3. Restructuring and Consolidation—Mergers and Acquisitions

The RBI policy of mergers and acquisitions (M&As) in post-reform period became a strategy for banks’ further restructuring. A major perspective of the RBI banking policy is to encourage competition, consolidate and restructure the system for financial stability. Mergers and acquisitions have emerged as one of the common methods of consolidation, restructuring and strengthening of banks. There are several theoretical justifications to analyse the mergers and acquisition activities, namely change in management, change in control, substantial acquisition, consolidation of the firms, and merger or buyout of subsidiaries for size and efficiency. Thus the objective here is to examine whether the performance of banks has increased after mergers. The null hypothesis that there is no significant improvement after merger is accepted in the majority of the merged cases with few exceptions. Therefore, the strategy of mergers and acquisitions to consolidate the banks for efficiency reason is doubtful. The future banking policy must take note of this empirical reality and long-drawn experience of past 2 decades.