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Consolidation in the Banking Industry through Mergers and Acquisitions

Banking scenario since 1991 has been a process of transformation and consolidation. With financial sector reforms implementation, the microenvironment of banking sector has undergone a radical change. Almost all insulations to commercial banking have been peeled off and it has been susceptible to all types of exposures now. There has been paradigm shift in operational, functional, environmental, technological spheres. The reforms emphasised the "commercial character" of the banking system and helped the banks to stand on a firm footing. The first phase of reforms directed mainly towards the operational efficiency has brought concepts like prudential accounting norms, Deregulation of Interest Rates, Credit Delivery, Transparency, Capital Adequacy Norms, Autonomy in Management etc. Banks started cleansing their balance sheets, competition led to improvement in their efficiencies and profit concept being recognised as a test of commercial viability. The transparency made them to realise their own strengths.

In today's world, banking structures are important and size does

matter, however beautiful "small" may be. Consolidation is an

inevitable process in the banking sector as banks seek to reap

economies of size. Mergers and Acquisitions are considered

useful to achieve the requisite size in the short run.

Dr. P. Lakshminarayan is presently Chairperson of Indian Institute of Bankers, Nagpur Centre, Secretary of Indian Institute of Public Administration,

Nagpur and Bankers' Club, Nagpur and also Vice President of South India Association, Nagpur. Besides the above, he is Associate Member of Indian

Insitute of Bankes, Life Member of South Indian Education Society, Nagpur, Examiner for M.A. Final Exams. of Nagpur University and for JAAIB/CAIIB

Exams. consucted by I.I.B.F.

Dr. Lakshminarayan has worked in Reserve Bank of India for more than 41 years. He worked in almost all the Departments of RBI and retired as Manager

(PP), Nagpur. He is Guest Faculty of Dept. of Business Management, Nagpur University Academic Staff College, Nagpur University, Training Centres of

All Public Sector Banks, Guide of MBA Project of IIM, Ahmedabad, National Academy of Direct Taxes, Nagpur, Regional Telecom Training Centre,


He has published more than 100 papers in leading journals including IBA Bulletin. He was awarded first prize in National Level Essay Competition on the

topic "Disaster Management" from Vice President of India and second price from Reserve Bank of India for the paper on "Relevance of nehruvian

Planning in the present day context".

"Research reviewing banking crisis across 43 countries indicates that the cumulative loss of GNP could amount

to around 15 percent - 20 percent. There is also evidence that the incidence of banking crisis has become more

frequent in the past 20 years. In fact four of the Group of 10 countries has suffered a banking crisis of one sort or

another in the past 10 years. It is thus clear that financial instability remains hugely relevant topic to both

developed and emerging market economies."

result, innovations and improvement assumed greatest

significance in institutional performance. This trend of

global banking has been marked by twin phenomena

of consolidation and convergence. The trend towards

consolidation has been driven by the need to attain

meaningful balance sheet size and market share in the

face of intensified competition. The trend towards

convergence is driven by a move across industry to

provide most of the financial services under one roof.

Indian banking experienced wide-ranging reforms in the

last decade and these reforms have contributed to a great

extent in enhancing their competitiveness. The issue of

bank restructuring assumes significance from the point

of view of making Indian banking strong and sound apart

its growth and development to become sustainable.

International evidence also strongly indicates greater

gains to banking industries after the restructuring


With the impending capital account convertibility,

cross-border movement of financial capital would

become a reality. Such a scenario would lead to the

alignment of various structures with the international

levels. Indian banks, for that matter almost all the banks

in Asia, especially in small emerging countries are at a

disadvantage on all fronts - size, technology, capital

base, cost of fund, availability of highly trained

personnel to deal in international market, world-wide

networking, and freedom of actions. If we cannot

consolidate our size, it is rather difficult to find reasons

that could prevent Indian banks from being swallowed

by the powerful foreign banks in the long run, under

the free-for-all environment


The core objective of restructuring is to maintain longterm




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