the -2 to +2
window and 10.16% in the -1 to +1 window. The 0 to +1 Window produces a CAR of 11.125%.
All the CAR are positive for the Kotak ING merger in the Bidder reflecting the large synergy gains from the
deal. As a horizontal merger where the ING promoters exited the bank only in End April 2016, the merger
also benefitted from the easy construction of the deal financing.
Kotak Bank also benefitted immensely over its acquisition of foreign portfolio of Barclays Cards in February
2012. Other portfolio acquisitions are not considered as deal value was not provided. However, they are
not considered for event contamination, not lying in the relevant period either. The i for this transaction
period is 1.1161 showing Kotak was not leading the market anymore and gained from its large acquisitions
that increased its physical distribution, reach and portfolio at the expense of exiting Foreign banks. This
sale also pertains to the period of Global turmoil and explains our assertion that Foreign Banks are losing
heavily by exiting profitable business opportunities in Emerging Markets in Asia and India.
The other large mergers included in the analysis are HDFC Bank – Centurion Bank of Punjab and ICICI Bank
– Bank of Rajasthan. The Target returns are negative for Centurion Bank of Punjab reflecting specific
opinions of decision makers, while the ICICI Bank – BOR merger and Kotak – ING are expectedly high at
24.56 and 25.23%. Announcement returns are negative around the BOR acquisition by ICICI Bank as it
reflects poorly on a large Private sector bank acquiring an individual promoter controlled bank with
Corporate Governance issues. The ICICI Bank executive statements also confirmed that the bank over bid
for the branch network of Bank of Rajasthan. However, the transaction also goes on to show that the deal

synergies were accrued in excess of purchase price, topping 11.4434% in the longer horizon CAR in the
+15 to +75 window.
The three bank M&A in the chosen period show that Banking M&A is a viable large impact strategy.
The four PSU / PSU transactions are however show market valuations reflecting large Post Announcement
gains in the 0 to +15 window for only the CanFin Homes acquisition while the State Bank of Indore
assimilation into SBI is done at par. Two acquisitions show negative returns in the 0 to +15 window within
-4.7% to -5.3%.
The ING Vysya stake purchase of stake in CBOP shows negative post announcement returns reflecting
regulatory vacillation that may be ascribed to local public sentiment and can be analyzed with specific
macroeconomic factors and / or the suitability of policy imperatives described for the period.
The incidence of negative Target returns in the IFCI acquisition by Kotak and IDFC is documented in the
negative target returns to IFCI showing net losses in the deal i.e. a negative merger valuation for a defunct
IFCI.
The earliest IDBI and Federal Bank acquisitions in the smaller bracket of deals show negative post
announcement returns affirming challenges of creating synergies in smaller transactions. However the
latter transaction shows longer horizon post announcement returns reflect added synergies in the deal.
The three different acquisitions by ICICI Bank in the period show large post announcement returns for
efficient management and M&A experience in the deal.

Specific Observations and Implications
Bank M&A is a viable large impact strategy
The Larger banks especially the newer private sector banks benefit from Indian growth memes. They are
able to capitalize on market opportunities as they prove superior executive management skills in a
competitive market environment. Event studies continue (Cousin and Roll, 2014) in line with the low
Abnormal Returns for bidders contrary to the perceived and observed gains of synergy and the
attractiveness of the inorganic large impact strategies. Our results show that Indian Banking M&A proves
more acquirer returns in line with Corporate Finance Theory and vindicates large impact strategies in line
with practical evidence that is more valuable to Corporate Managers.
Ease of financing Bank mergers
Larger Bank mergers are easy to canvas and create more immediate value opportunities with CEO
Managers not conflicted while making large decisions in the interests of the shareholders. One can also
thus see that our proposed Hypotheses is logically robust though more data is needed to statistically prove
the results.
Larger mergers help to capitalize on opportunities that give a fillip to such transactions as they bring in
instant economies of scale and scope.
Institutional ownership
Andrio et al(2014) study the impact of institutional investors in M&A deal making in the UK where
institutional investors increases the chances of a target being larger in size with a bid for full control.
However it remains to be seen if institutional representation on the company board is empowered to
effect decisions positively in emerging market acquirers. The surfeit of institutional investors for example

