Mergers in Indian Banking:Impact Study Using DEA Analysis

Market driven business mergers have long been an integral part of the commercial history of developed economies. However, in the emerging economies this phenomenon has gained momentum recently. While the effects of these consolidation moves in the western world are well researched and documented, it is difficult to say that these will have a similar effect in case of banking industry of a developing nation such as India. Performance of the Indian banking industry itself, post-liberalization, has been an exception than a norm. This paper offers an insight into the effectiveness of mergers in the Indian Banking System by examining the efficiency benefits of mergers among few scheduled commercial banks in India over the period 2000-2001 till date. In the Indian Context, we analyzed the recent mergers (involving both private and nationalized banks) by using the Data Envelopment Analysis (DEA). There have not been a large number of mergers. We come across less than 10 mergers of reasonable size in the post-2000 period. We analyzed the profit efficiency and cost efficiency of the acquiring bank to see whether there have been gains from consolidation. We find that while the mergers don’t seem to impact the cost and profit efficiency in an adverse manner and whatever loss that happened initially was recovered quickly. Towards the end, we try to see whether we can provide criteria for future bank consolidation.