PROJECT sm.doc

8/10/2019 PROJECT sm.doc

1/30

1.MERGER AND ACQUISITION

Mergers and acquisitions (M&A) refers to the aspect of corporate strategy,

corporate finance and management dealing with the buying, selling and

combining of different companies that can aid, finance, or help a growing

company in a given industry grow rapidly without having to create another

business entity. An acquisition, also known as a takeover or a buyout, is the

buying of one company (the target!) by another. "he acquisition process

is very comple# and various studies shows that only

$% acquisitions are successful. An acquisition may be friendly or hostile.

'n a friendly takeover a company!s cooperate in negotiations. 'n the hostile

takeover, the takeover target is unwilling to be bought or the targets board

has no prior knowledge of the offer. Acquisition usually refers to a purchase

of a smaller firm by a larger one. ometimes, however, a smaller firm will

acquire management control of a larger or longer established company and

keep its name for the combined entity. "his is known as a reverse takeover.

Although merger and amalgamation mean the same, there is a small

difference between the two. 'n a merger one company acquires the other

company and the other company ceases to e#ist. 'n an amalgamation, two

or more companies come together and form a new business entity.

Mergers and acquisitions(M&A) and corporate restructuring are a big part

1
http://www.investopedia.com/terms/m/mergersandacquisitions.asphttp://www.investopedia.com/terms/m/mergersandacquisitions.asp


2/30


3/30

Horizonta !"r#"r; is the merger of two companies which are

in produce of ame products."his can be again classified intolarge hori


4/30

companies which sells different products but related to the same

category. "his type of merger enables the new company to go in for a

pooling in of their products so as to serve a common market, which

was earlier fragmented among them. "his merger is between two

companies that sell different, but somewhat related products, in a

common market. "his allows the new, larger company to pool their

products and sell them with greater success to the already common

market that the two separate companies shared. "he product e#tension

merger allows the merging companies to group together their products

and get access to a bigger set of consumers. "his ensures that they

earn higher profits.

Con#o!"ration - "wo companies that have no common business

areas. A conglomeration isthe merger of two companies that have no

related products or markets. 'n short, they have no common business

ties. 0onglomerate merger in which merging firms are not competitors,

but use common or related production processes and8or marketing and

distribution channels. 0o generic merger Merger between firms in the

same general industry but having no Mutual buyerseller relationship,

such as a merger between a bank and a leasing company.

(*r$,a'" !"r#"r' - this kind of merger occurs when one company

purchases another. "he purchase is made with cash or through the

issue of some kind of debt instrument2 the sale is ta#able. Acquiring

companies often prefer this type of merger because it can provide them

with a ta# benefit. Acquired assets can be writtenup to the actual

purchase price, and the difference between the book value and the

purchase price of the assets can depreciate annually, reducing ta#es

payable by the acquiring company.

Con'oi)ation !"r#"r' - +ith this merger, a brand new company is

4


5/30

formed and bothcompanies are bought and combined under the new

entity. "he ta# terms are the same as those of a purchase merger. A

unique type of merger called a reverse merger is used as a way of

going public without the e#pense and time required by an 'B1.

Accretive mergers are those in which an acquiring companys earnings

per share (*B) increase. An alternative way of calculating this is if a

company with a high price to earnings ratio (B8*) acquires one with a

low B8*

.REVIEW OF LITERATURE

1. AN EAMINATION OF /AN0 SECTOR

"his article helps to discuss various regulations which are faced by

banks in order to enter the merger and acquisition phase . 'n the banking

sector, market entry is generally governed by a specific banking

regulator .Actual mergers of equals dont happen very often. Csually,one company will buy another and, as part of the deals terms, simply

5


6/30

allow the acquired firm to proclaim that the action is a merger of equals,

even if it is technically an acquisition.

2. CHALLENGES THE INDIAN /AN0S FACE

"his article is about the various challenges faced by 'ndian banking

sector. 't discussed the position of banks after merger and acquisition. 't

discusses the challenges such as interest rates risk, credit risk by

private banks. "he first mega merger in the 'ndian banking sector that of

the =/0 >ank with "imes >ank, has created an entity which is the

largest private sector bank in the country.

