Mergers and acquisitions are business deals in which the possession of corporations, another organization, or their working entities are transferred or merged with another unit. It is an agreement involving two or more existing business units to merge into one new business unit. The motive behind mergers and acquisitions are growth and expansion of business, enter into the new market segment, eliminate the competition and value creation for the business.
Mergers occurs when two different business organizations combine their assets and liabilities to form a new business organization where as an acquisition happens when one business organization is taken over by another.
Merger of SBI
The SBI is India’s leading commercial Bank in relation to assets, deposits, branches, customers and employees. It experiences the enduring trust of lots of customers throughout the public. It was founded in 1806 with the name of Bank of Calcutta and became State Bank of India on 1st July, 1955. SBI was India’s pioneer in the banking.
Seven provincial banks of former Indian princely states were undertaken by the SBI in the year 1960. Names of these seven banks were State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Saurashtra and State Bank of Travancore. Each seven banks were following the logo of SBI.
The merging of associate bank with the parent bank SBI started in the year 2008 with the objective of making SBI the biggest bank in India. The State Bank of Saurashtra got merged with SBI in September, 2008 and State Bank of Indore got merged with SBI in the year 2010.
Bharatiya Mahila Bank was formed on 19th November, 2013 on the event of the 96th birth anniversary of former Indian Prime Minister Indira Gandhi. The negotiation of merging remaining associate banks namely State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and Bharatiya Mahila Bank with State Bank of India started in the year 2016 and got merged with SBI on 1st April, 2017.
With this merger, SBI is assumed designate in the top 50 banks with respect to assets in the world. This merger has various economic, strategic and structural benefits for SBI. However, this step will also have some challenges to be faced by the bank in the future.
This research study is focused to study the case of merger & acquisition of State Bank of India with its associate banks namely State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and Bharatiya Mahila Bank in the year 2017. The study will give the insights of the merger and its impact on banks performance during post-merger period.
Objectives of the Study
- To examine and evaluate the post-merger increase in productivity of SBI in terms of number of customers, financial inclusion accounts and domestic branches.
- To examine and evaluate the post-merger return on shareholders in terms of Earnings per share and dividend per share.
Research Methodology
It gives the details regarding the sources of data, methodology used, sample design, period of study etc.
- Sources of data collection
This research study is based on secondary data. The secondary data for the study has been collected from web sources and annual reports of the State Bank of India for one year pre mergers and one year post-merger period.
- Methodology
Research methodology used was comparative study of the pre and post-merger performances of banks. For the purpose of evaluation of productivity, Pre and Post-merger number of customers, financial inclusion accounts and domestic branches were analyzed. For evaluation of return on shareholders, pre and post-merger earnings per share and dividend per share was analyzed.
- Sample design
The sample selected for the study was the case of merger & acquisition of State Bank of India with its Associate banks namely State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala, State Bank of Travancore and Bharatiya Mahila Bank.
- Period of the study
The research study has considered a period of one year before the merger i.e. 2016-17 and one year after the merger i.e. 2017-18 to study the impact of mergers and acquisitions of the State Bank of India.
Keywords
Earnings per Share
Earnings per share or EPS are an important financial measure, which indicates the fruitfulness of a company. While computing earnings per share net profit after tax is divided with the number of shares held by the company. It is a technique used by investors frequently to gauge the profitability of a company previous to obtaining the shares.
EPS = Net Profit after Tax – Preference Dividend
Total Number of Shares Held
EPS indicate whether or not the firm’s earnings power on per-share basis has changed over the period. EPS indicates the profitability of the business on a per-share basis; it doesn’t show the amount of dividend paid and the amount retained in the business. Higher ratio increases the possibility for higher dividends and increase in the market price of the share due to increase in the intrinsic value of the share.
Dividend Per Share
Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share outstanding. The figure is calculated by dividing the total dividends paid out by a business, including interim dividends, over a period of time by the number of outstanding ordinary shares issued. A company’s DPS is often derived using the dividend paid in the most recent quarter, which is also used to calculate the dividend yield.
DPS = Dividends / Number of shares
Financial Inclusion Accounts
Financial inclusion is directed to support the main objective ‘Growth and Equity’ of the planning process. For the purpose, the financial inclusion intends at offering financial services at reasonable rate to the people who are not included in the formal financial system. To achieve this, banks have been using a number of policies which include:
- Facility of fundamental banking services.
