International Journal for Multidisciplinary Research (IJFMR)

E-ISSN: 2582-2160 ● Website: www.ijfmr.com ● Email: [email protected]

History of Merger and Acquisition of Banking

Sector in Nepal
Dr. Sabita Bhandari

Assistant Manager, Rastriya Banijya Bank

Abstract:
Merger and Acquisition is a relatively a new concept to the Nepali Banking and Financial Institutions
(BFIs). Nepal Rastra Bank introduced the Merger Bylaw 2068 (B.S) grounded on the Company Act
2063(B.S) article 177, BAFIA 2063 (B.S) article 68 and 69, and encouraged all the BFIs to undergo
merger as a consolidation. 2019, the Government of India announced that 10 PSBs were to be merged
into 4. In this massive consolidation, Vijaya Bank and Dena Bank were merged with the Bank of Baroda.
Oriental Bank of Commerce and the United Bank of India were merged with the Punjab National Bank.
Syndicate Bank was merged into Canara Bank. In the present Scenario, there are some reasons that
forced the Nepalese Banking Sector to go into the process of Merger and Acquisitions. They can be
explained as below: -Competitive advantage Merger is that in this process, competition is reduced
because merger eliminates competitors from the banking industry. With the help of mergers and
acquisitions in the banking sector, the banks can achieve significant growth in their operations and
minimize their expenses to a considerable extent. -Capital requirement The paid-up capital requirement
of the Nepalese bank is have to increase minimum paid-up capital from existing Rs 2 billion to Rs 8
billion. It may not be difficult for large banks to meet the requirement set by the government but for the
middle and small scaled banks, it may be very hard and sometimes impossible. So, mergers and
acquisitions can be a solution to this requirement. Open Financial Market Due to liberalization policy of
govt. of Nepal financial market opened up for international investment too. Many foreign banks has
already applied to start operation. It concerns about the capacity of local banks to compete with its
foreign counterparts. Hence, mergers and acquisitions will minimize costs, increase the economies of
scale, and increase institution's capacity, thus being able to compete at international level. - Increase
capabilities Capability may not just be a particular department, the capability may come from acquiring
a unique technology. The financial technology is becoming advanced and costly which increases cost of
capital of banks and financial institutions. In this context, merger and acquisition in Nepalese banking
sector would help adopt the advanced financial technologies and provide modern banking services to the
people even in the rural areas. Name of Merged Banks in Nepal: The following data clears the picture of
mergers in Nepalese Banking Industry. Commercial Banks Source- NRB Financial statement Report,
Mid Jan, 2020. The list of mergers in Nepalese Banking Industry. Commercial Banks Source- NRB
Financial statement Report, Mid Jan, 2020. Name of Banks Year of Merged Machhapuuchhre Bank Ltd.
2012-07-09 2 NIC Asia Bank Ltd. 2013-06-30 3 Prabhu Bank Ltd. 2016-02-12 4 Bank of Kathmandu
Ltd. 2016-07-14 5 Siddhartha Bank Ltd. 2016-07-21 6 Civil Bank Ltd. 2016-10-17 7 Nepal Credit and
Commerce Bank Ltd. 2017-01-01 8 Rastriya Banijya Bank Ltd. 2018-05-02 9 Mega Bank Nepal Ltd.
2018-05-13 10 NMB Bank Ltd. 2019-09-28 11 Global IME Bank Ltd. 2019-09-04. Shine Resunga
Development Bank Ltd 2013-03-17 2 Sangrila Development Bank Ltd 2014-07-13 3 Deva Development

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Bank Ltd 2015-07-10 4 Kailash Bikash Bank Ltd. 2016-04-04 5 Jyoti Bikas Bank Ltd 2016-08-12 6
Garima Bikas Bank Ltd 2016-09-20 7 Mahalaxmi Bikas Bank Ltd 2017-07-02 8 Gandaki Bikas Bank
Ltd 2017-07-05 9 Lumbini Bikas Bank Ltd. 2017-07-09 10 Kamana Sewa Bikas Bank Ltd 2017-08-04
11 Saptakoshi Development Bank Ltd. 2019-07-07 12 Tinau Mission Bikas Bank Ltd. 2019-07-16 .The
banking sector will see the successful completion of mergers of four commercial banks - Nepal
Investment Bank-Mega Bank, Global IME Bank-Bank of Kathmandu, and an acquisition - Prabhu Bank-
Century Commercial Bank . A bank merger helps your institution scale up quickly and gain a large
number of new customers instantly. Not only does an acquisition give your bank more capital to work
with when it comes to lending and investments, but it also provides a broader geographic footprint in
which to operate advantages in M&A – cost cutting, efficient use of resources, acquisition of
competence or capability, tax advantage and avoidance of competition are among the few. Income Tax
Act of Nepal does not define the Term 'Merger' and 'Acquisition'. Banks merged in 2023:
List of Banks Closed Details

