Asound and fundamentally strong financial system is a prerequisite to the growth of a vibrant economy. Globalization of financial markets intensified competition leading to the establishment and growth of monolithic financial institutions. Rapid growth of international trade, the possibility of banks abroad pursuing activities prohibited in the home country, and the distinct opportunity of tapping overseas Eurodollar and other markets spawned consolidation in US, Europe and Japan. It was widely expected that consolidation would enable banks to enhance efficiencies and increase revenues through expansion. The relaxation of historical restrictions on both interstate and intrastate banking as well as the Gramm-Leach-Bliley Act (1999) provided an impetus to banks to merge across geographies. Jones et al. (2005) show that consolidation in the US banking industry led to a reduction of nearly 50% in the number of bank and thrift organizations over the last 20 years. Consequently, consolidation emerged as a defining characteristic of the modern banking world primarily to leverage benefits of large size, expanding and diversifying bank loan portfolios to lessen the likelihood of failure and harnessing core competencies.

Globalization and modernization have led to greater integration of world economies. Since the publication of the "First Narasimham Committee Report on the Financial System (1991)", the size, structure and performance of banks in India evoked considerable debate across the development spectrum. An important strand of this debate, particularly in the context of Basel II requirements of prudential norms and sound financial parameters like higher Capital Adequacy Ratio (CAR) and low Non-Performing Assets (NPAs), relates to Mergers and Acquisitions (M&As) in the banking industry.

Banks in emerging economies have been consolidating to exploit core competence, reduce operating cost and leverage large business volume. Financial sector liberalization enhanced the efficiency and competitiveness of Indian banks. Shrinking margin, intensified competition, stringent prudential norms, pressure on profits and limited options for organic growth have also made it necessary to explore ways for inorganic expansion.

Analyst Magazine, Financial System, Financial Markets, Capital Adequacy Ratio, Non-Performing Assets, NPAs, Mergers and Acquisitions, M&As, Banking Industry, Banking System, Public Sector Banks, PSBs, Development Financial Institutions , DFIs, Indian Banks' Association, IBA.