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C.K.PITHAWALA INSTITUTE OF

MANAGEMENT

CASE STUDY ON MERGER BETWEEN

HDFC BANK AND CENTURION BANK OF

PUNJAB

SUB:- STRATEGIC MANAGEMENT

SUBMITTED BY:-MANDAVIYA DHAVAL (107060592090)

KOSHTI RAKESH (107060592102)

SUBMITTED TO:-

DR. SNEHAL MISTR

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CASE STUDY ON MERGER BETWEEN

HDFC BANK AND CENTURION BANK OF

PUNJAB

INTRODUCTION OF BANKS BEFORE MERGER

ABOUT HDFC BANK

Promoted in 1995 by Housing Development Finance Corporation (HDFC), India's

leading housing finance company,

HDFC Bank is one of India's premier banks providing a wide range of financial

products and services to its over 11 million customers across over three hundred

cities using multiple distribution channels including a pan-India network of

branches, ATMs, phone banking, net banking and mobile banking. Within a

relatively short span of time, the bank has emerged as a leading player in retail

banking, wholesale banking, and treasury operations, its three principal business

segments.

The bank's competitive strength clearly lies in the use of technology and the ability

to deliver world-class service with rapid response time. Over the last 13 years, the

bank has successfully gained market share in its target customer franchises while

maintaining healthy profitability and asset quality.

As on December 31, 2007, the Bank had a network of 754 branches and 1,906

ATMs in 327 cities.

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For the quarter ended December 31, 2007, the bank reported a net profit of Rs. 4.3

billion, up 45.2%, over the corresponding quarter of previous year. Total deposits

were Rs. 993.9 billion, up 48.9% over the corresponding quarter of previous year.

Total balance sheet size too grew by 46.7% to Rs.1,314.4 billion.

HDFC is India's premier housing finance company and enjoys an impeccable track

record in India as well as in international markets.

Since its inception in 1977, the Corporation has maintained a consistent and

healthy growth in its operations to remain the market leader in mortgages.

Its outstanding loan portfolio covers well over a million dwelling units. HDFC hasdeveloped significant expertise in retail mortgage loans to different market

segments and also has a large corporate client base for its housing related credit

facilities.

With its experience in the financial markets, a strong market reputation, large

shareholder base and unique consumer franchise, HDFC was ideally positioned to

promote a bank in the Indian environment.

ABOUT CENTURION BANK OF PUNJAB

Centurion Bank of Punjab is one of the leading new generation private sector

banks in India. The bank serves individual consumers, small and medium

businesses and large corporations with a full range of financial products and

services for investing, lending and advice on financial planning.

The bank offers its customers an array of wealth management products such as

mutual funds, life and general insurance and has established a leadership 'position'.

The bank is also a strong player in foreign exchange services, personal loans,

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mortgages and agricultural loans. Additionally the bank offers a full suite of NRI

banking products to overseas Indians.

On August 29, 2007, Lord Krishna Bank (LKB) merged with Centurion Bank of

Punjab, post obtaining all requisite statutory and regulatory approvals. This merger

has further strengthened the geographical reach of the Bank in major towns and

cities across the country, especially in the State of Kerala, in addition to its existing

dominance in the northern part of the country.

Centurion Bank of Punjab now operates on a strong nationwide franchise of 394

branches and 452 ATMs in 180 locations across the country, supported by

employee base of over 7,500 employees. In addition to being listed on the major

Indian stock exchanges, the Banks shares are also listed on the Luxembourg Stock

Exchange.

BASIC INTRODUCTION OF MERGER

Globally mergers and acquisitions have become a major way of corporate

restructuring and the financial services industry has also experienced merger waves

leading to the emergence of very large banks and financial institutions. The key

driving force for merger activity is severe competition among firms of the same

industry which puts focus on economies of scale, cost efficiency, and profitability.

The other factor behind bank mergers is the too big to fail principle followed by

the authorities. In some countries like Germany, weak banks were forcefully

merged to avoid the problem of financial distress arising out of bad loans and

erosion of capital funds. Several academic studies (see for example Berger et.al.

(1999) for an excellent literature review) examine merger related gains in banking

and these studies have adopted one of the two following competing approaches.

The first approach relates to evaluation of the long term performance resulting

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from mergers by analyzing the accounting information such as return on assets,

operating costs and efficiency ratios.

