Financial Efficiency of Merged Banks in India after Globalization Period — Factor Analysis Approach

Abstract

The Indian business environment has altered radically since 1991 with the changes in the economic policies and introduction of new institutional mechanisms. It has been observed that such changes have its own impact on the performance both financially and operationally in the business environment through various measures including the process of merger and acquisitions. It has contributed a fuel to dynamism in the Indian economy (It is expected that in the new atmosphere M&As will play a more significant role in business). This paper discusses financial efficiency of merged banks in India after globalization period. It is based on a sample of nine merged banks and banks drawn from PROWESS database developed by CMIE. In this paper factor analysis tool is used. The study indicated that the performance of the banks is facilitated with the help of ratios grouped into seven factors — both in case of pre and post merger period of banks. So, the banks can concentrate their attention by grouping the ratios to improve their performance further. It is also a fact that the component of ratios in each group is different between pre and post merger. Therefore the banks can concentrate their attention on the variable that helps the growth and act accordingly based on their nature of performance; and it could be used as a basis for framing policies relating to M&As in service sector and to identify the areas of improvement for better profitability and performance for the banks.