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INTRODUCTIONThree major factors influencing Financial

Sector in last decade are Globalization, ITand Telecommunication and Convergence.

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Three main phases of Indian BankingSector :

1. Phase 1(1786-1969)

2. Phase 2(1969-1991)

3. Phase 3(1991 onwards)

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Objectives of mergers in BankingIndustry :

I. To restrict competition and overcrowding of

banks.II.To expand market with less competition.

III.To compete with foreign banks in global era.

IV. More services under one roof.V. Risk management.

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In Indian Bank Association DocumentBanking Industry: Vision 2010, it is

visualized that merger between PublicSector Banks, Public Sector Banks andPrivate Sector Banks be the next logicalthing to stay in the market as well as in

competitive race.

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Consolidation alone will give banks the muscle, size and

scale to act like world-class banks. We have to think

global and act local and seek new markets, new classes

of borrowers. It is heartening to note that Indian BanksAssociation is working out a strategy for consolidation

among banks.

- P. Chidambaram

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Mr. Leeladhar, Deputy Governor Of RBI,while addressing Canara Chamber OfCommerce And Industry at Mangalore,

said that We are slowly but surelymoving from a regime of large numberof small banks to small number of largebanks.

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The recommendation of NarasimhanCommittee is also an important reason tothink about the mergers. In 1997 itrecommends that there is need to havesmall number of big banks with few large

local area banks instead of having largenumber of small banks.

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Types of Consolidation : There are 2

types.

1. International Consolidation

2. Domestic Consolidation

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Domestic Consolidation is furtherdivided into 4 types.

i. Horizontal Consolidation

ii. Vertical Consolidation

iii. Conglomerate Consolidation

iv. Concentric Consolidation

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Challenges Ahead Before Mergers :

a. Ability of weaker banks to be turned aroundby healthier banks.

b. Sector specialization.c. Geographically concentration.

d. Cultural Barriers.

e. Different HR Policies.f. Technological problem.

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Mr. Leeladhar, Deputy Governor Of RBI,while addressing Canara Chamber OfCommerce And Industry at Mangalore,

said that We are slowly but surelymoving from a regime of large numberof small banks to small number of largebanks.

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Strength

i. Increase in Profitability.

ii. Fall in cost income of the banks.

iii. Improvement in technology.

iv. More financial Resource.

v. More customer satisfaction.

vi. Many resources under one roof.vii. Large number of borrowers and depositors.

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Opportunities

a) High competitive strength

b) Large scale operation

c) Strong Financial sector.

d) Easy market penetration

e) Increased capital base and customers.

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Threats

1. Problem in cultural integration of banks.

2. Collapse of small banks.

3. Opposition from employee unions.

4. Chances of monopoly.

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CONCLUSION