A merger is expected to generate improved performance if the change in

accounting-based performance is superior to the changes in the performance of

comparable banks that were not involved in merger activity. An alternative

approach is to analyze the merger gains in stock price performance of the bidder

and the target firms around the announcement event. Here a merger is assumed to

create value if the combined value of the bidder and target banks increases on the

announcement of the merger and the consequent stock prices reflect potential net

present value of acquiring banks.

Our objective here is to present a panoramic view of merger trends in India, to

ascertain the perceptions of two important stake-holders viz. shareholders and

managers and to discuss dilemmas and other issues on this contemporary topic of

Indian banking. We believe that the currently available merger cases do not form a

sufficient data set to analyze the performance of mergers based on corporate

finance theory because almost all the mergers are through regulatory interventions

and market driven mergers are very few. In this paper, the perception of

shareholders is ascertained through an event study for analysis that documents the

impact of bank mergers on market value of equity of both bidder and target banks.

The perception of bank managers is ascertained through a questionnaire based

survey that brings out several critical issues on bank mergers with insights and

directions for the future.

Finally, we present arguments on why Indian banks should go for mergers. These

arguments are also applicable to other Asian countries which have bank

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consolidation on their agenda. To the best of our knowledge, this paper is perhaps

the first attempt at analyzing a plethora of issues on bank mergers in one place,

thus providing useful inputs for researchers as well as policy makers. This paper is

organized as follows. The next section presents a brief review of empirical studies

on bank mergers. Section II presents some cross country experience on bank

consolidation and also discusses consolidation trends in Indian banking. Adopting

standard event study methodology, the impact of both forced and voluntary

mergers on shareholders wealth is analyzed in section IV. Section V analyzes

some critical issues in mergers based on the perception of banks by reviewing

results from a questionnaire based survey. In section VI, we present arguments infavor of large banks and need for banking consolidation in India and other Asian

economies. Finally, section VII concludes the paper.

LITERATURE REVIEW OF MERGER

The two important issues examined by several academic studies relating to bank

mergers are: first, the impact of mergers on operating performance and efficiency

of banks and second, analysis of the impact of mergers on market value of equity

of both bidder and target banks.

Berger et.al (1994) :- provides an excellent literature review on both these issues.

Hence in what follows we restrict the discussion to reviewing some of the

important studies.

The first issue identified above is the study of post merger accounting profits,

operating expenses, and efficiency ratios relative to the pre-merger performance of

the banks. Here the merger is assumed to improve performance in terms of

profitability by reducing costs or by increasing revenues.

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Piloff (1996) and Berger (1997):- Do not find any evidence in post-merger

operating performance. Berger and Humphrey (1994) reported that most studies

that examined pre-merger and post-merger financial ratios found no impact on

operating cost and profit ratios. The reasons for the mixed evidence are: the lag

between completion of merger process and realization of benefits of mergers,

selection of sample and the methods adopted in financing the mergers. Further,

financial ratios may be misleading indicators of performance because they do not

control for product mix or input prices. On the other hand they may also confuse

scale and scope efficiency gains with what is known as X-efficiency gains. Recent

studies have explicitly employed frontier X-efficiency methods to determine the X-

efficiency benefits of bank mergers. Most of the US based studies concluded that

there is considerable potential for cost efficiency benefits from bank mergers (since

there exists substantial X-inefficiency in the industry), but the data show that on

an average, such benefits were not realized by the US mergers of the 1980s

Landerman (2000):- explores potential diversification benefits to be had from

banks merging with non banking financial service firms. Simulated mergers

between US banks and non-bank financial service firms show that diversification

of banks into insurance business and securities brokerage are optimal for reducing

the probability of bankruptcy for bank holding companies. Wheelock and Wilson

(2004) find that expected merger activity in US banking is positively related to

management rating, bank size, competitive position and geographical location of

banks and negatively related to market concentration. Substantial gains from

mergers are expected to come from cost savings owing to economies of scale and

scope. In a survey of US studies, Berger and Humphrey (1994) concluded that the

consensus view of the recent scale economy literature is that the average cost curve

has a relatively flat U-shape with only small banks having the potential for scale

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efficiency gains and usually the measured economies are relatively small. Studies

on scope economies found no evidence of these economies.

Literature, Berger and Humphrey (2002) conclude that synergies in joint

products in banking are rather small. The second issue identified above is the

analysis of merger gains in terms of stock price performance of the bidder and

target banks on announcement of merger. A merger is expected to create value if

the combined value of the bidder and target banks increases on the announcement

of the merger.

