Mergers and acquisitions have had a long history in the Indian banking industry. Years after the first ever mergers witnessed in the sector, and gradual formation of the State Bank of India (SBI), bank mergers still remain a hot favourite, when the banks wish to expand or increase their market value. There are a lot of benefits from the consolidation of banking systems and similar financial firms.

Banking Awareness: Mergers and Acquisitions – Merger Vs Takeover

Bank mergers – Merging of two banking entities refers to the fact that two banks come together and consolidate to work as a single one but none is dominant over the other. Mergers that occur among banks are termed as horizontal mergers, as the two firms have similar working and function. Due to mergers, the man power in the consolidated bank increases, which further enhances the efficiency. This also means that now profit increase can be expected. Banks consolidate due to various reasons and under varied circumstances.

Bank takeovers – Takeovers refer to acquisition of at least twenty five per cent (25%) or more voting powers in a bank. This criteria to define the term has been given under the Monopolies and Restrictive Trade Practices Act. This usually occurs when a large bank desires to spread its reach and increase its customers, and hence, acquires a weaker bank with an additional approach of providing the weaker entity with a steady support.

Differences between bank mergers and bank takeovers

Mergers and acquisitions prove to be an important tool, when it comes to spreading reach or for resurrection. The experience of the employees working in the two systems is shared and can hence be a positive point for profit making and acceleration of growth. Also, weaknesses can be overcome by joint efforts while strengths can be channelized effectively to achieve higher goals.

Following are the differences between takeover of banks and merger of banks.

Banking Awareness: List of banks in India that have undergone mergers

The first Bank merger in India took place during the British rule. After independence, the Imperial Bank, which was eventually formed as a result of the pioneer merger, was converted into the State Bank of India. After that, the first merger witnessed by free India was in 1993, when two nationalized banks in the nation were consolidated. This merger between the New Bank of India and the Punjab National Bank reduced the number of nationalized banks in India, from twenty to nineteen.

In general, bank mergers and acquisitions have been noticed to benefit the consolidating financial systems.