may not be equally active unless controlled for better Corporate Governance scores. We do not have a
fungible Corporate Governance Index data series that we find robust to the bank data used in the study.
However, Indian literature has used CG Indices in M&A analysis. An analysis of institutional investor stakes
will probably reflect in added confidence in executing larger and more significant deals.
International M&A
A recent move in cross country M&A necessitated by Global memes, also establishes a new crop of
acquirers in countries in Asia and a typical acquisition target country in US and UK, and favors new trade
pacts and Australia and Brazil among others. This is especially true in the seventh M&A wave of 2011. The
earlier ones being in 2004 and 2007, M&A waves can be useful in ascribing global economic moves
concurrent with M&As and potentially influencing the pace and price of deal making. Research establishes
India accounts for 4% of the acquirers in 2010 and roughly 2% each of the acquisitions in each of the four
years of study.
Differences in PSU Bank mergers and Private mergers
PSU mergers show significant overvaluation of proposed consolidation deals. This again needs to be
investigated from corporate governance standards built around the regulated and market linked
corporate governance superstructure that needs to be created in an index.
Beneficial impact of government
Chinese SOEs have been active in making cross border acquisitions. Indian SOEs have been limited to more
resource Industry acquisitions from BHEL and ONGC etc. However it may still be likely that government
enterprises from India also undertake CBA s in specific industries and complete a sectoral story where it
may not have leading Private sector players that have the capacity to go multinational. These SOEs or PSEs

may see better CARs in case they have the right story to convince investors of the value of the
international acquisition. Banking sector acquisitions outside India would however be contraindicated by
the two transactions in consideration here.
Pricing the acquisition
Emerging markets like India are less likely to see bidders overbidding when dealing with targets. The
environment has been deal rich however in the chosen decade because of value exits of foreign bank
businesses. Retail businesses of banks and otherwise well valued businesses reflect immediate synergy
gains in well priced acquisitions. Private units that are difficult to value in relative valuation models (no
reliable peers) or other cash flow based (FCFE) and asset based valuations.
Financing costs in Emerging Market M&A
Indian MNCs in particular and Emerging Market MNCs in general may be more active during global crises
because of the value available in larger acquisitions. E.g. Tata’s Jaguar acquisition. Emerging market
bidders may rely on such crises to ensure value for stakeholders as cash is not likely to be available for
financing. It is unlikely that these bidders also advantage from higher stock market valuations for global
deals for the same reasons and LBO financing plays are likely to be critical for the larger acquisitions
required to prove economy of scale and accrue value advantage from the strategic acquisition over the
long term. As home currencies are weaker, cash should be preserved for local country businesses and
independent leverage undertaken for financing the international deal likely in stronger currency like the
Dollar, Euro or Pound Sterling. It is likely that IPO financing is used in private firm acquisitions with
controlled valuations.
Succeeding in Large Deals
Aktas, de Bodt and Roll(ibid.) find it curious enough to investigate mega deals as deal sizes have indeed
being going uo for mergers and acquisitions, especially those originating from India and China. Dimpolous

et al(2014) discuss a takeover auction model for preemptive bidding. However, the preemptive bidding
may not correspond to similar Tender bids in domestic M&A as the requirement for value bidding in such
deals is paramount and is proved by event studies here relying on market valuation alone.
Government Policy and Us vs Them
Economic nationalism (Erel, 2012b) is significant in jurisdictions like France which becomes a deal breaker
in international M&A. This intervention by target governments may extend deal time to completion and
impact deal terms unfavorably not allowing markets for Corporate control to work symmetrically. A large
measure of success in merger deals reflected here already in timelines measured by regulations of time
and price valuations governing such transactions. Such protection in making deals successful is unlikely in
the international environment.