Pilloff and Santomero (2005):- conducted a survey of the empirical evidence and

reported that most studies fail to find a positive relationship between merger

activity and gains in either performance or stockholder wealth. But studies by

Baradwaj,

MERGER OF THE HDFC BANK AND CENTURION BANK OF PUNJABLIMITED

HDFC Bank and Centurion Bank of Punjab merger at share swap ratio of 1:29

The Boards of HDFC Bank and Centurion Bank of Punjab met on 25 February,

2008 and approved, subject to due diligence, the share swap ratio for the proposed

merger of Centurion Bank of Punjab with HDFC Bank. The Scheme of

Amalgamation envisages a share exchange ratio of one share of HDFC Bank for

twenty nine shares of Centurion Bank of Punjab.

The combined entity would have a nationwide network of 1,148 branches (the

largest amongst private sector Banks) a strong deposit base of around Rs. 1,200

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billion and net advances of around Rs. 850billion. The balance sheet size of the

combined entity would be over Rs. 1,500 billion.

During the year ended March 31, 2009 the Centurion Bank of Punjab got merged

with HDFC Bank Ltd. The Scheme of Amalgamation the Scheme of Centurion

Bank of Punjab Limited with HDFC Bank Ltd. under section 44 A (4) of the

Banking Regulation Act, 1949 which was approved by the shareholders of both

the banks on March 27, 2008 and was effective from May 23, 2008. The

appointed date of the merger was April 1, 2008. Both the entities were banking

companies incorporated under the Companies Act, 1956 and licensed by the RBI

under the Banking Regulation Act, 1949.

As per the Scheme, upon its coming into effect from the appointed date i.e. April 1,

2008, the entire undertaking of CBoP including all its assets and liabilities stood

transferred / deemed to be transferred to and vest in HDFC Bank. As per the

Scheme, in consideration of the transfer of and vesting of the undertaking of CBoP,

one equity share of HDFC Bank of the face value of Rs.10/- each fully paid-up was

issued to members of the eCBoP for every twenty nine equity shares of the face

value of Re.1/- each of CBoP held by them on the record date i.e. June 16, 2008.

Accordingly 6,98,83,956 equity shares of Rs.10/- each of HDFC Bank were

allotted at par to the shareholders of CBoP vide board resolution dated June 24,

2008. The excess of the value of net assets transferred over the paid up value of

shares issued in consideration have been adjusted in Amalgamation Reserve as per

the Scheme of Amalgamation.

The amalgamation has been accounted using the pooling of interest method.

Accordingly, the assets and liabilities of CBoP that vested in HDFC Bank as on

April 1, 2008 were accounted at the values at which they were appearing in the

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books of CBoP as on March 31, 2008 and provisions arising out of harmonization

of accounting policies and estimates, as approved by the Board of Directors of

HDFC Bank and as prescribed in the Scheme, were made for the difference

between the net value appearing in the books of CBoP and the value as determined

by HDFC Bank. Also the Bank provided for merger related expenses on a best

estimate basis. Such adjustments, as per the Scheme, were made by the Bank

against the reserves arising on amalgamation. After accounting the assets,

liabilities and reserves of CBoP and after effecting the above adjustments, a

surplus of Rs. 1,049,03 lacs arose, which was credited to Amalgamation Reserve

in accordance with the Scheme.

Capital Infusion

During the year, the Bank allotted 2,62,00,220 equity shares of Rs. 10 each at a

premium of Rs. 1,520.13 per share to Housing Development Finance Corporation

Limited (HDFC Ltd.), on their exercising the warrants issued to them in June 2008.

As a result, equity share capital increased by Rs. 26,20 lacs and share premium by

Rs. 3,982,77 lacs.

Capital Adequacy

The Banks capital to risk weighted assets ratio (Capital Adequacy Ratio) is

calculated in accordance with the Reserve Bank of India (RBI) 'Prudential

Guidelines on Capital Adequacy and Market Discipline - Implementation of the

New Capital Adequacy Framework (Basel II). The Bank has migrated to this

framework effective March 31, 2009. Under the Basel II Framework, the Bank is

required to maintain a minimum Capital Adequacy Ratio of 9% on an ongoing

basis for credit risk, market risk and operational

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CORE REASON OF MERGER

In terms of performance, CBoP has not been performing well operationally its

costs were high and growth was low as compared to industry standards. Whilemerging it with HDFC Bank would give it a shot in the arm, as HDFC Bank is

know to be among the best Indian bank for past many years.

