Consolidation in Indian Banking Industry

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A snapshot of the Indian Banking Industry by a student at We School.

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Consolidation in Indian Banking Industry

  1. 1. Consolidation in Indian Banking Industry The M&A way
  2. 2. The Flow 10/08/2010
  3. 3. 10/08/2010 1.13 Billion People 168 Commercial Banks 84,000 Branches So are we Under-Banked or Under-Served??? Source: World Bank, World Development Indicators & RBI
  4. 4. The Indian Banking Industry 10/08/2010 Source: RBI (In Rs. Cr) Growth between 2004-2010 Business of SCBs  23.7% Business of other SCBs (private banks)  24.5 per cent Business of Nationalised banks  24.6 per cent Particulars ( As per FY 10) Nationalized SBI & Associates Private Foreign Aggregate Deposits 2583716 1108086 822801 237853 4752456 Advances 1843102 858198 632494 163260 3497054 Cost of Funds 5.35 5.32 4.83 2.82 5.09 Yield on Assets 1.00 0.91 1.28 1.26 1.05 Net NPA Ratio 0.91 1.50 1.03 1.82 1.12
  5. 5. Future of Indian Banking <ul><li>Banking Industry 2010-11 </li></ul><ul><ul><li>Credit growth expected to revive </li></ul></ul><ul><ul><li>Deposits to grow around 20 per cent </li></ul></ul><ul><ul><li>CASA of PSB’s to get stronger to about 38% </li></ul></ul><ul><li>Needs of Indian Banking </li></ul>10/08/2010 Source: CRISIL Research, RBI G R O W T H
  6. 6. 10/08/2010 - P. Chidambaram
  7. 7. Proposed Merger 10/08/2010
  8. 8. Objectives Of The Proposed Merger 10/08/2010
  9. 9. Parameters For Selecting Target Bank 10/08/2010
  10. 10. Quality Of Capital <ul><li>The Capital Cycle & Need for Capital </li></ul><ul><li>Tier 1 Capital </li></ul><ul><li>Government v/s Public Holding </li></ul>10/08/2010 PSB % of Govt. Holding Canara Bank 73.20 Bank Of India 64.47 SBI 61.43 Punjab National Bank 57.80 Union Bank Of India 55.43 Vijaya Bank 53.87 BOB 53.81 Dena Bank 51.19
  11. 11. Technology Platform <ul><li>BFSI  L argest Vertical driving software revenues </li></ul><ul><li>CBS  FINACLE </li></ul><ul><li>Integration of Database </li></ul>10/08/2010 Source: Nasscom-McKinsey study
  12. 12. Cultural Issues & HR Practices 10/08/2010
  13. 13. Synergies <ul><li>Cost and Revenue Synergies </li></ul><ul><li>Reducing overlap in operations </li></ul><ul><li>Profit Per Employee of PSBs v/s Private </li></ul>10/08/2010
  14. 14. Bank Overview <ul><li>Bank Of India </li></ul><ul><li>Govt. Of India holding at 64.47% </li></ul><ul><li>Dena Bank </li></ul><ul><li>Govt. Of India holding at 51.19% </li></ul>10/08/2010
  15. 15. Bank Overview <ul><li>Bank Of India </li></ul><ul><li>Dena Bank </li></ul>10/08/2010
  16. 16. Bank Overview <ul><li>Bank Of India </li></ul><ul><li>Dena Bank </li></ul>10/08/2010
  17. 17. Bank Overview <ul><li>Bank Of India </li></ul><ul><li>Dena Bank </li></ul>10/08/2010
  18. 18. Bank Overview <ul><li>Bank Of India </li></ul><ul><li>Dena Bank </li></ul>10/08/2010
  19. 19. Valuation <ul><li>Income Approach -Discounted Cash Flow </li></ul><ul><li>Projection of Earnings for a period of 4 years </li></ul><ul><li>Discounted at respective WACC and arrived at Final Firm Value </li></ul>10/08/2010
  20. 20. Assumptions of the Valuation <ul><li>Due-Diligence Report positive to the merger </li></ul><ul><li>Deposits  16% y-o-y, Advances  17% y-o-y </li></ul><ul><li>Banking Industry to grow at 5% FY2014 onwards </li></ul><ul><li>Zero interbank transactions between BOI and Dena Bank (for consolidated accounts) </li></ul><ul><li>Equity infusion of Rs.600 Cr. in FY2011 </li></ul>10/08/2010 Source: Crisil Research & Capital Infoline
