THE IMPACT OF BANK MERGERS ON EFFICIENCY GAINS, SYNERGIES AND OPERATING PERFORMANCE: EVIDENCE FROM INDIA.

Abstract

Given the debate whether bank mergers generate gains or aim at empire building, this paper examines whether bank mergers create value in the context of two mergers in India. It uses a Differencein-Difference approach to study causal effects whether merged banks pass efficiency gains arising from mergers to customers while setting loan interest rates and whether they generate synergies in branching and staffing. Simultaneously, it evaluates operating performance of merged banks. Upon controlling for several factors, results highlight that both mergers are associated with transmission of efficiency gains to customers through lower loan reference rates and are associated with synergies in branching and staffing levels, relative to banks not involved in mergers. However, results show that both mergers are associated with reduced post-merger operating performance. The decline stems from merged banks experiencing higher immediate expenses and lower loan reference rates post-merger. The overall findings highlight that both mergers created value.