Post-M&A Efficiency in Indian Banking Sector: Insights From Data Envelopment Analysis
Anukampa Das
Department of Commerce, School of Social Science and Languages, Vellore Institute of Technology, Vellore, India
Search for more papers by this authorCorresponding Author
Nirakar Barik
Department of Commerce, School of Social Science and Languages, Vellore Institute of Technology, Vellore, India
Correspondence:
Nirakar Barik ([email protected])
Search for more papers by this authorMalabika Deo
Department of Commerce, School of Management, Pondicherry University, Pondicherry, India
Search for more papers by this authorV. Lourden Selvamani
Department of Commerce, School of Social Science and Languages, Vellore Institute of Technology, Vellore, India
Search for more papers by this authorAnukampa Das
Department of Commerce, School of Social Science and Languages, Vellore Institute of Technology, Vellore, India
Search for more papers by this authorCorresponding Author
Nirakar Barik
Department of Commerce, School of Social Science and Languages, Vellore Institute of Technology, Vellore, India
Correspondence:
Nirakar Barik ([email protected])
Search for more papers by this authorMalabika Deo
Department of Commerce, School of Management, Pondicherry University, Pondicherry, India
Search for more papers by this authorV. Lourden Selvamani
Department of Commerce, School of Social Science and Languages, Vellore Institute of Technology, Vellore, India
Search for more papers by this authorFunding: The authors received no specific funding for this work.
ABSTRACT
Merger and Acquisition (M&A) in the Indian banking sector are driven by a combination of strategic, economic, and technological factors aimed at transforming the landscape of financial services. Hence, it becomes important to check the impact of M&A on the performance of banks in terms of efficiency improvements which are largely unchecked. This study examines the impact of mergers on the overall technical efficiency (OTE) of the Indian banking sector, utilizing a two-stage Data Envelopment Analysis (DEA) approach for analysis. The findings reveal that private-sector banks experience more significant efficiency improvements than public-sector banks. Interestingly, the Federal Bank and HDFC Bank emerge as highly robust institutions based on discriminant analysis. Logistic regression results show asset quality significantly boosts OTE for public sector banks, while bank size drives efficiency in private sector banks. These insights contribute to the literature on M&As and the banking efficiency of India's evolving banking landscape.
Conflicts of Interest
The authors declare no conflicts of interest.
Open Research
Data Availability Statement
The data that support the findings of this study are available in RBI at https://www.rbi.org.in/commonperson/english/scripts/FAQs.aspx?Id=1167. These data were derived from the following resources available in the public domain: RBI, https://www.rbi.org.in/commonperson/english/scripts/FAQs.aspx?Id=1167.
References
- Abd-Kadir, H., Z. Selamat, and M. Idros. 2010. “Productivity of Malaysian Banks After Mergers and Acquisition.” European Journal of Economics, Finance and Administrative Sciences 24: 111–122.
- Agbloyor, E. K., J. Abor, C. K. Adjasi, and A. Yawson. 2012. “Domestic Banking Sector Development and Cross Border Mergers and Acquisitions in Africa.” Review of Development Finance 2, no. 1: 32–42.
10.1016/j.rdf.2012.01.003 Google Scholar
- Allen, D., and V. Boobal-Batchelor. 2005. “Enhancing Efficiency Gains and Benefits to the Public in the Context of a Developing Economy: Evidence From Malaysia. In Conference Proceeding Modeling and Simulation Society of Australia and New Zealand (2275-2282).”
- Al-Sharkas, A. A., M. K. Hassan, and S. Lawrence. 2008. “The Impact of Mergers and Acquisitions on the Efficiency of the US Banking Industry: Further Evidence.” Journal of Business Finance & Accounting 35, no. 1–2: 50–70.
- Amel, D., C. Barnes, F. Panetta, and C. Salleo. 2004. “Consolidation and Efficiency in the Financial Sector: A Review of the International Evidence.” Journal of Banking & Finance 28, no. 10: 2493–2519.
- Avkiran, N. K. 1999. “An Application Reference for Data Envelopment Analysis in Branch Banking: Helping the Novice Researcher.” International Journal of Bank Marketing 17, no. 5: 206–220.
10.1108/02652329910292675 Google Scholar
- Banker, R. D., A. Charnes, and W. W. Cooper. 1984. “Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis.” Management Science 30, no. 9: 1078–1092.
- Berger, A. N. 1998. “ The Efficiency Effects of Bank Mergers and Acquisition: A Preliminary Look at the 1990s Data.” In Bank Mergers & Acquisitions, 79–111. Springer US.
