Merger of two weak banks or merger of one weak bank with one strong bank is said to be the faster and less costly way to improve profitability than spurring internal growth.
Merger is a good idea. Bank mergers are big affairs, with deals clocking in at a few billion rupees. Committees in this regard: Merger is a process of bringing two or more separate business entities under common ownership through a series of legal and administrative measures. Mergers and Acquisitions (M&A) occur when two or more organisations join together all or part of their operations (Coyle, 2000). All banks, big and small, aim to acquire or be acquired by other banks, and these often happen at quite an accelerated rate. Strictly defined, a corporate takeover refers to one business acquiring another by taking ownership of a controlling stake of another business, or taking over a business operation and its assets (Coyle, 2000).
Merger is also tricky given the huge challenges banks face, including the bad loan problem that has plunged many public sector banks in an unprecedented crisis. Research analysing the determinants and causes of international bank mergers by Buch and DeLong (2001) concluded that economies of scale and scope is one of the major motives to increase the need and trend of international mergers. Due to the range of mergers, mergers cases have been categorized as horizontal, vertical or conglomerate mergers: (1) Horizontal merger in which two companies that are direct competitor and share the same product lines and markets, for example, Procter and Gamble and The Gillette Company, Inc., they are have the same market in consumer products, (2) Vertical merger: are combinations of … Bank merger is an event in which previously distinct banks are consolidated into one institution. The merger talks between the two banks began in January 2008 after the principal shareholders of CBoP – Bank Muscat with 14.02 per cent stake, Sabre Capital with 3.48 per cent stake and Bank consolidation procedures are provided under the Banking Regulation Act, 1949. Also it is a better idea to have one big, healthy, strong and productive bank than to have several ailing and laggard banks.
The merger will make HDFC Bank the country’s seventh largest bank after Bank of India (BoI) and ahead of IDBI Bank, from the current 10th position. 09/05/2017 Free 800 words essay on BANK MERGERS: ADVANTAGES AND DISADVANTAGES for school and college students. However, this should be carried out with right banks for the right reasons. Any two PSBs can initiate merger discussions, however, the merger scheme should be finalized by the government in consultation with RBI and it must be placed in Parliament for approval. Parliament has the right to modify or reject the merger scheme.
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