Mergers and Bank Performance: Evidence from The Indian Public Sector Banks
DOI:
https://doi.org/10.14419/4fdg2098Published
14-12-2025Keywords:
Bank Merger; Difference-in-Difference Regression; Financial Performance; India; Ratio AnalysisAbstract
The existing literature on bank mergers reveals mixed and inconclusive evidence on merger outcomes, particularly in developing economies. This study examines the impact of the 2020 merger of Indian Public Sector Banks (PSBs), which remained largely underexplored. The study employs a quantitative design with causal-comparative elements, utilising eight years (2016–2024). It applies the "Profit = Spread – Burden" framework to explore the drivers of bank profitability after the mergers. CAMEL-based key performance ratios are also analysed using paired and independent-samples t-tests, and a difference-in-differences regression is employed to isolate merger effects. Findings indicate improved profitability primarily due to increased spreads, alongside gains in capital adequacy and asset quality. Employee productivity rose without significant downsizing, though rising intermediation costs highlight operational challenges. A significant decline in the cost of funds (CF) highlights stronger bargaining power and an improved ability of merged banks to mobilise funds at lower costs. Compared to non-merged banks, merger benefits appear moderate, questioning guaranteed scale efficiencies. Thus, with a multi-layered analytical approach, this study provides insights into merger outcomes for policymakers in evaluating the effectiveness of mergers as a reform tool, especially in the Indian banking context.
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