10.1007/978-1-4757-2799-9_5 Google Scholar
- Berger, A. N., and D. B. Humphrey. 1992. “Megamergers in Banking and the Use of Cost Efficiency as an Antitrust Defense.” Antitrust Bulletin 37, no. 3: 541–600.
10.1177/0003603X9203700302 Google Scholar
- Bernad, C., L. Fuentelsaz, and J. Gomez. 2010. “The Effect of Mergers and Acquisitions on Productivity: An Empirical Application to Spanish Banking.” Omega 38, no. 5, 283–293.
10.1016/j.omega.2009.07.005 Google Scholar
- Brännlund, R., R. Färe, and S. Grosskopf. 1995. “Environmental Regulation and Profitability: An Application to Swedish Pulp and Paper Mills.” Environmental and Resource Economics 6: 23–36.
10.1007/BF00691409 Google Scholar
- Charnes, A., W. W. Cooper, and E. Rhodes. 1978. “Measuring the Efficiency of Decision Making Units.” European Journal of Operational Research 2, no. 6: 429–444.
- Cooper, W. W., T. W. Ruefli, H. Deng, J. Wu, and Z. Zhang. 2008. “Are stateowned Banks Less Efficient? A Long-vs. Short-run Data Envelopment Analysis of Chinese Banks.” International Journal of Operational Research 3, no. 5: 533–556.
10.1504/IJOR.2008.019167 Google Scholar
- Cooper, W. W., L. M. Seiford, K. Tone, and J. Zhu. 2007. “Some Models and Measures for Evaluating Performances With DEA: Past Accomplishments and Future Prospects.” Journal of Productivity Analysis 28: 151–163.
- Daley, J., and K. Matthews. 2009. “Efficiency and Convergence in the Jamaican Banking Sector 1998–2007.”
- Farrell, M. J. 1957. “The Measurement of Productive Efficiency.” Journal of the Royal Statistical Society: Series A (General) 120, no. 3: 253–281.
- García-Sánchez, I. M. 2007. “Efficiency and Effectiveness of Spanish Football Teams: A Three-Stage-DEA Approach.” Central European Journal of Operations Research 15: 21–45.
- Gulati, R., V. Charles, M. K. Hassan, and S. Kumar. 2023. “COVID-19 Crisis and the Efficiency of Indian Banks: Have They Weathered the Storm?” Socio-Economic Planning Sciences 88: 101661.
10.1016/j.seps.2023.101661 Google Scholar
- Jayaraman, A. R., M. R. Srinivasan, and R. Arunachalam. 2014. “Impact of Merger and Acquisition on the Efficiency of Indian Banks: A Pre-Post Analysis Using Data Envelopment Analysis.” International Journal of Financial Services Management 7, no. 1: 1–18.
10.1504/IJFSM.2014.062287 Google Scholar
- Kamarudin, F., N. A. Mohamad Anwar, A. Md. Nassir, F. Sufian, K. M. Tan, and H. Iqbal Hussain. 2022. “Does Country Governance and Bank Productivity Nexus Matters?” Journal of Islamic Marketing 13, no. 2: 329–380.
10.1108/JIMA-05-2019-0109 Google Scholar
- Kaur, B. P., and G. Kaur. 2010. “Impact of Mergers on the Cost Efficiency of Indian Commercial Banks.” Eurasian Journal of Business and Economics 3, no. 5: 27–50.
- Knapp, M., A. Gart, and M. Chaudhry. 2006. “The Impact of Mean Reversion of Bank Profitability on Post-Merger Performance in the Banking Industry.” Journal of Banking & Finance 30, no. 12: 3503–3517.
- Koopmans, T. C. 1951. “Efficient Allocation of Resources.” Econometrica: Journal of the Econometric Society 19: 455–465.
- Kumar, N., and A. Singh. 2015. “Measuring Technical and Scale Efficiency of Banks in India Using DEA.” Journal of Business and Management 17, no. 1: 66–71.
- Kumar, S., and R. Gulati. 2008. “An Examination of Technical, Pure Technical, and Scale Efficiencies in Indian Public Sector Banks Using Data Envelopment Analysis.” Eurasian Journal of Business and Economics 1, no. 2: 33–69.
- Kwan, S. H., and J. A. Wilcox. 2002. “ Hidden Cost Reductions in Bank Mergers: Accounting for More Productive Banks.” In Research in Finance, 109–124. Emerald Group Publishing Limited.
10.1016/S0196-3821(02)19006-X Google Scholar
- Maani, J., A. Dunstan Rajkumar, and N. Barik. 2025. “Do Public Sector Banks Achieve Technical Efficiency Through Mergers and Acquisition in India? Insights From DEA, Malmquist and SFA.” Journal of Economics Studies.
