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Merger of Centurion Bank of Punjab and HDFC Bank � Altaf Hussain Siddiqui � Rahul Dhandania � Pankaj Singh � Vikram Duggal � Rajendra Inani � Vaibhav Samant2. 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 crores3. 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 Bank4. History � HDFC Bank � August 1994 � Incorporation of HDFC Bank � 2000- Times Bank Limited � 2008- Centurion Bank of Punjab Limited5. HDFC Strategy � Increase market share in India � Maintain low cost of funds � Strong asset quality � Disciplined risk management � High earnings growth with low volatility6. 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 market8. 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 synergy9. 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 focus11. 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 accounting13. Roadblocks � Technological Issues � Finacle Vs Finware � HR Issues � Mapping of Employees � Operational Issues �Account opening, cheque book issue, net banking, Recurring Deposits14. 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 SBI15. 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 ass
et quality of CBoP in personal loans and 2 wheeler loans � Net interest margins and CASA were impacted adversely17. 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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. Acquisition in which all assets andliabilities are absorbed by the buyer.
. More generally, any combination of twocompanies.
. Horizontal Merger . Vertical Merger . Conglamerate Merger . Cocentric Merger
. To Create Synergy . Reduce Expenses . Lack of Self-sufficiency
. HDFC Bank was incorporated in August 1994.
. Currently has an nationwide network of 1,416Branches and 3,570 ATM's in 550 Indian towns andcities.
. Bank reported a net profit of Rs. 4.3 billion, p45.2%.
. Total deposits were Rs. 993.9 billion, up 48.9%.
. Total balance sheet size too grew by 46.7% toRs.1,314.4 billion.
. Centurion Bank was incorporated on 30 June 1994 and received its certificate of Commencement of Business on 20 July.
. On 29 June 2005, the Boards of Directors ofCenturion Bank and Bank of Punjab agreed to amerger of the two banks. The combined bank took as its name Centurion Bank of Punjab. Bank of Punjab had been founded in 1995.
. It operated on a strong nationwide franchise of 403 branches and had over 5,000 employees.
. In addition to being listed on the major Indian stock exchanges, the Bank's shares are also listed on theLuxembourg Stock Exchange.
. Merger took Place on 25th February 2008. . Merger took place with a swap ratio 1:29 . The combined entity would have a
nationwide network of 1,148 branches. . Deposit base of around Rs. 1,200 billionand net advances of around Rs. 850 billion. . The balance sheet size of the combined entity would be over Rs. 1,500 billion.
HDFC CENTURION BANK OF PUNJAB First to get banking license Large nationwide network first to do a merger in the privatesector with Times Bank in 1999 Extremely valuable franchise strength clearly lies in the use oftechnology Highly talented employees Ability to deliver world-classservice with rapid response time. Strong Leadership position in market
. A merger between the banks providessignificant synergies to the combinedentity.
. The proposed merger would furtherimprove the franchise and customerproposition offered by the individualbanks."
. This merger would create a world-classbank in quality and scale and would set thestage to compete with banks both locallyand globally.
. Minimum Balance should be reduced from 10000 to 1000.
. Make people understand about variousproducts.
. Company should open more branches incities.
THANK YOU
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