Do the Banks' Mergers and Acquisitions Reduce Non Performing Asset in India?

Mergers and acquisitions were standard measures in the banking system of India for consolidating the banks in financial distress caused by high Non Performing Asset (NPA). This chapter analyses whether the mergers and acquisitions helped to reduce NPA significantly over the period of 2005 to 2018 by comparing the bank’s hypothetical GNPA to Gross Advances ratio (GNPA ratio) in no merger scenario and the bank’s actual GNPA ratio following a merger or acquisition. Our findings reveal no significant impact of mergers and acquisions on the reduction of NPA during the period under consideration. Rather, the process transfers the burden of NPA from the weak bank to the stronger one in most cases. In addition, to check the robustness of the result, the study performed a panel regression analysis, which also confirms the insignificant effects of mergers and acquisitions on the reduction of NPAs in Indian banks.