A Study on Impact of Consolidation on the Profitability of Regional Rural Banks in India

Abstract

Consolidation in the form of mergers or amalgamation has always seemed to be an option to revive loss-making and inefficient banks or firms. Consolidation supporters argue that minimizing surplus capacity in banking will eliminate the industry of inefficient operating financial institutions. The present study aimed to empirically analyse the effect of amalgamation on the performance of regional rural banks (RRBs) in India. A paired t-test (univariate analysis) has been employed to evaluate pre- and post-amalgamation comparisons of various profitability proxies. The results revealed that return on equity increased significantly in the post-merger period. In the second stage of analysis, panel regression has been employed; the results confirmed the findings of univariate analysis and revealed a significant increase in ROE in the post amalgamation period. Hence, supporting the theories of value creation of mergers and acquisitions (M &As), the present research states that the profitability performance of regional rural banks in India has increased marginally after the M&As exercise.