  21. 21. Methodology <ul><li>Trend Analysis used for projections </li></ul><ul><li>Cost of Equity calculated as per CAPM model </li></ul><ul><li>Cost of Debt considered after the Tax Shield Effect </li></ul><ul><li>DCF Model for discounting FCFF </li></ul><ul><li>Constant Growth Model For Continuity Value </li></ul>10/08/2010
  22. 22. Projection – Dena Bank 10/08/2010
  23. 23. Projection – Dena Bank 10/08/2010
  24. 24. Projection - Bank Of India 10/08/2010
  25. 25. Projection - Bank Of India 10/08/2010
  26. 26. Valuation- Dena Bank <ul><li>FCFF: </li></ul>10/08/2010
  27. 27. Valuation- Dena Bank <ul><li>WACC: </li></ul>10/08/2010
  28. 28. Valuation- Dena Bank <ul><li>DCF: </li></ul><ul><li>FINAL VALUE: </li></ul>10/08/2010 DCF as on 2010 863+2063+ 1661+15364 = 19954.67
  29. 29. Valuation-Bank Of India <ul><li>FCFF: </li></ul>10/08/2010
  30. 30. Valuation-Bank Of India <ul><li>WACC: </li></ul>10/08/2010
  31. 31. Valuation-Bank Of India <ul><li>DCF: </li></ul><ul><li>FINAL VALUE: </li></ul>10/08/2010 DCF as on 2010 16596+9019 +8962+94798 = 129, 377.06
  32. 32. Proposed Method Of Payment <ul><li>Equity Swap Ratio: </li></ul><ul><li>Value of Deal  Rs. 18,390.77 Cr. </li></ul><ul><li>Our Bank to issue fresh equity shares of Rs. 90.48 Cr. </li></ul>10/08/2010
  33. 33. Consolidated Balance Sheet 10/08/2010
  34. 34. 10/08/2010
  35. 35. Branch Network Advantage <ul><li>Bank Of India  PAN India Presence </li></ul><ul><li>Dena Bank  Strong in the western part of India </li></ul>10/08/2010
  36. 36. 10/08/2010 Rural Reach Bank Of India Dena Bank Lead Bank Responsibility <ul><li>In 48 districts spread over Five states </li></ul><ul><li>In 13 districts spread over Three states </li></ul>Regional Rural Bank <ul><li>Sponsored 5 RRBs </li></ul><ul><li>1018 branches in 46 districts </li></ul><ul><li>Sponsored 2 RRBs </li></ul><ul><li>249 branches in 10 districts </li></ul>
  37. 37. Technology 10/08/2010 Lower Management & Operational Costs Introduce New Techno-centric Products Micro ATM Facility RTGS/NEFT Enabled
  38. 38. CASA <ul><li>Dena enjoys strong CASA 35%-40% </li></ul><ul><ul><li>Strong presence in Developed States & Rural Areas </li></ul></ul><ul><li>BOI has a weak CASA 30%-40% </li></ul><ul><ul><li>Low as compared to peers & also Dena Bank </li></ul></ul>10/08/2010
  39. 39. 10/08/2010 International Presence BOI-International <ul><li>BOI </li></ul><ul><ul><li>17.28% of Total Business </li></ul></ul><ul><ul><li>29 Branches </li></ul></ul><ul><li>Dena Bank </li></ul><ul><ul><li>International Expansion Plans </li></ul></ul>
  40. 40. Benefits 10/08/2010
  41. 41. Macro Economic Impact of the Deal 10/08/2010
  42. 42. 10/08/2010 Not the End…. But a New Beginning
  43. 43. 10/08/2010 10/08/2010 Comparison Table Of Leading Public Sector Banks Particulars Bank of India (Post Merger) Punjab National Bank Bank of Baroda State Bank of India Branches 4,430 4997 3,148 12,496 ATM’s 1,216 3700 1,315 16,369 Employees 50,201 56,928 38,071 2,00,299 Deposits (Rs. Cr) 3,39,869 3,04,183 2,94,074 9,81,022 Advances (Rs. Cr) 2,47,050 2,27,653 2,13,543 7,70,935 Total Business (Rs. Cr) 5,86,919 5,31,836 5,07,617 17,51,957 Major PSBs In the PSB Group(%) In the Indian Banking Sector(%) SBI - 23.84 Punjab National Bank 9.85 5.28 Bank Of Baroda 9.40 5.04 Bank Of India 9.00 4.83 Dena Bank 1.96 1.05 Bank Of India  Post Merger 10.87 5.83
  44. 44. Acknowledgement <ul><li>Faculty of our College </li></ul><ul><li>BOI Personnel </li></ul><ul><li>Every individual who directly or indirectly contributed </li></ul>10/08/2010 Behind every achievement lies an unfathomable sea of gratitude to those who accentuated it, without whom it would have never come into existence…
  45. 45. Bibliography 10/08/2010
  46. 46. 10/08/2010 Report Thank You ….

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