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APPENDIX
TABLE 1: Chronological list of Deals considered in the sample for the Event study
Table 1: Chronological deals as recovered from the SDC database

in the selected period from 01 – January – 2006 to 31 – December – 2015.
Note that Acquirors are mentioned in the first column
Acquiror Target Name Date Date Host Curr.
Name Announced Effective Value of
Deal (mil)
3 IDBI Ltd United 01/12/06 10/03/06 836.856

Western
Bank Ltd
4 Federal Bank Ganesh Bank 01/25/06
Ltd of
Kurundwad
Ltd
5 Indian Bharat 02/07/06 1,700.0
Overseas Overseas
Bank Bank
15 ICICI Bank Lord Krishna 06/19/06
Ltd Bank Ltd
19 ICICI Bank Sangli Bank 12/09/06 04/19/07 3,033.382

Ltd Ltd
20 Bank of India Bank 12/11/06 02/14/07 1145.3988
Swadesi Tbk
PT
29 Canara Bank Can Fin 08/27/07 01/07/08 10.97
Homes Ltd


Deal (mil)
31 Kotak IFCI Ltd 09/15/07

Mahindra
Bank Ltd
32 IDFC IFCI Ltd 09/15/07
33 ING Vysya Centurion 09/25/07
Bank Ltd Bank of
Punjab Ltd
34 ING Vysya Kotak 09/25/07
Bank Ltd Mahindra
Bank Ltd
38 State Bank Global Trade 01/24/08 03/25/08 5,205.5
of India Finance Ltd
40 HDFC Bank Centurion 02/25/08 05/23/08 95,259.205

Ltd Bank of
Punjab Ltd
49 National Mahindra 08/13/08 58.0

Housing Rural
Bank Housing
Finance
51 Shriram Shriram City 09/15/08 10/15/09 1,245.8

Retail Hldg Union
Pvt Ltd Finance Ltd


Deal (mil)
60 State Bank State Bank 10/31/09 07/28/10 249.257

of India of Indore
62 Punjab Danabank 11/23/09 12/13/10 697.92

National
Bank
70 ICICI Bank Bank of 05/18/10 08/12/10 28,537.089
Ltd Rajasthan
Ltd
75 Kotak Barclays- 02/01/12 02/01/12 3,000.0
Mahindra India Credit
Bank Ltd Card Bus
78 Shriram City Shriram 10/30/12 21,442.897

Union Retail Hldg
Finance Ltd Pvt Ltd
92 Kotak ING Vysya 11/20/14 04/01/15 148,660.756

Mahindra Bank Ltd
Bank Ltd
94 IndusInd RBS- 04/10/15 07/27/15 2,870.0

Bank Ltd Diamond
Jewellery Fin
Bus


Deal (mil)
97 DCB Bank Annapurna 03/01/16 03/01/16 99.9

Ltd Microfinance
Pvt Ltd
End of TABLE 1

TABLE 2. Sample Set and Analysis Dimensions to use for Bidder Wealth / Target returns appropriation
Table 2: Sample Set and Analysis

The Transactions are classified to categorize transactions in the selected period from 01 – January – 2006 to 31 – December – 2015.
Note that Acquirors are mentioned in the first column and Targets in the next column. For a chronological analysis refer Table 1
Acquiror/Bidder Target DoA DoE Deal Value (INR Millions)
Only Bidder/Wealth effects

IDBI United Western 1/12/2006 10/3/2006 836.856
Federal Bank Ltd Ganesh Bank 1/25/2006
Microfinance
Annapurna
DCB Bank Ltd 3/1/2016 99.9
Microfinance Ltd
Foreign Bank Acquisition (

P-PSU)
Bank of India (P) Bank Swadesi 12/11/2006 2/14/2007 1145.3988
Punjab National Bank(P) Danabank 11/23/2009 12/13/2010 697.92
Inhouse consolidation (ILE / Not subsidiary) - is it Financing transaction