. MOTIVES FOR MERGERS AND ACQUISITIONS IN THE INDIAN

/AN0ING SECTOR - A NOTE ON O((ORTUNITIES IM(ERATIVES

Decent reports on banking sector often indicate that 'ndia is slowly but

surely moving from a regime of large number of small banks to small

number of large banks. "he aim of this paper is to probe into the various

motivations for mergers and acquisitions in the 'ndian >anking sector.

"hus, literature is reviewed to look into the various motivations behind abanks merger8 acquisition event. Eiven the increasing role of the

economic power in the turf war of nations, the paper looks at the

significant role of the state and the central bank in protecting customers

interests visFvis creating players of international si


7/30

3. MAS IN THE INDIAN /AN0ING SECTOR - STRATEGIC AND

FINANCIAL IM(LICATIONS

Hike all business entities, banks want to safeguard against risks, as well

as e#ploit available opportunities indicated by e#isting and e#pected

trends. M&As in the banking sector have been on the rise in the recent

past, both globally and in 'ndia. 'n this backdrop of emerging global and

'ndian trends in the banking sector, this article illuminates the key issues

surrounding M&As in this sector with the focus on 'ndia. 't seeks to

e#plain the motives behind some M&As that have occurred in 'ndia post

I%%%, analyse the benefits and costs to both parties involved and the

consequences for the merged entity. A look at the future of the 'ndian

banking sector, and some key recommendations for banks, follow from

this analysis.

.DISTINCTION /ETWEEN MERGER AND ACQUISITION

Although they are often uttered in the same breath and used as though

they were synonymous, the terms merger and acquisition mean slightly

different things. +hen one company takes over another and clearly

established itself as the new owner, the purchase is called an acquisition.

/rom a legal point of view, the target companyceases to e#ist,the buyer

@swallows@ the business and the buyers stock continues to be traded.

'n the pure sense of the term, a merger happens when two firms,

often of about the same si


8/30

company rather than remain separately owned and operated. "his kind of

action is more precisely referred to as a @merger of equals.@ >oth

companies stocks are surrendered and new company stock is issued in

its place. /or e#ample, both aimler>en< and 0hrysler ceased to e#ist

when the two firms merged, and a new company, aimler0hrysler, was

created. 'n practice, however, actual mergers of equals dont happen very

often. Csually, one company will buy another and, as part of the deals

terms, simply allow the acquired firm to proclaim that the action is a

merger of equals, even if its technically an acquisition. >eing bought out

often carries negative connotations, therefore, by describing the deal as a

merger, deal makers and top managers try to make the takeover more

palatable. A purchase deal will also be called a merger when both 0*1s

agree that Goining together is in the best interest of both of their

companies. >ut when the deal is unfriendly that is, when the target

company does not want to be purchased it is always regarded as an

acquisition. +hether a purchase is considered a merger or an acquisition

really depends on whether the purchase is friendly or hostile and how it is

announced. 'n other words, the real difference lies in how the purchase is

communicated to and received by the target companys board of

directors,employees and shareholders.

3.MERGERS AND ACQUISITIONS IN INDIA

Merger and acquisitions are on the rise. ?olume of mergers and

acquisitions in 'ndia in I%%J are e#pected to grow two fold from I%%7 and

four times compared to I%%$. 'ndia has emerged as one of the top

countries with respect to merger and acquisition deals.'n I%%J, the first

two months alone accounted for merger and acquisition deals worth K:%

billion in 'ndia. "he estimated figures for the entire year proGected a total

of more than K 5%% billion worth of mergers and acquisitions in 'ndia. "his

is twofold growth from I%%7 and a growth of almost four times from I%%$.

8
http://www.investopedia.com/terms/c/ceo.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/s/shareholder.asphttp://finance.mapsofworld.com/business-deals/http://www.investopedia.com/terms/c/ceo.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/b/boardofdirectors.asphttp://www.investopedia.com/terms/s/shareholder.asphttp://finance.mapsofworld.com/business-deals/


9/30

MERGERS AND ACQUISITIONS IN DIFFERENT SECTORS IN INDIA

ector wise, large volumes of mergers and mergers and acquisitions in

'ndia have occurred in finance, telecom, /M0E, construction materials,

automotives and metals. 'n I%%$ finance topped the list with I% of total

value of mergers and acquisitions in 'ndia taking place in this sector.

