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The IUP Journal of Bank Management
The Impact of Acquisition of an Insurance Company on Bank’s Financial Performance: A Study on the Acquisition of Metlife India Insurance Co. Ltd. by Punjab National Bank
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This paper examines the impact of acquisition of an insurance company on a bank’s financial performance in the light of the acquisition of Metlife India Insurance Co. Ltd. by Punjab National Bank (PNB). The paper aims to study (a) whether positive or negative cumulative excess returns have accrued to PNB shareholders during the acquisition announcement; (b) whether there is any improvement in the financial and operating performance of PNB because of acquiring an insurance company; and (c) what are the reasons for the improvement or deterioration in the performance of the banking and insurance firms that opt for M&A. The present study uses CAMEL model and regression analysis for analyzing the three-year average performance before and after the bancassurance for the period of study, i.e., 2008 to 2014. The results reveal that in the short run, the indifferent behavior shown by the stock market is the cause of concern for the bank. The bank should take appropriate measures to disseminate the information with respect to its acquisition of an insurance company to its investors. But in the long run, the impact of acquisition of an insurance company is felt on the bank’s financial and operating performances.

 
 
 

Liberalization, privatization and globalization have brought many changes around the world. These changes are also seen across the financial markets of the globe as it has enabled opening up of the economy, easing the existing regulations and bringing new products and services through innovations. Indian financial system is no exception to such changes. The number of new financial instruments and new financial services has increased over a period of time. These outputs due to financial innovations have helped the financial intermediaries to cope with competition, reduce and manage the risk involved in business, and stabilize their earnings. One such financial innovation is bancassurance that has brought many changes in the performance of the Indian banking sector. Bancassurance is the marketing of retail insurance products to a commercial bank’s client base. Bancassurance is a simple method of banks distributing insurance products. Thus, many financial products and services are provided on the same platform (Kumar, 2000; Benoist, 2002; and Davis, 2007). Bancassurance is found to be reliable (Choudhury and Singh, 2015a) and responsive (Choudhury and Singh, 2015b). It is also found that customers have favorable experience from bancassurance channel (Choudhury and Singh, 2015c). Hence, this study makes an attempt to investigate if bancassurance as a financial innovation in the Indian banking system has contributed to improving the performance of banks.

 
 
 
Bank Management Journal, Impact of Acquisition of an Insurance Company, Bank’s Financial Performance, A Study on the Acquisition, Metlife India Insurance