Assessing the Financial Efficiency of Indian Banks during its Merger and Acquisitions using Data Envelopment Analysis Approach

Abstract

Mergers and acquisitions (M&A) are a foundation stone of growth and market expansion for Indian banks, yet empirical evidence of their impact on technical efficiency remains mixed. This study utilises a non-parametric Data Envelopment Analysis (DEA) approach namely the Variable Return to Scale (VRS) model to evaluate the financial efficiency of four major Indian banks (State Bank of India, Kotak Mahindra Bank, Indian Overseas Bank, and ICICI Bank). By analyzing seven key performance metrics across a ten-year window (five years pre- and post-merger), the research identifies distinct efficiency trajectories. Results indicate that while private sector institutions and smaller public units like Indian Overseas Bank achieved efficiency stability (score of 1.0) following consolidation, the largest public entity, State Bank of India, experienced post-merger volatility and a marginal efficiency decline. These findings suggest that while M&A is an effective tool for stabilizing weak banks, large-scale public mergers face significant integration hurdles. This study provides vital insights for bank managers and policymakers on the necessity of proper post-merger monitoring to ensure long-term financial health.