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Merger of c bo p and hdfc Merger of c bo p and hdfc Presentation Transcript

  • Merger of Centurion Bank of Punjab and HDFC Bank • Altaf Hussain Siddiqui • Rahul Dhandania • Pankaj Singh • Vikram Duggal • Rajendra Inani • Vaibhav Samant
  • Background • In 2008, RBI sanctioned merger of CBoP with HDFC • All branches of CboP => branches of HDFC Bank • Nationwide network of 1,167 branches • Deposit base of around Rs. 1,22,000 • Net advances of around Rs. 89,000 crores • Balance sheet size would be over Rs. 1,63,000 crores
  • History - CBoP • 30 June ‘94 – Incorporation of Centurion Bank • JV - Century Finance and Keppel Group • 2005 - Bank of Punjab merges with Centurion bank - Centurion Bank of Punjab • 2006 - CBOP acquires Lord Krishna Bank
  • History – HDFC Bank • August 1994 – Incorporation of HDFC Bank • 2000- Times Bank Limited • 2008- Centurion Bank of Punjab Limited
  • HDFC Strategy • Increase market share in India • Maintain low cost of funds • Strong asset quality • Disciplined risk management • High earnings growth with low volatility
  • Environment • Despite the economic crunch worldwide Indian banking houses had managed to show positive growth • While banks in the developed economies were on a cost cutting spree Indian banks were on a growth phase • Metro licenses were hard to come by for most banks.
  • Nature and context of the merger • Horizontal merger • The principal objectives: – Achieve economies of scale – Widening the line of products – To get more dominance on the market
  • Nature and context of the merger • This merger was also important to face the competition posed by foreign banks looking to enter on account of RBI’s liberal policies and the domestic competition posed by ICICI bank • CBoP had traditionally been strong in high yielding SME and retail segments, while HDFC Bank had an enviable retail deposit franchise • Both the banks had a strong foothold in vehicle financing, which formed the basis for a natural synergy
  • Product Breakup Number of Branches Banks CBOP HDFC Merged Metro 127 287 414 Non metro 267 467 734 Total 394 754 1148 % metro 32% 38% 36% %Non metro 68% 62% 64% Increase for HDFC 44% 57% 52% Increase for CBoP 226% 175% 191%
  • Intent of Merger • Increase in scale of operations • Increase in geography • Management bandwidth • Potential of Business synergy and cultural fit • HDFC’s Brand leverage and increased utilization of CBOP Branches • CBOP’s SME focus complement HDFC’s Corporate focus
  • Deal Size and Structure • CBOP was valued at $2.63 billion (Rs 9510 crores) • All stock deal • Swap ratio was fixed at 1:29 • 26,200,220 warrants convertible into an equivalent number of equity shares to HDFC Limited on a preferential basis at a rate of Rs. 1,530.13 each.
  • Deal Size and Structure • Principal shareholders of CBoP – Bank Muscat, Sabre Capital and the Kephinance Investment (Mauritius) decided to move away from this partnership. • No single lay off of employee • Pooling of interest method used for accounting
  • Roadblocks • Technological Issues – Finacle Vs Finware • HR Issues – Mapping of Employees • Operational Issues –Account opening, cheque book issue, net banking, Recurring Deposits
  • Roadblocks • Infrastructural Issues – Multiplicity of branches, ATMs • Risk Issues – NPA , cost of funds, CASA • Ongoing agitation by unions of public sector banks against consolidation of SBI
  • Regulatory & Legal Frame Work 1. SEBI (substantial Acquisition of shares &Takeovers) Regulations 1997 2. The Securities and Exchange Board of India Act,1992 . 3. Security Contract Regulation Act ,1956 . 4. RBI Mergers & Acquisition Approval 5. The Depositories Act,1956. 6. SEBI Disclosure and Investor Protection Guidelines 2000. 7. Securities and Exchange Board of India (Prohibition of Insider Trading Regulation ),1992. 8. Securities and Exchange Board of India (Merchant Bankers) Rules/Regulation 1992. 9. SEBI (Delisting of Securities )Guidelines,2003. 10. Foreign Exchange Management Act,1999. 11. Companies Act,1956.
  • Impact of the Merger • Increased footprint and metro presence • 7th largest bank with asset size of Rs.1097 billion • Recorded growth figures as follows – Net profit by 44.6% to Rs. 4.6 billion – Net Interest Income by 74.9% to Rs.17.2 billion – Advances grew by 79.8% & deposits by 60.4% • High level of write-offs due to bad asset quality of CBoP in personal loans and 2 wheeler loans • Net interest margins and CASA were impacted adversely
  • Gains to Shareholders Sept SWAP SWAP Value April-10 2007 Ratio value App. HDFC 1433 1 1433 1984 38.45% CBOP 41 29 1189 1984 66.86% Index 5001 1 5001 5250 4.98%
  • Key Learning • Integrating of IT systems without disrupting customer service • Mapping of Employees • Customer communication • Elimination of redundancies • Top management vision • Coordination between different functions • Structuring of the deal and tax implications
  • THANK YOU