Bank mergers have profited has both investors and the acquired, according to a report by Reserve Bank of India researchers. While deals improved the productivity of the acquiring banks, they also increased the value of the acquired firms' shareholders.
The findings of the paper confirm that banking mergers in India have been, on average, beneficial to the banking sector as the financial performance and efficiency of the acquirers improved after the merger. These findings are also valid for recent bank mergers during 2019-2020, for which only limited data are available so far.
According to the report, the technical efficiency of acquirers increased from 90.88 in the pre-merger period to 93.80 three years post-merger and 94.24 five years after the deal. The study did not find any hindrance in relatively lower managerial and organizational competencies in the acquired banks. The mergers facilitated an increased scale of productive capacity, the paper said. The merged entities also benefited from the additional access to the branch network of the banks that were acquired.
"A deep dive into factors that may have led to efficiency gains identifies post-merger geographical diversification and improvement in the share of interest income as the significant factors," the paper said.
The approach employed for mergers during 2019-2020, where adequate data are not available, suggests that mergers resulted in an increase in shareholders' wealth of the acquiree banks, even as the share price of acquirer banks witnessed a temporary blip.