COMMENTING ON THE PROPOSED MERGER

Mr. Deepak Parekh, Chairman, HDFC said, We were amongst the first to get a

banking license, the first to do a merger in the private sector with Times Bank in

1999, and now if this deal happens, it would be the largest merger in the private

sector banking space in India. HDFC Bank was looking for an appropriate merger

opportunity that would add scale, geography and experienced staff to its franchise.

This opportunity arose and we

thought it is an attractive route to supplement HDFC Banks organic growth. We

believe that Centurion Bank of Punjab would be the right fit in terms of culture,

strategic intent and approach to business.

Mr. Aditya Puri, Managing Director, HDFC Bank said, These are exciting

times for theIndian banking industry. The proposed merger will position the

combined entity to significantly exploit opportunities in a market globally

recognized as one of the fastest growing. Im particularly bullish about the

potential of business synergies and cultural fit between the two organizations. The

combined entity will be an even greater force in the market.

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Mr. Rana Talwar, Chairman, Centurion Bank of Punjab stated, Over the last

few years, Centurion Bank of Punjab has set benchmarks for growth. The bank

today has a large nationwide network, an extremely valuable franchise, 7,500

talented employees, and strong leadership positions in the market place. I believe

that the merger with HDFC Bank will create a world class bank in quality and

scale and will set the stage to compete with banks both locally as well on a global

level.

Mr. Shailendra Bhandari, Managing Director and CEO, Centurion Bank of

Punjab said, We are extremely pleased to receive the go ahead from our board to

pursue this opportunity. A merger between the banks provides significant synergies

to the combined entity. The proposed merger would further improve the franchise

and customer proposition offered by the individualbanks.

THE MERGED ENTITY WILL DEFINITELY HAVE TO YANK FOR OPERATIONAL

EFFICIENCIES IN ITS LINES OF BUSINESS.

NEXT STOP: OVERSEAS

Rival ICICI Bank has already initiated its foreign odyssey. Now it is present in 18

countries, and its overseas operations accounted for around 23% of the

consolidated banking assets as on December 31, 2007. Axis Bank, the third-largest

private sector bank, boasts of having three international branches in Singapore,

Hong Kong and Dubai and a representative office in Shanghai. This might have

swayed HDFC Bank's thinking. It has already acquired a license for a branch in

Bahrain, which will be opened very soon. It is also planning to raise $1 bn through

a medium-term note issuance program. That's where CBoP may come in handy.

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The bank is already present in Canada. Moreover, what could be of immense help

to the bank, going forward, in its international foray is the presence of Rana

Talwar, the former CEO of Standard Chartered Bank, on its boardwho, through

Sabre Capital, a fund which he has spearheaded along with other partners, has

gained immense experience in international banking as well as in M&A activities.

On the issue of overseas expansion, HDFC Bank MD Aditya Puri has commented,

"We could. I think with Rana Talwar coming on board; he's got a lot of experience

on this and we would examine it. Is there something hot? No, but let's see." Puri

has further said, "But we have something very specific in mind. We are not about

to challenge the Citigroups of the world. We want to provide a global range of

products for Non-Resident Indians (NRIs), and we want to participate in trade

(India-specific export-import-related) finance. We are not talking about becoming

a big bank abroad at this point of time." He further added that the bank is not

looking at the crowded western markets. HDFC would seriously check where the

bank's strengths and benefits, like good processing, good credit skills and good

distributions, come into play. So, it would not definitely be an overcrowded market

but probably somewhere in Eastern Europe, Indonesia or the rest of Asia.

POST-MERGER CHALLENGES

Although this merger is the largest of its kind in the history of Indian banking, it is

not free from loopholes. The merged entity will definitely have to yank for

operational efficiencies in its lines of business. Moreover, it is anticipated that

there will be a dilution of profits, at least in the short-term. "The challenge could

be that CBoP is more about low-cost operations and distributes more low-cost

products while HDFC's products are more universal and sophisticated and higher

up the value chain," comments a PwC source. The source further adds, "How well

the CBoP team gels with HDFC products could be an area of challenge." At the

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time of finalizing the deal, HDFC Bank had considered branch network as an

important parameter and savored the moment of surpassing its nearest competitor

ICICI Bank in terms of number of branches. Although ICICI had 955 branches as

on the date of merger, it has 425 in the pipeline, which are in the process of

implementation by mid-2008. So post mid-2008, as usual, the ICICI Bank would

be the largest private sector bank in terms of branch network also.

Moreover, on the basis of pro forma consolidation as on December 31, 2007, the

gross Non-Performing Asset (NPA) of the merged bank would be higher than

current gross NPA asset of HDFC Bank. Also, given CBoP's comparatively weak

resource profile, the proportion of Current and Savings Account (CASA) for the

merged entity is likely to go a little lower than the current CASA for HDFC Bank.