- Introduction of business correspondent/ business facilitator model.
- Lessening of existing governing rules by way of easygoing ‘Know Your Customer’ standards.
- Enhanced use of technology.
- Programing active financial learning and credit counselling centres to reach bigger outreach.
Under the financial inclusion the many of the policies are in action such as Micro-Finance, Swabhiman Scheme, Ultra Small Branches, Kisan Credit Card Scheme, The Pradhan Mantri Jan Dhan Yojana etc.
Data Analysis and Interpretation
A comparative study of financial statement of State Bank of India for one year before the merger i.e. 2016-17 and one year after the merger i.e. 2017-18 was done. The data for analysis was compiled from web sources and annual report of the bank.
1. Pre-merger and post-merger variations in number of Domestic Branches
Chart A indicates the comparative study of changes in the number of domestic branches as a result of merger of SBI during pre-merger and post-merger period.
Chart A: Number of Domestic Branch
Source: compiled from Annual Report 2016-17 & 2017-18
It is observed from Chart A that number of domestic branches in pre-merger period was only 43% where as it has increased to 57% during the post-merger period. It has increased from 14% during post-merger period.
2. Pre-merger and post-merger variations in number of Customers and Financial Inclusion Accounts
Chart B indicates the comparative study of changes in the number of customers and financial inclusion accounts as a result of merger of SBI during pre-merger and post-merger period.
Chart B: Number of Customers and Financial Inclusion Accounts
Source: compiled from Annual Report 2016-17 & 2017-18
It is observed from Chart B that number of customers was 33.75 crores in pre-merger period and it has increased to 42.42 crores in the post-merger period. Further number of financial inclusion accounts was 12.77 crores in the pre-merger period and it has increased to 13.42 crores during post-merger period.
3. Pre-merger and post-merger variations in Return on Shareholders Fund
Chart C indicates the comparative study of changes in return on shareholders fund in terms of Dividend per share and Earnings per share.
Chart C: Return on Shareholders Fund
Source: compiled from Annual Report 2016-17 & 2017-18
It is observed from Chart B that earnings per share were Rs. 13.43 per share in the pre-merger period and it has decreased to Rs. -7.67 per share in the post-merger period. Further dividend per Share was Rs. 2.6 per share in the pre-merger period and it has become nil in the post-merger period.
Conclusion
The present research study has been taken to analyze the impact of merger of SBI with its associate banks and Bharatiya Mahila bank. The SBI had merged its entire seven subsidiaries bank. The five associate banks and Bharatiya Mahila Bank were merged with SBI in the year 2017.
As a result of this mega merger, SBI have reached in the top 50 banks with respect to assets in the world. The performance and productivity of SBI has immediately increased in terms of number of domestic branches, customers and financial inclusion accounts. Subsequently an analysis of financial statement of SBI revealed that the return on shareholders wealth in terms of earnings per share and dividend per share has not increased.
An analysis of return on shareholders fund in terms of earnings per share disclosed that shareholders of the SBI had positive earnings per share during pre-merger period but it has declined negatively in the post-merger period. This may be because the bank had a adverse net profit during the post-merger period besides the fact that there was an increase in the total income of the bank. Subsequently the dividend per share of the bank was positive in pre-merger period but it has become nil in post-merger period due to negative earnings per share. Hence, it can be concluded that return on shareholders fund of the bank with respect to earning per share and dividend per share has been affected very badly in the post-merger period.
From the above analysis and findings of the study, it can be concluded that SBI had a mixture of positive and negative impact on its performance during the post-merger period.
References
- https://www.sbi.co.in/group/about-us.html
- https://en.wikipedia.org/wiki/Bharatiya_Mahila_Bank
- https://www.edupristine.com/blog/mergers-acquisitions
- https://mostlyeconomics.wordpress.com/2017/03/21/five-remaining-associate-state-banks-to-merge-with-sbi-a-comparative-history-data-driven/
- https://www.moneycontrol.com/financials/statebankindia/ratiosVI/SBI
- https://www.moneycontrol.com/financials/statebankindia/ratios/SBI
- https://www.sbi.co.in/portal/web/corporate-governance/annual-report
