Assessing the Impact of Merger on Asset Quality: A Study on Select Public Sector Banks Post Mega Merger 2019
Author : Meghna Dey and Dr. Subit Dutta
Abstract :
Bank merger is considered as a key strategy to improve their overall performance and competitiveness. Since Independence till date India has listed number of bank mergers which were executed to improve operating efficiency, governance, accountability, creating strong & globally competitive banks as well as to check on asset quality of banks. The mega merger 2019 in India has marked a significant milestone in the Indian banking sector reducing 10 Public Sector Banks (PSBs) into 4 Public Sector Banks. The present study has examined the impact of this merger on the merged bank’s asset quality, a critical determinant of bank’s stability. The study has made an attempt to investigate changes in the asset quality metrics of the banks which includes Non-Performing Asset (NPAs) such as Gross NPA ratio, Net NPA ratio, Provision Coverage Ratio (PCR) and Capital Adequacy Ratio (CAR) by conducting a comparative analysis of pre and post-merger financial data for a period of eight years divided as 4 years before the merger and 4 years after bank merger. Along with descriptive statistics, the study has also employed paired t test for determining whether there exists any significant difference in asset quality of the bank before and after the bank merger. The study's findings help determine the merger's impact on banks asset quality and suggest improvement measures, wherever necessary. Also, this study contributes to the existing literature on bank mergers and asset quality, providing insights for policy makers, banking regulators, and industry stakeholders and highlights the importance of careful planning, execution, and post-merger integration in ensuring long term stability and success of the merged entity.
Keywords :
Merger, Asset Quality, PSBs, PCR, CAR.
