MERGERS OF HDFC BANK & CBOP BANK

CONTENTS

Introduction Objectives Level of competition Challenges to the merger conclusion

Centurion Bank of Punjab HDFC

Bank merger

Introduction

Bank mergers and acquisition are not a new phenomenon for Indian banking industry.

Since 1961 there have been as many as 77 amalgamation between banks in India

Out of which 46 took place before nationalization of banks in 1969 while the remaining 31 occurred in post-nationalization period (Leeladhar, 2008)

Conti..

In 2005, Bank of Punjab merged with Centurion Bank that created a new entity Centurion Bank of Punjab (CBoP)

And was followed by the merger of Lord Krishna Bank with CBop.

Centurion Bank of Punjab is ,now , HDFC Bank

W.e.f. 23-05-08 ,all branches of Centurion Bank of Punjab have become branches of HDFC Bank. HDFC Bank is one of India's largest private Banks . It is some sort of a Multinational Bank with large holding of Morgan- Chase Group of U.S.A. in this bank .

Bank of Punjab was eastablished by the legendary Sikh banker , Inderjit Singh , former Chairman of Punjab & Sind Bank.

Centurion Bank , Bank of Punjab and Lord Krishna Bank had earlier merged over a period of time . HDFC Bank had earlier taken over Times Bank ( Bennett Coleman Group

Cont..

HDFC Bank on Monday approved the acquisition of Centurion Bank of Punjab (CBoP) for Rs 9,510 crore in the largest merger in the financial sector in India. However, the merged entity would still be two-fifth the size of the country’s second largest lender, ICICI Bank.

CBoP shareholders will get one share of HDFC Bank for every 29 shares held by them.

Objectives

Firstly, various strategic reasons for the merger

Secondly, growth, profitability, efficiency and productivity through merger

Thirdly Boost to International operations

Level of competition

It is driven by industry structure and companies respond to industry structure and are constrained by it

It is a dynamic process and it can reshape through creating new technologies ,substitute products ,distribution channels etc

CBoP

Robust growth momentum

The basic rationale behind CBOP’s selection over its peers by HDFC bank is its robust growth momentum that it has sustained over years

CBOP is growing at 2-3 times in terms of various financial and profitability variables

Culmination of bank would infuse growth into its operations

Access to branch network

The reason for acquiring CBOP is its pan-Indian geographic presence

The merger would add 398 branches of CBOP in 180 locations

The merger will increase the total branches of HDFC to 1037 branches

It will enable the bank to get more presence in the metro cities where RBI is slow granting fresh branch licenses

Branch network of HDFC Bank,CBoP,merged entity,its matching peer

(IDBI ltd) and its rival(ICICI Bank)

Branches/banks HDFC Bank CBoP Merged entity IDBI ltd ICICI Bank

Rural 30 16 46 48 75

4.70% 4.20% 4.43% 10.86% 10.50%

Semi urban 136 102 238 81 188

21.13% 25.63% 23% 18.32% 26.33%

Metro 271 148 419 184 246

42.40% 37.18% 40.40% 41.63% 34.45%

Access to more products

Merger with CBOP would further fuel this growth story by strengthening retail and SME business of the merged entity

Merger would ensure covering the whole spectrum-from top end corporate business to agriculture and micro finance business

Complimentary income streams HDFC’s bank strategy is to have margin-led

growth, which means unlike other private sector banks, it does not sacrifice margins in its race for market share

Fee based income by providing value added services to customers is the need of the hour, CBOP has launched various value added services like e-broking, miracle card etc

Economic synergies

The merger would create an opportunity for reaping various economies of scale and scope and help the merged entity in realizing huge cost savings, with access to more branches and products, the merged entity is expected to increase the volume of sales, thus realizing economies of scale

Overlapping branches and other facilities would be closed down which in turn help in lowering operational costs

Managerial synergies

HDFC needs massive management bandwidth, merger with CBOP would be advantageous as it would be bringing with it the top-notch management team that help the merged entity in meeting future manpower requirements

The merged entity would be leveraging the expertise of this star-studded management team for managing its domestiv as well as international operations

Boost to international operations It will focus on accelerating growth

opportunities in international marketing merger would provide various strategic

benefits like wide network, broad range of products and experienced management team etc

Challenges to the Merger

Expensive merger Low quality asset Risky Loan Profile Integration Issues Dilution in return on equity

Conclusion

It can be conclude that the merger has enabled the merged entity to enhance its size and the scale of its operations by providing a diverse range of products

Expand business reach through extensive branch network

If HDFC Bank realize the projected cost saving and also increase its profitability increasing the volume of value-added services.

Conti..

As well as banking services it would be able to derive better value for its shareholders in future.

Thus, CBoP provide a perfect fit in terms of culture, strategy and approach to HDFC Bank.

By, SHANTHI VG RAKESH

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