Mergers of Indian Banks

                                    Mergers of Indian banks

The term Mergers may be defined as a mean of unification of two or more entities into single entity Or it may also be referred as a process of bringing two different entities under a common ownership With a series of legal and administrative measures .Bank merger is an event in which previously distinct banks are consolidated into one institution. When a merger occurs an independent bank loses its charter and becomes a part of an existing bank with one headquarter and Is driven by a unified control. Mergers in Indian banking have been initiated by Narasimhan  committee.

To enter in the global market and to survive in high risk oriented market and to compete with foreign banks Indian banking badly needs consolidation. Among the various ways to consolidate the Indian banks the most commonly adopted one is merger. Merger of one weak bank with strong one or merger of two weak banks is said to be the faster and less costly way to improve profitability as the size increases the efficiency of the system also increases this is because the large operations enable banks to bring down the operative cost substantially .

Indian banks are facing tough competition from their international counterparts as these foreign banks with huge capital offers more loans to borrowers at attractive rate that makes indian banks vulnerable these issuses need to be addressed through strengthening of capital base which is easily possible through mergers and acquisitions.Mergers in enable banks to meet the capital base to compy with Basel 2 norms.

Despite the existence of proven hypothesis that “big banks seldom fail” and the advantage that banks enjoy due to merger there are also disadvantages are associated such as merger of one weak bank wihe healthy bank will deefinetly able to safeguard the interest of weak bank  but it may adversely affect the stronger bank. Managing the merged entity by the management teams drawn from two different banks is also a difficult task improving the quality of management is yet another challenge for banks .