The integration of technology and people would be a serious challenge as well as a

sensitive issue. Centurion Bank of Punjab, by virtue of its acquisitions of Bank of

Punjab and Lord Krishna Bank, is currently on two different technology

platformsFinacle and i-flex. The erstwhile Centurion Bank was on Misys, but

after taking over Bank of Punjab, the bank shifted to Finacle. And the 2006 merger

with Lord Krishna Bank had further complicated things, as Lord Krishna Bank was

on (and partly still remains) i-flex. So CBoP is still in the process of

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(%) (As on December 31,2007. Figures in Rs Cr) Source: Respective Banks

bringing all its branches on to the Finacle platform. Given these circumstances,

the entry of HDFC Bank which works on i-flex platform will further complicate

the situation. Moreover, bringing the banks onto a single platform will take

considerable time and resources, and the banks will also have to ensure that

customers do not become disgruntled. Whatsoever, the rating agency Crisil

believes that the benefits accruing from access to a larger branch network and

wider geographical coverage will more than offset the negative impact of a

slightly weakened asset quality and other integration snags in the short-term.

Besides this, the merger of CBoP with HDFC Bank will be a big blow to their

bancassurance partners. (Bancassurance is the sale of life, pension and investment

products through the branch network of a bank.) This merger will adversely impact

the business of Aviva Life Insurance and ICICI Lombard General Insurance Co.

How They Piled Up

HDFC Bank CBoPNet Profit 1,119 118

Advances 71,386 15,083De osits 99 386 20 710

Total Assets 1,31,439 25,403

Net Interest

Mar in *

4.3 3.6

ATMs 1,906 452

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Centurion Bank is the bancassurance partner for these two insurers, while HDFC

Bank sells insurance for group company HDFC Standard Life. Post-merger dis-

tribution deal between Aviva Life Insurance and ICICI Lombard will be scrapped

because as per the existing law of the Insurance Regulatory and Development

Authority (IRDA), a bank can't sell products for more than one insurance

company. Moreover, the merger may lead to a clash with HDFC Ltd., which

provides home loans to customers and has a large customer base in this segment.

CBoP also has a strong presence in home loans. Now the merged entity may not

sell home loans as this may lead to conflict of interests with HDFC Ltd. But given

the phenomenal progress HDFC Bank has made in recent times through its tech-

nology-driven and customer-centric business model, intertwined with smart and

dedicated workforce and able leadership, it is most likely that it would be able to

tackle the post-merger challenges and optimize the synergies.

EMERGING TRENDS

This HDFC-CBoP merger is a precursor to what lies ahead in the post-2009 sce-

nario when the banking sector will be opened up. Cut-throat competition and RBI's

stingy branch licensing policy mean that the scale and geographical reach have

become critical for the survival of the bank. So it is better to grow inorganically

rather than through slow organic process. Through merger, banks will manage the

costs better and enjoy economies of scale. Moreover, retail lending will also get a

boost.

But despite the discernible synergies, the truth is that except for those negotiated

by the RBI, including the banks in financial trouble, M&As in the Indian banking

sector have been few and far between. But the trigger should come from the

government-owned Public Sector Banks (PSBs). These PSBs, though not quite

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occupying the 'commanding heights' once envisioned for them, still are in a

position of some strength to initiate consolidation moves. But these PSBs suffer

from political and institutional compulsions that come in the way of the merging

of these banks despite having distinct operational synergies. The foreign banks

which are operating in India see themselves more as predators in the M&A game

and are not willing to be a target of acquisition by domestic banks. So the only

private sector banks, both old and newly licensed, are left for acquisition target.

The new-age private banks, which successfully battled their turbulent initial days,

have every reason to be optimistic and so would be looking for acquisition rather

than being the target of one. Finally, the older private sector banks, though did not

grow much, have a history of independent operations. Unless their operations

suffer a dramatic downturn, they are unlikely to offer themselves as prospective

candidates for acquisition.

This is not to say that there will be no consolidation in the future. In fact, the

Indian banks, which are small compared to their overseas counterparts, are likely

to go for consolidation given the fact that post-2009 foreign banks are likely toenjoy greater operational freedom in the Indian market. Moreover, with increased

competition, the banking sector is witnessing a general slump on all important pa-

rameters of profitability, such as return on assets, profit per employee, etc. This

underscores the need for bringing cost-efficiencies and opening up new revenue

streams that only size can confer. So the basic instinct of survival will keep the

consolidation activities ticking in the Indian banking sector. And the present

merger of two healthy banks shows that none can stop the inevitable.