"elecom accounted for 57, while /M0E and construction materials

accounted for 59 and 5% respectively. 'n the banking sector,

important mergers and acquisitions in 'ndia in recent years include the

merger between '>' ('ndustrial evelopment bank of 'ndia)and its own

subsidiary '>' >ank. "he deal was worth K 5J:.7 million (Ds. J.7 billion

in 'ndian currency). Another important merger was that between

0enturion >ank and >ank of BunGab. +orth KLI.5 million (Ds. 9.7 billion

in 'ndian currency), this merger led to the creation of the 0enturion >ank

of BunGab with I9$ branches in different regions of 'ndia.

'n the telecom sector, an increase of stakes by ing"el from I7.67 to 9I.L

in >harti "elecom was worth KI$I million (Ds. 5%.6 billion in 'ndian

currency). 'n the /oods and /M0E sector a controlling stake of haw

+allace and 0ompany was acquired by Cnited >reweries Eroup owned by

?iGay Mallya. "his deal was worth K9J5.7 million (Ds. 57.I billion in 'ndian

currency). Another important one in this sector, worth K:L.I million (Ds I.5

billion in 'ndian currency) was the acquisition of 6% stake in +illiamson "ea

Assam by McHeod Dussell 'ndia 'n construction materials 7J stake in

AmbuGa 0ement 'ndia Htd was acquired by =olmic, a wiss company for

K79:.6 million (Ds IJ.9 billion in 'ndian currency).

9
http://finance.mapsofworld.com/finance/http://finance.mapsofworld.com/banks/http://finance.mapsofworld.com/capital-market/companies/idbi-services.htmlhttp://finance.mapsofworld.com/finance/http://finance.mapsofworld.com/banks/http://finance.mapsofworld.com/capital-market/companies/idbi-services.html


10/30

4.HDFC /AN0 OVERVIEW

HDFC /an% a$5*ir") C"nt*rion /an% o6

(*n7a8

10


11/30

=/0 >ank Htd is a maGor 'ndianfinancial servicescompany based in 'ndia,

incorporated in August 566:, after the Deserve >ank of 'ndiaallowed

11
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Financial_servicehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Financial_servicehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Reserve_Bank_of_India


12/30

establishing private sector banks. "he >ank was promoted by the =ousing

evelopment /inance 0orporation, a premier housing finance company (set

up in 56JJ) of 'ndia. =/0 >ank has 5,JI$ branches and over :,I9I A"Ms, in

JJ6 cities in 'ndia, and all branches of the bank are linked on an online real

time basis. As of 9% eptember I%%L the bank had total assetsof Ds.5%%7.LI

billion. /or the fiscal year I%%L%6, the bank has reported net profit of I,I::.6

crore (CK$%6.$6 million), up :5 from the previous fiscal. "otal annual

earnings of the bank increased by $L reaching at 56,7II.L crore (CK:.:$

billion) in I%%L%6.

HISTOR9 OF HDFC /AN0

=/0 >ank was incorporated in 566: by =ousing evelopment /inance

0orporation Himited (=/0), 'ndias largest housing finance company. 't was

among the first companies to receive an in principle approval from

the Deserve >ank of 'ndia (D>')to set up a bank in the private sector. "he

>ank started operations as a scheduled commercial bank in anuary 566$

under the D>'s liberalisation policies.

"imes >ank Himited (owned by >ennett, 0oleman & 0o. 8 "imes Eroup) was

merged with =/0 >ank Htd., in I%%%. "his was the first merger of two private

banks in 'ndia. hareholders of "imes >ank received 5 share of =/0 >ank

for every $.J$ shares of "imes >ank.

'n I%%L =/0 >ank acquired0enturion >ank of BunGabtaking its total

branches to more than 5,%%%. "he amalgamated bank emerged with a base of

12
http://en.wikipedia.org/wiki/Housing_Development_Finance_Corporationhttp://en.wikipedia.org/wiki/Housing_Development_Finance_Corporationhttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Centurion_Bank_of_Punjabhttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Indian_rupeehttp://en.wikipedia.org/wiki/Housing_Development_Finance_Corporationhttp://en.wikipedia.org/wiki/Housing_Development_Finance_Corporationhttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Centurion_Bank_of_Punjab


