MERGERS IN PUBLIC SECTOR BANKS IN INDIA: AN IMPACT STUDY WITH CAMEL RATING MODEL

Abstract

Mergers and amalgamations in the banking space are quite frequent aiming at achieving economies of scale, cost rationalisation and capital adequacy. Public sector banks in India also underwent mergers since 1993. The latest merger process effected by Government of India in 2020 involved ten public sector banks and the four acquirer banks are Punjab National Bank, Canara Bank, Union Bank of India and Indian Bank. As four financial years have since passed by March 2024, it is desired that performance of these four bigger banks needs an analytical examination, with an effective technique like CAMEL rating model, to find out whether the desired objectives of the mergers are realised. Ratios under CAMEL model as considered apt for assessment of performance of the banks are chosen by the authors and weightage to the five components, viz. Capital Adequacy, Asset Quality, Management Efficiency, Earnings Ability and Liquidity Position is also assigned as appropriate in Indian banking context. Paired t-test (two-tailed) is employed for testing the hypotheses at a significance level of 0.05. This unique study indicated that there is no relative variation in the overall performance among the said four banks, on account of the merger process, during the four-year period after mergers.