10.1108/JES-12-2024-0805 Google Scholar
- Maity, S., and T. N. Sahu. 2017. “Pre-Merger Performance Measures of State Bank of India and Its Associate Banks Using Data Envelopment Analysis.” Business Spectrum 7, no. 2: 16–26.
- Maity, S., and T. N. Sahu. 2023. “Mergers in Banking Industry: Some Emerging Issues.” International Journal of Services and Operations Management 45, no. 1: 130–150.
10.1504/IJSOM.2023.131285 Google Scholar
- Mautin, D. 2011. “Bank Consolidation and Scale Economies Trend of Banks in a Developing Country.” Journal of Economic Theory 5, no. 1: 15–21.
10.3923/jeth.2011.15.21 Google Scholar
- Mia, M. A., G. J. Rangel, M. Nourani, and R. Kumar. 2023. “Institutional Factors and Efficiency Performance in the Global Microfinance Industry.” Benchmarking: An International Journal 30, no. 2: 433–459.
- Mumcu, A., and Ü. Zenginobuz. 2005. “An Analysis of Mergers and Acquisitions in the Turkish.”
- Nourani, M., N. A. Kader Malim, and M. A. Mia. 2021. “Revisiting Efficiency of Microfinance Institutions (MFIs): An Application of Network Data Envelopment Analysis.” Economic Research-Ekonomska istraživanja 34, no. 1: 1146–1169.
- Pina, V., and L. Torres. 2001. “Analysis of the Efficiency of Local Government Services Delivery. An Application to Urban Public Transport.” Transportation Research Part A: Policy and Practice 35, no. 10: 929–944.
- Ravichandran, K., F. Mat-Nor, and R. Mohd-Said. 2010. “Market Based Mergers in Indian Banking Institutions.” International Research Journal of Finance and Economics 37: 30–39.
- Reda, M. 2013. “ The Effect of Mergers and Acquisitions on Bank Efficiency: Evidence From Bank Consolidation in Egypt.” In Economic Research Forum, vol. 770, 1–23.
- Rhoades, S. A. 1993. “Efficiency effects of horizontal (in-market) bank mergers.” Journal of Banking & Finance 17, no. 2–3: 411–422.
- Rhoades, S. A. 1998. “The Efficiency Effects of Bank Mergers: An Overview of Case Studies of Nine Mergers.” Journal of Banking & Finance 22, no. 3: 273–291.
- Sufian, F. 2004. “The Efficiency Effects of Bank Mergers and Acquisitions in a Developing Economy: Evidence From Malaysia.” International Journal of Applied Econometrics and Quantitative Studies 1, no. 4: 53–74.
- Sufian, F., and F. Kamarudin. 2014. “The Impact of Ownership Structure on Bank Productivity and Efficiency: Evidence From Semi-Parametric Malmquist Productivity Index.” Cogent Economics & Finance 2, no. 1: 932700.
10.1080/23322039.2014.932700 Google Scholar
- Sufian, F., F. Kamarudin, and N. H. H. M. Noor. 2013. “Assessing the Revenue Efficiency of Domestic and Foreign Islamic Banks: Empirical Evidence From Malaysia.” Jurnal Pengurusan 37: 77–90.
10.17576/pengurusan-2013-37-08 Google Scholar
- Thaker, K., V. Charles, A. Pant, and T. Gherman. 2022. “A DEA and Random Forest Regression Approach to Studying Bank Efficiency and Corporate Governance.” Journal of the Operational Research Society 73, no. 6: 1258–1277.
- Vander Vennet, R. 1996. “The Effect of Mergers and Acquisitions on the Efficiency and Profitability of EC Credit Institutions.” Journal of Banking & Finance 20, no. 9: 1531–1558.
- Wanke, P., M. K. Hassan, and L. O. Gavião. 2017. “Islamic Banking and Performance in the ASEAN Banking Industry: A TOPSIS Approach With Probabilistic Weights.” International Journal of Business and Society 18: 129–150.
- Weiguo, X., and L. Ming. 2008. “Empirical Research of M&A Impact on Chinese and American Commercial Banks'efficiency Based on DEA Method1.” Management Science and Engineering 2, no. 1: 38.
- Worthington, A. C. 1998. “The Determinants of Non-Bank Financial Institution Efficiency: A Stochastic Cost Frontier Approach.” Applied Financial Economics 8, no. 3: 279–287.
10.1080/096031098333032 Google Scholar