13/30


14/30

"he obGective of the Detail >ank is to provide its target market customers a full

range of financial products and banking services, giving the customer a one

stop window for all his8her banking requirements. "he products are backed by

worldclass service and delivered to customers through the growing branch

network, as well as through alternative delivery channels like A"Ms, Bhone

>anking, -et>anking and Mobile >anking.NN OO=/0 >ank was the first bank in

'ndia to launch an 'nternational ebit 0ard in association with ?'A (?'A

*lectron) and issues the Mastercard Maestro debit card as well. "he >ank

launched its credit card business in late I%%5. >y March I%%6, the bank had a

total card base (debit and credit cards) of over 59 million. "he >ank is also

one of the leading players in the Pmerchant acquiringQ business with over

J%,%%% Bointofsale (B1) terminals for debit 8 credit cards acceptance at

merchant establishments.NN "he >ank is well positioned as a leader in various

net based >I0 opportunities including a wide range of internet banking

services for /i#ed eposits, Hoans, >ill Bayments, etc.

TREASUR9

+ithin this business, the bank has three main product areas /oreign

*#change and erivatives, Hocal 0urrency Money Market & ebt ecurities,

and *quities. "hese services are provided through the banks "reasury team.

"o comply with statutory reserve requirements, the bank is required to hold

I$ of its deposits in government securities. "he "reasury business is

responsible for managing the returns and market risk on this investment

portfolio.

14


15/30

MERGER ANDACQUISITION OF HDFC AND C/O(

CENTURION /AN0 OF (UN=A/

"he C"nt*rion /an% o6 (*n7a8(formerly C"nt*rion /an%) was

an 'ndianprivatesector bank that provided retail and corporate banking

services. 't operated on a strong nationwide franchise of :%9 branches and

had over $,%%% employees. "he >anks shares were listed on the maGor 'ndian

stock e#changesand on the Hu#embourg tock *#change.

1n I9 May I%%L =/0 >ankacquired 0enturion >ank of BunGab.

>.MERGER ACQUISITION OF HDFC AND C/O(

566: 0enturion >ank was incorporated on 9% une 566: and received

its certificate of 0ommencement of >usiness on I% uly. 't was a Goint

venture between I%th 0entury /inance 0orporation and its associates and

Reppel Eroup of ingapore through Rephinance 'nvestment (Mauritius).

0enturion had a network of ten branches, which grew to I6 branches the

ne#t year. 566$ 0enturion >ank amalgamated I%th 0entury /inance 0orporation.

15
http://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/HDFC_Bank


16/30

I%%$ 1n I6 une I%%$, the >oards of irectors of 0enturion >ank and

>ank of BunGab agreed to a merger of the two banks. "he combined bank

took as its name C"nt*rion /an% o6 (*n7a8. >ank of BunGab had been

founded in 566$.

I%%7 0enturion >ank of BunGab acquired Rochibased Hord Rrishna

>ank. Hord Rrishna >ank had been established at Rodungallurin "hrissur

istrict,Rerala in 56:%. uring the 567%s, Hord Rrishna acquired three

commercial banks "hiyya >ank, osna >ank and Rerala Cnion >ank.

I%%L =/0 >ankacquired 0enturion >ank of BunGab.

"he swap ratio is e#pected to be around 5I$9%,Q said a banking source. "he

merger will make =/0 >ank the country!s seventh largest bank after >ank of

'ndia (>o') and ahead of '>' >ank, from the current 5%th position. "he

merger talks between the two banks began in anuary I%%L after the principal

shareholders of 0>oB ; >ank Muscat with 5:.%I per cent

stake, abre 0apital with 9.:L per cent stake and Rephinance 'nvestment

(Mauritius) with 7.59 per cent S decided to e#it.

?.(ro$")*r" o6 /an% M"r#"r

"he procedure for merger either voluntary or otherwise is outlined in

the respective state statutes8 the >anking regulation Act. "he Degistrars,

being the authorities vested with the responsibility of administering the Acts,

will be ensuring that the due process prescribed in the tatutes has been

complied with before they seek the approval of the D>'. "hey would also be

16
http://en.wikipedia.org/wiki/Kochi,_Indiahttp://en.wikipedia.org/wiki/Kodungallurhttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/HDFC_Bankhttp://en.wikipedia.org/wiki/Kochi,_Indiahttp://en.wikipedia.org/wiki/Kodungallurhttp://en.wikipedia.org/wiki/Keralahttp://en.wikipedia.org/wiki/HDFC_Bank


17/30

ensuring compliance with the statutory procedures for notifying the

amalgamation after obtaining the sanction of the D>'.