Shriram City Union Shriram Retail Holding
9/15/2008 10/15/2009 1245.8
Finance Ltd LTd
Shriram City Union Shriram Retail Holding
10/30/2012 21442.897
Finance Ltd LTd
Pvt Sector / Cooperative / RRBs / Local Private Banks
ICICI BANK LKB
ICICI BANK Sangli Bank 3033.382
PSU / PSU transactions ( in house - two parties listed(T) , one party listed (O) )
IOB BOB(O) 2/7/2006 1700.0
PSU / PSU
Acquiror/Bidder Target DoA DoE Deal Value (INR Millions)
Canara Bank CanFin Homes(T) 8/27/2007 1/7/2008 10.97

SBI SBI Factors 5205.5
SBI State Bank of Indore(O) 10/31/2009 7/28/2010 249.257
Loan Portfolio/Stake Purchase

Kotak Bank IFCI 9/15/2007
IDFC IFCI 9/15/2007
ING Vysya Bank Ltd CBOP Ltd 9/25/2007
ING Vysya Bank Ltd Kotak Bank 9/25/2007
Large Mergers
ICICI Bank Ltd Bank o f Rajasthan 28537.089
Kotak Bank Ltd ING Vysya Bank Ltd 11/20/2014 4/1/2015 148660.756
Centurion Bank of
HDFC Bank 2/25/2008 5/23/2008 95259.205
Punjab
Foreign Bank Business Exit

RBS - Diamond Jewelry
Indusind Bank Ltd 4/10/2015 7/27/2015 2870.0
Fin Business
Barclays India - Credit
Kotak Bank Ltd 2/1/2012 3000.0
card Business
TABLE 3: Cumulative Abnormal Returns

Table 3:Cumulative Abnormal Returns

The table presents the CAR statistic for the chosen event windows in the study. The 20 OLS market model data and regressions are not included here for reasons of brevity and clarity.
DoA: Date of Announcement, DoE: Effective Date
Targe
t
Target Retur Post
Deal Pre Announc Announc Post
Return ns Announc
Value Announc ement ement Announcement
Acquiror/Bidder Target DoA DoE s - -20 to ement
(INR ement Returns - Returns - Returns
20 to tradin Returns
Millions) -15 to +0 2 to +2 1 to +1 +15 to +75
+0 g 0 to +15
close
d
Target Returns Acquiror Returns
Only Bidder/Wealth effects
IDBI United Western 1/12/2006 10/3/2006 836.8 0.078 -0.016 0.027 -0.170 0.016
Federal Bank Ltd Ganesh Bank 1/25/2006 -0.017 -0.074 -0.031 -0.044 0.123
Microfinance
DCB Bank Ltd Annapurna Microfinance Ltd 3/1/2016 99.9
Acquiror Returns
Foreign Bank Acquisition ( P-PSU)
Bank of India (P) Bank Swadesi 12/11/2006 2/14/2007 1145.3 -0.054 -0.092 -0.126 -0.017 -0.244
Punjab National Bank(P) Danabank 11/23/2009 12/13/2010 697.92 -0.049 -0.028 -0.017 -0.056 -0.023
No target returns
Inhouse consolidation (ILE / Not subsidiary) - is it Financing
transaction
Shriram City Union Finance Ltd Shriram Retail Holding Ltd 9/15/2008 10/15/2009 1245.8
Shriram City Union Finance Ltd Shriram Retail Holding Ltd 10/30/2012 21442.8
Pvt Sector / Cooperative / RRBs / Local Private Banks
ICICI BANK LKB 0.023 -0.019 -0.003 -0.038 0.353
ICICI BANK Sangli Bank 3033.3 -0.033 0.039 0.005 0.029 0.114
PSU / PSU transactions ( in house - two parties listed(T) , one party listed (O) )
IOB BOB(O) 2/7/2006 1700.0 -0.118 0.033 0.031 -0.047 -0.123
Canara Bank CanFin Homes(T) 8/27/2007 1/7/2008 10.9 0.072 0.081 0.017 0.168 0.378
SBI SBI Factors 5205.5 0.079 -0.025 -0.005 -0.053 -0.198
SBI State Bank of Indore(O) 10/31/2009 7/28/2010 249.2 0.190 0.093 0.010 -0.002 -0.306
Loan Portfolio(P)/Stake Purchase(S)