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ANALYSIS OF CASE (SOLUTION) OF MERGER BETWEEN

HDFC BANK AND CENTURIAN BANK

POST-MERGERThe inherent synergies of HDFC Bank and CBOP in their retail focus was the

driver for the merger, which added around 400 branches to HDFC Banks' branch

strength of 760 (as on March 2008) along with a 15-20 per cent increase in the

asset base to more than Rs 1.7 lakh crore. While the merger has helped increase the

size of HDFC Bank, it has also led to some pressure on key ratios (see Merger

Effects) for the combined entity; CBoP ratios were lower than that of HDFC Bank.

The next pertinent question is the pace of integration, and how fast HDFC Bank

can ramp up efficiency levels of CBOP to its own benchmarks.

The integration plan is on schedule. The re-branding of CBOP was completed in

May itself; training processes to assign all the employees of CBOP in their new

roles is marching ahead with almost 90 per cent of the people retrained. With

regards the systems, treasury, wholesale banking and retail loan segments, theyhave already been integrated with HDFC's platform, while the overall retail

banking is expected to be completed in the next two months.

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Effects

Rs crore CBOP **

9 Mths

HDFC

Bank**

9 Mths

Standalone

FY 08

Post-

merger

H1 FY09

Net Int. Income 505 3,586 5,228 3,590

Other Income 459 1,734 2,283 1,237

Net Profit 123 1,119 1,590 992

Cost/income (%) 63.0 49.7 49.9 55.4

NIM (%) 3.6 4.3 4.4 4.2

CASA (%) 24.5 50.9 55 44.0Net NPA (%) 1.7 0.4 0.5 0.6

CAR (%) 11.5 13.8 13.6 11.4

SUSTAINED GROWTH

STEADY GROWTH

Rs crore FY 2008 FY 2009E*

FY 2010 E*

Net InterestIncome

5,228 7,805 10,600

OtherIncome

2,283 3,222 4,085

Net Profit 1,590 2,290 2,950EPS (Rs) 45.4 54 66P/BV (x) 3.2 2.4 2.1

E *: estimates for merged entity

HDFC Banks' net revenues have grown at a CAGR of 44.5 per cent in the last five

years on the back of net interest income (NII) and other income growing by 43 per

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cent and 47.7 per cent, respectively. Net profits grew by 33 per cent; the lower

pace is due to the bank's prudent policy of higher provisioning (last three years).

Of late, HDFC Bank has been going slow on the retail loans and even CBoP's non-

issuance of fresh loans (since December 2007) to the two-wheeler and personal

loan segments, has ensured comfortable NPA (non-performing assets) levels for

the combined entity. Gross NPA and net NPA are up 40 basis points and 20 basis

points y-o-y in Q2 FY09 to 1.6 per cent and 0.6 per cent, but are comfortable in

comparison to peers. Analysts say that HDFC Bank, after the merger, would

provide higher provisions to the combined entity in line with its own superior

provision coverage of around 67 per cent (CBOP's at 55 per cent). Although, it will

add pressure on the profitability in the near term, it will help avoid slippages in

asset quality in the future.

The advances haven't slowed and this is indicated from the credit-deposit ratio

rising from 63 per cent (FY08) to around 75 per cent in Q2 FY09. The recent CRR

cut has released additional funds of around Rs 4,500 crore that could be used for

further loan disbursements and provide support to NIMs (CRR balances with RBI

do not yield any returns). The higher yield on advances and investments in

conjunction with high interest rates has meant that NIM is still comfortable at 4.2

per cent.

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IMPACT OF MERGER

Increased footprint and metro presence

7th largest bank with asset size of rs.1097 billion

Recorded growth figure as follow

1. Net profit by 44.6% to Rs. 4.6 billion

2. Net interest income by 74.9 % to Rs. 17.2 billion

3. Advances grew by 79.8% & deposits by 60.4%

High level of write offs due to bad assets quality of CBOP in personal loans

and 2 wheeler loans

Net interest margins and CASA were impacted adversely

GAIN TO SHARE HOLDER

Sept2007

SWAPRATIO

SWAPVALUE

April-10 ValueApp.

HDFC 1433 1 1433 1984 38.45%

CBOP 41 29 1189 1984 66.86%

Index 5001 1 5001 5250 4.98%