>efore deciding on the merger, the authorioard approval,

shareholders approval, valuation report etc to Deserve >ank of 'ndia and

other regulatory bodies such ecurity & e#change board of 'ndia (*>') for

their approval.

After obtaining approvals from all the concerned institutions, authori


18/30

officials of both the banks sit together and discuss and finali


19/30

>efore the new organiut what happens to the employees of the two companies3 =ow willthey adGust to the new corporate environment3 +ill some choose to

leave3

+hen a merger is announced, company employees become

concerned about Gob security and rumors start flying creating an

atmosphere of confusion, and uncertainty about change.

Doles, behaviors and attitudes of managers affect employees

adGustment to M&A.

Multiple waves of an#iety and culture clashes are most common

causes of merger failure.

=D plays an important role in anticipating and reducing the impact of

these cultural clashes.

Hack of communication leads to suspicion, demorali


20/30

HIGHLIGHT

THE MERGER- HDFC AND CENTURION /AN0 OF (UN=A/

5) =/0 bank is merged with 0enturion >ank of punGabI) -ew entity is named as P=/0 bank itselfQ.

9) "he merger will strengthen =/0 >anks distribution network in the

northern and the southern regions.

:) HDFC /an% /oar)on I$th /ebruary I%%L approved the acquisition of

0enturion >ank of BunGab (0>oB) for Ds 6,$5% crore.

/ENEFITS FROM THIS DEAL

"he corporate world is a place where only the vigilant, the sharp and

the spontaneous can e#plore their way up the ladder, while the

remaining admire or envy the success of the former . =ere, every

second tests the mental acumen of the professionals by putting them

into various odd situations which demand spontaneous, impromptu

decisions to be crafted, keeping a longterm perspective in sight.

"he e#pected merger of the =/0 >ank with the 0enturion >ank of

BunGab (0>oB) is believed to broaden the scope and reach of =/0 by

crediting to its already welldistributed network. "he =/0 >ank, which

currently spans 'ndia with its chain of J:7 branches, will add to itself

96: branches of the 0>oB to itself, to make its network bigger and

stronger. "he merger talks between the two banks began in anuary

I%%L, after the principal shareholders of 0>oB ; >ank Muscat with5:.%I per cent stake, abre 0apital with 9.:L per cent stake and the

Rephinance 'nvestment (Mauritius) with 7.59 per cent stake decided to

move away from this partnership.

"he =/0 >ank is further e#pected to pay Ds 5%% billion to Ds 5I%

billion in shares for acquiring the 0>oB. 'n what claims to be the largest

ever private bank merger, the share swap ratio stands at 5I6, that is

every shareholder of 0>oB will get one share of =/0 >ank for every

20


21/30

I6 shares of 0>oB owned. "hough this ratio is believed to have been

worked out after rigorous discussions among the >oard of irectors of

both the banks, it has failed to receive a positive reaction from the

0>oB shareholders. 't has come as a yet another setback for them

after a volatile period witnessing a decline in 0>oB shares and an

unstable management.

"he =/0 >ank which presently enGoys the 5%th position in the list of

largest banks in 'ndia on the basis of assets, and with this merger, will

now witness a Gump to the Jth position. At the same time, the current

stake of =/0 in the 0>oB, which is I9.9L is proGected to fall to

about 56 on completion of the deal.Another important concern that

rises with such mergers is the question of blending the two distinct and

diverse styles of functioning and ensuring a smooth transition to a new

work culture, absorbing the strengths of both the merging companies. 't

is a meticulous task to ensure that the fundamental ways of working

and the ideology of the two companies supplement the growth of each

other rather than leaving any one of the potential organi


22/30

EFFECT OF MERGER AND ACQUISITION OF HDFC AND C/O(

=/0 >anks ability to grow at over 9% per cent annually in the last

nine years, along with superior credit risk management practices, whichhave helped it maintain asset quality, would ensure that it will be

among the least affected in a slowdown.

"he banks focus on technology and superior margins with support

from lowcost deposits will ensure profitable growth in the future.