Kotak Bank IFCI 9/15/2007
Loan Portfolio(P)/Stake Purchase(S)

(-15 to +0) event window
IDFC IFCI 9/15/2007 -15.5%
ING Vysya Bank Ltd(S) CBOP Ltd 9/25/2007 -1.0% -0.017 -0.074 -0.031 -0.053 -0.056
ING Vysya Bank Ltd(S) Kotak Bank 9/25/2007 34.8% -0.109 -0.164

Targe
t
Target Retur Post
Deal Pre Announc Announc Post
Return ns Announc
Value Announc ement ement Announcement
Acquiror/Bidder Target DoA DoE s - -20 to ement
(INR ement Returns - Returns - Returns
20 to tradin Returns
Millions) -15 to +0 2 to +2 1 to +1 +15 to +75
+0 g 0 to +15
close
d
Large Mergers
ICICI Bank Ltd Bank o f Rajasthan 28537.0 25.2% 20.6% -0.163 -0.087 -0.078 -0.083 0.114
Kotak Bank Ltd ING Vysya Bank Ltd 11/20/2014 4/1/2015 148660.7 24.5% 28.1% 0.080 0.082 0.101 0.134 0.103
-
HDFC Bank Centurion Bank of Punjab 2/25/2008 5/23/2008 95259.2 -19.0% -0.079 -0.082 -0.074 -0.053 -0.056
28.5%
Foreign Bank Business Exit

RBS - Diamond Jewelry Fin
Indusind Bank Ltd 4/10/2015 7/27/2015 2870.0 0.001 0.021 0.032 -0.114 -0.016
Business -
Barclays India - Credit card
Kotak Bank Ltd 2/1/2012 3000.0 0.158 0.059 0.080 0.147 -0.107
Business -

Indian Institute of Management Lucknow

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M&A in the Indian Banking Sector: An

analysis of private and public bank

Indian Institute of Management

or any other Institutions in PARTIAL or complete fulfilment of the requirements for

Indian Institute of Management, Lucknow.

add courses in Quantitative Applications of Finance and Economic Policy and

Analysis classes which were in addition to credit work . Much of my engagement in

enabled my first efforts in academia and continue to provide exemplary support.

this long journey.

CERTIFICATE OF AUTHENTICITY .............................................................................................................. 2

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Table 1: Chronological deals as recovered from the SDC database ........................................................... 58

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M&A in the Indian Banking Sector: An

Banking M&A literature.

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significant proportion of value created in the industry.

A. Banking M&A is a viable large impact strategy

overcomes specific deal level outcomes that guarantee M&A success:

a. Reducing time to completion.

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Structure of the Dissertation

material for profit generating products.

theory evidenced first in Maksimovic and Philips(2001).

29-04-2016 Amit Mittal Page 9 of 65

and human capital (Damodaran, 2012).

the economic environment.

regulatory complexity. Adherence to regulatory pronouncements is critical to successful private or public

as they directly impact the economy positively.

29-04-2016 Amit Mittal Page 10 of 65

Primary themes for analysis

into new markets and products.

acquisitions during their tenure.

strategy and discuss the available literature in this regard.

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Large impact strategy

the M&A literature.

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other challenges in a high growth environment.

Bank mergers present a financing ease

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transaction and the value accretion to A from the deal.

of the combined bank.

owner-promoters and shareholders.

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have to be validated with the bank regulator.

considerable lead times for seeing the gains of the strategies.

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in face of a crisis of capital.

The Post-crisis global Economic fundamentals and a new opportunity set

force in the CEO’s quiver of strategies.

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The established advantages of an M&A strategy in the Global literature

Maksimovic and Philips(2001).

Financing the deal

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instead of equity (Bouzgarro, 2014).

Industry wise impact of M&A

share in concentrated industry and increasing conglomerate presence in fragmented industry.

Deal Time to completion

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