Mergers and acquisitions are one of the easiest and cost effective methods to enhance economic growth and profit making in the banking sector. This method has been readily absorbed by the industry to overcome hardships and has definitely brought about revolutionary changes in it. These evoke a hope of resurrection as well as improvement, as the case may be. Out of all the methods of consolidation available to the banking sector, bank mergers have evolved as the best and surely the most effective in most cases. It helps pool in the combined resources and cut down costs, to enhance overall profit statements. It also improves the efficiency of the system due to increased man force and hence service to customer.
The banking sector has, over the years, witnessed a number of reforms and revolutions on technological grounds. Here are some of the most uplifting reforms that turned tables in favour of the industry.
Banking Awareness: The golden era of transformation in the banking industry
Technological advances have changed what the banking system used to be in earlier times. From internet banking to plastic money or the smart cards, all of it has made banks all the more welcoming as well as tempting for the customer. Safety at the least of hardships is surely something to experience. And the industry still years for more and absorbs all good willingly.
- Information technology boosts the industry – Information and communication technology and the advances in the same have brought revolutionary changes in the payment systems of the banks all over and also their operating. It has made flow of information and orders a lot easier and hence, the operation speeds have boosted to an ever high, enhancing the efficiency and eventually growth.
- CBS or the Core Banking Solution – With CBS at rescue, banks have learnt to deal effectively with challenges and meet targets of reducing the costs of operation and also establishing close intimacy with customer, quite efficiently. This has brought the overall process of profit enhancement at an arm’s length.
- ATM or the Automated Teller Machines – None can deny the fact that the webbed network of ATM’s has brought transactions at the doorstep. There remains no need for customers to await their turns standing in tiring queues at bank cash counters as money withdrawal has become so much easier. Every major public place (and even the minor ones for that matter) now houses the ATM machines which are regularly checked and are under scrutiny for safety of cash.
- Smart cards for the smarter customer – Plastic money! Has that not made you relax a lot? You do not even need to count time and again before you pay or wait for the change to come back. These pocket sized handy cards are embedded with an integrated circuit and have eventually eliminated the need for paper money. (Oh! A greener perspective!)
- MICR (Magnetic ink character recognition) and automated cheque reading – MICR has allowed computers to read the unique number printed on the That effectively eliminates chances of human error and hence all troubles thereafter. It has also reduced the clearing time for cheques, substantially, from three long days to a single one!
- Internet Banking – Need to explain what it has done to the banking sector? From elimination of all needs to visit the banks in person to the maximum extent, these allow transactions at the comfort of your own place. Net banking, checking account status, clearing statements, all at a mouse click.
- Mobile banking – Simply because the internet was anything less! It has definitely further increased the ease for the customers of banks. Now we do not even require a pc or the laptop to establish a secure connection with our bank. It has substantially levelled up security and enhanced the leisure of banking on the go.
- 0 – It would not be wrong to credit the innovation of Bank2.0 as the very future of this sector. Banks can now maintain their own blogs, provide video tutorials, facilities of video calling, create financial forums and also engage in more effective community banking. Definitely banks need to provide effective platforms for customer interaction and that just became easier!
- RFID (Radio frequency identification) technology in banks – The technology of Radio Frequency Identification has been deployed for better management of customer relations. For instance, the tech savvy banks like the YES Bank has made use of this established technology in an attempt to provide its customers with a personal touch whenever they enter the premises. Too much for attracting and building customers!
Banking Awareness: Reasons for merger of banks
Mergers and acquisitions in the banking sector can surely provide a kick to the existing scenario according to experts, more than scale up of internal growth. Bank mergers are an example of horizontal mergers, i.e. mergers that take place among corporate entities that are involved in the same kind of business and similar targets. Merger of banks can take place due to varied reasons.
- Merger of weak banks – Since long, there was a practice of merging weak banks with the strong ones in attempt of revival of the weak or its improvement. Astonishingly, the Narsimhan committee opposed this long practiced tradition. Mergers can potentially diversify the risk management and hence it was proposed that the action of bank mergers may be carried out among weak banks themselves.
- Markets develop over time and also become more and more competitive with each new dawn. Because of these trends, market share of individual firms may get substantially reduced. This also triggers mergers and acquisitions, in order to pool and enhance available shares and merger of banks occur.
- Increase in the competition in market – New financial products, schemes as well as policies are born each day. This increases the treats of the competitive scenario. Hence, bank mergers occur with an aim of consolidation of the regional financial systems and to increase joint profits.
- There are significant capabilities of generation of economies of a desired scale when mergers occur between the banks.
- Globalization of the economy has also had its own share of impact on mergers in the industry.
- Transfer of skills, policies, approaches and experience takes place among banks whenever a merger takes place. This helps in improvement and also makes banks more competitive.
- Technology – There are certain banks that are high on the technology end while others are efficient with functioning the conventional way. A merger among the two can cause a revolution with consolidation of ideals.
- Positive synergies – When two corporate entities agree on consolidation and merger, their chief motive is to create a positive effect on the profit statements, which is higher than what may be achieved by individual functioning. Hence, two aspects of mergers and acquisitions to establish enhanced profit statements are cost synergy and revenue synergy.