The impact of mega-mergers on uninsured depositors: Evidence from Indian commercial banks

Abstract

This paper investigates how depositors fare in banking mega-mergers. The theoretical section demonstrates that the banks communicate their risk profile to depositors using an interest rate signalling model. These signalling efforts become particularly strong during mega-mergers when depositors’ concerns regarding deposit interest rates intensify. The empirical section examines the impact of the 2019 Indian commercial bank mega-merger on acquiring bank depositors from 2000 to 2023. The study leverages the heterogeneity in the bank’s ownership structure to address two empirical questions (i) Did the 2019 mega-merger affect Indian depositors? (ii) Do depositors associate with the interest ratios following a mega-merger? The study finds that mega-mergers have a positive effect on acquiring bank depositors. The private benefits given to high-value depositors outweigh the public information provided to average depositors. The study reports that average depositors of acquiring banks are positively associated with interest spread post-mega-merger. High-value depositors do not associate with interest ratios during mega-mergers.