During the audit of the Weak Bank (W), RBI has suggested that the Bank should either merge with another bank or may close down. Strong Bank (S) has…

CA Final · Advanced Financial Management · MTP · May 2026
During the audit of the Weak Bank (W), RBI has suggested that the Bank should either merge with another bank or may close down. Strong Bank (S) has submitted a proposal of merger of Weak Bank with itself. The relevant information and Balance Sheets of both the companies are as under: Particulars Weak Bank (W) Strong Bank (S) Assigned Weights (%) Gross NPA (%) 40 5 30 Capital Adequacy Ratio (CAR) 5 16 28 Total Capital/ Risk Weight Asset Market price per Share (MPS) 12 96 32 Book value 10 Trading on Stock Exchange Irregular Frequent Balance Sheet (₹ in Lakhs) Particulars Weak Bank (W) Strong Bank (S) Paid up Share Capital (10 per share) 150 500 Reserves & Surplus 80 5,500 Deposits 4,000 44,000 Other Liabilities 890 2,500 Total Liabilities 5,120 52,500 Cash in Hand & with RBI 400 2,500 Balance with Other Banks - 2,000 Investments 1,100 19,000 Advances 3,500 27,000 Other Assets 70 2,000 Preliminary Expenses 50 - Total Assets 5,120 52,500 You are required to Calculate Swap ratio based on the above weights:Ascertain the number of Shares to be issued to Weak Bank;Prepare Balance Sheet after merger; andCalculate CAR and Gross NPA of Strong Bank after merger. Note: Present all calculation in ₹lac rounded off upto two decimal points.

Suggested Answer and Working Notes:

Swap Ratio Weak Bank (W) Strong Bank (S) Weighted Ratio Gross NPA 40 5 5/40 x 30% = 0.0375 CAR 5 16 5/16 x 28% = 0.0875 Market Price 12 96 12/96 x 32% = 0.0400 Book Value Per Share 12 120 12/120 x 10% = 0.0100 0.1750 Thus, for every share of Weak Bank, 0.1750 share of Strong Bank shall be issued. Calculation of Book Value Per Share Particulars Weak Bank (W) Strong Bank (S) Share Capital (₹ Lakhs) 150 500 Reserves & Surplus (₹ Lakhs) 80 5,500 230 6,000 Less: Preliminary Expenses (₹ Lakhs) 50 - Net Worth or Book Value (₹ Lakhs) 180 6,000 No. of Outstanding Shares (Lakhs) 15 50 Book Value Per Share (₹) 12 120 No. of equity shares to be issued: (150 / 10) × 0.1750 = 2.625 lakh shares Balance Sheet after Merger Calculation of Capital Reserve Book Value of Shares - 180.00 lac Less: Value of Shares issued - 26.25 lac Capital Reserve - 153.75 lac Balance Sheet ₹lac ₹lac Paid up Share Capital 526.25 Cash in Hand & RBI 2900.00 Reserves & Surplus 5500.00 Balance with other banks 2000.00 Capital Reserve 153.75 Investment 20100.00 Deposits 48000.00 Advances 30500.00 Other Liabilities 3390.00 Other Assets 2070.00 57570.00 57570.00 Calculation CAR & Gross NPA % of Bank 'S' after merger CAR/CRWAR = Total Capital / Risky Weighted Assets Weak Bank Strong Bank Merged Capital Adequacy Ratio (CAR) 5% 16% Total Capital 180 lac 6000 lac 6180 lac Risky Weighted Assets 3600 lac 37500 lac 41100 lac CAR = (6180 / 41100) × 100 = 15.04% GNPA Ratio = Gross NPA / Gross Advances ×100 Weak Bank Strong Bank Merged GNPA (Given) 0.40 0.05 Gross NPA 0.40 = GNPA W /3500 lac = 1400 lac 0.05 = GNPA S /27000 lac = 1350 lac 2750 lac

Topics: Mergers, Acquisitions and Corporate Restructuring

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