Impact of Merger on the financial performance of Union Bank of India: an evaluation based on CAMEL Model

Abstract

Financial intermediation is a vital component in supporting the country’s economic growth. The Indian banking sector has been constantly evolving and a major impetus came from the nationalisation of commercial banks with social objectives, subsequently, it has been witnessing a wide range of policy-induced reforms and structural changes since the early 1990s. The new steps taken by RBI toward consolidation of the public sector banks (PSB) are among the most distinguished events in the financial landscape of the country in recent years which would result in a major transformation, in line with the Narasimham Committee report (1991) to create a few but strong banks that can compete at the national as well as at the international level.

The recent spate of consolidation of PSBs started with the merger of a few associate banks of State Bank of India (SBI) and another PSB with SBI in April 2017. Exactly after two years, i.e., in April 2019, two more PSBs were amalgamated with Bank of Baroda (BoB). The purpose was to form strong and competitive banks through consolidation among PSBs as announced by the Government of India in 2019. In April 2020, the Government of India (GoI) consolidated ten PSBs into four and termed it as mega consolidation. Punjab National Bank (PNB) and Union Bank of India (UBI) amalgamated two PSBs each while Canara Bank and Indian Bank merged one PSB each into them. Consequently, the number of PSBs went down from 27 in March 2017 to 12 in April 2020. It is, thus, observed that consolidation of PSBs, although recommended in 1991, was implemented since 2016. The mega consolidation was expected to enhance the competitiveness of the PSBs and stimulate the banking activity in the country.

The paper compares the before and after merger position of long term profitability with respect to Union Bank of India for a period of 6 years ranging from Financial Year 2017 to Financial Year 2022. The financial performance is evaluated on the basis of various variables used under CAMEL Model. The researcher would like to acknowledge the financial grant given by ICSSR to conduct this important paper / project and would also like to thanks all the officials of ICSSR for their valuable guidance and help.