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On May 23, 2008, the amalgamation of Centurion Bank of Punjab
with HDFC Bank wasformally approved by Reserve Bank of India to
complete the statutory and regulatory approval process. As per the
scheme of amalgamation, shareholders of CBoP received 1 share of
HDFC Bank for every 29 shares of CBoP.The merged entity will have a
strong deposit base of around Rs. 1,22,000 crore and net advances
of around Rs. 89,000 crore. The balance sheet size of the combined
entity would be over Rs. 1,63,000 crore. The amalgamation added
significant value to HDFC Bank in terms of increased branch
network, geographic reach, and customer base, and a bigger pool of
skilled manpower.In a milestone transaction in the Indian banking
industry, Times Bank Limited (another new private sector bank
promoted by Bennett, Coleman & Co. / Times Group)was merged
with HDFC Bank Ltd., effective February 26, 2000. This was the
firstmerger of two private banks in the New Generation Private
Sector Banks. As perthe scheme of amalgamation approved by the
shareholders of both banks and the Reserve Bank of India,
shareholders of Times Bank received 1 share of HDFC Bank for every
5.75 shares of Times Bank.
Centurion Bank of Punjab's board today gave an in-principle
approval for mergerwith HDFC Bank, official sources said.HDFC Bank
is the country's second largest private sector lender after ICICI
Bankwhile CBoP is the fourth largest. HDFC Bank has about 746
branches pan-India, while CBoP has 394.If the merger takes place,
the combined entity could have a market capitalisatio
n of about Rs 63,000 crore, based on their current market
values.CBoP is currently the tenth most valued bank in India with a
market cap of aboutRs 10,500 crore, while HDFC Bank is the
third-most valued at over Rs 52,000 crore. (PTI)EFFECTS OF
MERGERHDFC Bank's ability to grow at over 30 per cent annually in
the last nine years,along with superior credit risk management
practices, which have helped it maintain asset quality, would
ensure that it will be among the least affected in a slowdown.
The bank's focus on technology and superior margins with support
from low-cost deposits will ensure profitable growth in the
future.The merger of retail focused-Centurion Bank of Punjab [
Images ] (CBOP) with HDF
C Bank [ Get Quote ] effective May 23, 2008, will shore up
revenues in the medium-term. However, the synergies from the merger
with start reflecting over 12-24months, and boost profitability.
Put together, the gains from organic and inorganic initiatives will
help the bank sustain growth rates in excess of its historical
average of 29-30 per cent, and in a profitable manner.
Global meltdown: Complete coveragePost-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 strengthof 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 sizeof 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 ne
xt 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, they
havealready been integrated with HDFC's platform, while the overall
retail bankingis expected to be completed in the next two
months.
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MERGER EFFECTSRs crore CBOP **9 Mths HDFC Bank**9 Mths
StandaloneFY 08 Post-mergerH1 FY09Net Int. Income 505 3,586 5,228
3,590Other Income 459 1,734 2,283 1,237Net Profit 123 1,119 1,590
992Cost/income (%) 63.0 49.7 49.9 55.4NIM (%) 3.6 4.3 4.4 4.2CASA
(%) 24.5 50.9 55 44.0Net NPA (%) 1.7 0.4 0.5 0.6CAR (%) 11.5 13.8
13.6 11.4** Pre-merger and for nine months ended December 2007The
actual benefits will start to filter in the next 12-24 months, with
improvedproductivity in terms of net revenue (net interest income
and other income) andCASA (the ratio of low cost deposits to total
deposits) growth of CBoP brancheson par with HDFC outlets. But
before that to happen, HDFC bank will have to shoulder the pressure
in the medium-term.For instance, on the efficiency front, the cost
to income ratio has also increased from 50 per cent in March, 2008
to around 55 per cent in Q2 FY09 on the backof higher employee
costs and integration costs, post the merger. The integrationof the
two banks' technology-based platforms is expected to be completed
by the
end of this fiscal, and will improve the cost efficiencies going
forward.
