The document summarizes the merger between Centurion Bank of Punjab (CBoP) and HDFC Bank in 2008. [1] The merger created a larger bank with over 1,100 branches, deposits of Rs. 1.22 trillion, net advances of Rs. 890 billion, and a balance sheet size of over Rs. 1.63 trillion. [2] The objectives of the merger were to achieve economies of scale, widen product offerings, and gain more market dominance. [3] The merger faced challenges integrating technologies, employees, operations, and infrastructure between the two banks.

1. Merger of Centurion Bank of
Punjab and HDFC Bank
• Altaf Hussain Siddiqui • Rahul Dhandania
• Pankaj Singh • Vikram Duggal
• Rajendra Inani • Vaibhav Samant

2. 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

3. 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

4. History – HDFC Bank
• August 1994 – Incorporation of HDFC Bank
• 2000- Times Bank Limited
• 2008- Centurion Bank of Punjab Limited

5. HDFC Strategy
• Increase market share in India
• Maintain low cost of funds
• Strong asset quality
• Disciplined risk management
• High earnings growth with low volatility

6. 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.

7. 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

8. 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

9. 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%

10. 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

11. 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.

12. 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

13. Roadblocks
• Technological Issues – Finacle Vs Finware
• HR Issues – Mapping of Employees
• Operational Issues –Account opening, cheque
book issue, net banking, Recurring Deposits

14. 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

15. 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.

16. 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

17. 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%

18. 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

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