Demystifying Financial Evaluation of Public Sector Banks:  Pre-and Post-Merger

Parulben Rameshbhai Rohit; Ramroop K. Sharma

doi:10.21844/mijia.21.2.13

Parulben Rameshbhai Rohit Research Scholar for Ph. D. & Faculty Member, Dept. of Accounting and Financial Management, The Maharaja Sayajirao University of Baroda
Ramroop K. Sharma Assistant Professor, Dept. of Accounting and Financial Management, The Maharaja Sayajirao University of Baroda,

DOI: https://doi.org/10.21844/mijia.21.2.13

Keywords: Financial Performance, Non-financial Performance, Public Sector Banks, Pre-and Post-Merger, Mega-mergers

Abstract

A sound banking environment immensely espouses a country’s economic growth. Measuring bank competence provides opportunities to
ameliorate the financial system. The Indian government's 2019 mega-merger of public sector banks (PSBs) envisioned to increase their
financial and operational performance. The moral hazard risk is more serious with PSBs due to crony capitalism and governance issues.
The government augments recapitalization whenever necessary and henceforth alters banks' perspectives on apt risk management
perspectives. Despite geopolitical conflicts, geoeconomic fragmentation, commodity price volatility, climate change, aging populations,
and declining productivity, the global banking industry is resilient with robust capital buffers, increased profitability, and other indicators.
The banking sector strife in several advanced countries in 2023 was put down by swift policy interferences that prevented a systemic
predicament. Formidable macroeconomic groundworks in India have enriched the health and performance of the country's banking. In
2023-24, banks saw a sixth consecutive year of increased profitability and by 31st March 2024, their gross non-performing assets
(GNPAs) ratio dropped to 2.7%, the lowest level in past 13 years. This article examines the financial performance of six PSBs (Bank of
Baroda-BOB, Canara Bank-CB, Indian Bank-IB, Punjab National Bank-PNB, State Bank of India-SBI, and Union Bank of India-UBI)
pre-and post-merger. Outcomes divulge that not significant variation between financial evaluation (return on assets: ROA; return on
equity: ROE; earnings per share: EPS; and net interest margin: NIM) in the pre-and post-merger periods except there lies the significant
difference in NIM of BOB and UBI. The study's conclusion will help various stakeholders including banks, customers, and regulators to
develop effective measures that boost the financial performance of PSBs, shareholder earnings, and synergy implications of mergers and
acquisitions (M&As).