Bank of Kathmandu 2023 Merged with Global IME Bank

Century Commercial Bank 2023 Acquired by Prabhu Bank

Commerz & Trust Bank 2014 Merged with Global IME Bank

Grand Bank Nepal 2016 Merged with Prabhu Bank

So far, Commercial Banks in Nepal have gone into 62 merger or acquisition with other BFIs. The table
below shows the list of BFIs Involved in Merger and Acquisition with the commercial banks.Global
IME and Bank of Kathmandu : A merger agreement was signed between Global IME Bank and BOK on
June 2. The agreement was signed by Global IME Bank Chairman Chandra Prasad Dhakal and Bank of
Kathmandu Chairman Prakash Shrestha. Both the banks agreed to merge on a 1:1 swap ratio.
Mergers seek to improve income from services, but the in- crease is offset by higher staff costs; return
on equity improves be- cause of a decrease in capital. Acquisitions aim to restructure the loan portfolio
of the acquired bank; improved lending policies result in higher profits. An acquisition is a cycle
wherein one organisation assumes or takes over the responsibility for another organisation. A merger is a
cycle wherein more than one organisation's approach functions as one. No new shares are issued in case
of acquisitions. New shares are issued in case of mergers. Merger and Acquisition is considered a vital
tool to facilitate the sound and efficient performance of the financial industry while subjugating the
problems underlying the system. The instrument also plays a key role in bringing down the cost of
operations and increasing the market competitiveness and profitability of the firms . In the international
financial markets, M&A is often conducted to fulfil the demands of regulatory bodies and as an attempt
to enhance the competitive advantage and expand the operations of the financial institutions. But, despite
these hopeful expectations, almost half of the mergers and acquisitions fail to meet the initial
expectations. Several studies have illustrated that employee dynamics and human resource issues, both
pre-merger and post-merger, are important determinants of the success or failure of the actual merger or
acquisition process. The process of M&A often involves a high degree of uncertainty and can be
challenging for the employees. Buono and Bowditch state that mergers can increase anxiety among
employees, thereby frequently causing counterproductive behaviours. The increasing changes within an

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organization lead to increase in job insecurity among employees, ultimately resulting in the decrease of
organizational commitment, trust in the organization, job satisfaction and job performance . Tetenbaum
(1999) points out that the productivity of an organization goes down by 25-50 percent in such situations.
Schuler and Jackson illustrate that more than half of the executives leave in the first year of M&A; this
exodus of employee links with the concept of employee engagement and is one of the major reasons for
the failure of M&A. Owing to a number of merger and acquisitions taking place in the financial sector of
Nepal, this clearly exhibits that the turnover intentions of employees after merger is affected by the post-
merger organizational identification. The finding has a profound managerial implication- if the new
management after merger and acquisition cannot 46 NRB Economic Review provide proper identity to
its employees, the firm could suffer exodus of valuable an asset called human resource. This calls for
timely interventions by the leaders in the organization. Furthermore, in order to develop post-merger
organizational identification, the management should focus on pre-merger organizational identification,
utility with merger and trust in merger. This provides a proper guidance to the management in order to
help it design the programs after the merger. Additionally, it indicates that the trust in merger is the only
factor that establishes satisfaction with merger. These represents the Nepali organizations, in general,
and banking and financial institutions, in particular, with a clear idea of the management of human
resource following the merger and acquisition process.

Hence, Merger and Acquisition is a relatively new concept to the Nepali Banking and Financial
Institutions (BFIs). Nepal Rastra Bank introduced the Merger Bylaw 2068 (B.S) grounded on the
Company Act 2063(B.S) article 177, BAFIA 2063 (B.S) article 68 and 69, and encouraged all the BFIs
to undergo merger as a consolidation.Mergers and Acquisitions in the banking sector are on the increase
within the recent past, each globally and in Nepal. Presently, the Nepalese Banking Sector is facing a big
problem and is in a critical stage. So, in order to cope with this problem Nepal Rastra Bank (NRB) has
directed the banking institutions to go in the process of mergers and acquisitions. NRB Merger By laws
policy, 2011 has provided several benefits to the merging the banks and the financial institutions of the
country are opting in the process of merger. The Government of Nepal has been promoting mergers as a
means to achieve efficiency through economies of scale and scope by facilitating a consolidation
between weaker and stronger banks to create an efficient and robust merged entity. The merger and
acquisition is the key to make the financial stability strong by strengthening financial institutions. The
number of BFIs involved in merger and acquisition has been increasing after the introduction of
merger/acquisition policy aimed at strengthening financial stability. After the introduction of merger and
acquisition policy by NRB, the number of BFIs involved in this process reached 185. Out of which, the
license of 140 BFIs was revoked thereby forming 45 BFIs.Nepalese banking sector accepted merging
and the acquisition process in Nepal by NRB Merger By laws policy, 2011. With the help of mergers
and acquisitions in the Nepalese banking sector, banks have been seen as beneficial and significant
growth in their operations and minimize their expenses to a considerable extent. The poor performing
banks have been merged and have become more competitive and standard. Expectation of stakeholder
addressed by the banks. Employees also come together and provide service satisfactory, not difficult to
employee adjustment due to increasing number of branches towards different local bodies. Trust of
customer are also building with getting different modern types facilities and several other advantages.
Nepalese banks are interested to come in this process, they may not be fruitful in all the case. Moreover,

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 International Journal for Multidisciplinary Research (IJFMR)
E-ISSN: 2582-2160 ● Website: www.ijfmr.com ● Email: [email protected]

it depends on how effective the management is and how the stakeholders perceive the mergers and
acquisitions decision.

Keywords: Merger& Aquisition, Competitive Advantage, Capital Requirement, Financial Technology,

Liberalization

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