"he merger of retail focused0enturion >ank of BunGab (0>1B) with

=/0 >ank OEet UuoteN effective May I9, I%%L, will shore up revenues

in the mediumterm. =owever, the synergies from the merger with start

reflecting over 5II: months, and boost profitability. But together, the

gains from organic and inorganic initiatives will help the bank sustain

growth rates in e#cess of its historical average of I69% per cent, and in

a profitable manner.

(OST-MERGER

"he inherent synergies of =/0 >ank and 0>1B in their retail focus

was the driver for the merger, which added around :%% branches to

=/0 >anks branch strength of J7% (as on March I%%L) along with a

5$I% per cent increase in the asset base to more than Ds 5.J lakh

crore. +hile the merger has helped increase the siank, it

has also led to some pressure on key ratios (see Merger *ffects) forthe combined entity2 0>oB ratios were lower than that of =/0 >ank.

"he ne#t pertinent question is the pace of integration, and how fast

=/0 >ank can ramp up efficiency levels of 0>1B to its own

benchmarks.

"he integration plan is on schedule. "he rebranding of 0>1B was

completed in May itself2 training processes to assign all the employees

of 0>1B in their new roles is marching ahead with almost 6% per cent

22
http://money.rediff.com/money/jsp/quote_process.jsp?query=hdfc%20bank%20ltdhttp://money.rediff.com/money/jsp/quote_process.jsp?query=hdfc%20bank%20ltd


23/30

of the people retrained. +ith regards the systems, treasury, wholesale

banking and retail loan segments, they have already been integrated

with =/0s platform, while the overall retail banking is e#pected to be

completed in the ne#t two months.

MERGER EFFECTS

Ds crore 0>1B TT

6 Mths

=/0

>ankTT

6 Mths

tandalone

/4 %L

Bostmerger

=5 /4%6

-et 'nt. 'ncome $%$ 9,$L7 $,IIL 9,$6%

1ther 'ncome :$6 5,J9: I,IL9 5,I9J-et Brofit 5I9 5,556 5,$6% 66I

0ost8income () 79.% :6.J :6.6 $$.:

-'M () 9.7 :.9 :.: :.I

0AA () I:.$ $%.6 $$ ::.%

-et -BA () 5.J %.: %.$ %.7

0AD () 55.$ 59.L 59.7 55.:

"he actual benefits will start to filter in the ne#t 5II: months, with improvedproductivity in terms of net revenue (net interest income and other income)

and 0AA (the ratio of low cost deposits to total deposits) growth of 0>oB

branches on par with =/0 outlets. >ut before that to happen, =/0 bank

will have to shoulder the pressure in the mediumterm.

/or instance, on the efficiency front, the cost to income ratio has also

increased from $% per cent in March, I%%L to around $$ per cent in UI /4%6

on the back of higher employee costs and integration costs, post the merger.

"he integration of the two banks technologybased platforms is e#pected to

be completed by the end of this fiscal, and will improve the cost efficiencies

going forward.

Hikewise, the capital adequacy ratio (0AD) dropped to 55.: per cent in UI

/4%62 this can partially be attributed to the merger blues and also organic

growth of loan book. =owever, it is comfortably above the regulatory

requirement of 6 per cent. -otably, 0AD will improve and provide capital for

23


24/30

future growth, if the promoters e#ercise their right to convert warrants and

infuse Ds 9,$%% crore (warrants already issued, conversion price of Ds 5,$%%

per share, deadline is ecember I%%6).

24


25/30

@.ACTUAL EFFECT MERGER ACQUISITION

/AN0S /ran$, in M"tro' /ran$, in Non !"tro' TOTAL ATM'

0>oB 5IJ I7J 96: :$I

=/0

>ank

ILJ :7J J$: 55,%LL

MERGED 1 > 11? 113

V Tota 8ran$,") 11?

25


26/30

V Tota ATMB' an In)ia 113

V D"o'it 8a'" a' aro*n) R'. 1;2 8iion

V N"t a):an$"' o6 aro*n) R'. ?3 8iion.

V T," 8aan$" ',""t 'iz" o6 t," $o!8in") "ntit< a' R'. 1;3

8iion

(o'iti:" i!a$t

V 'ncreased geographical presence

V Decorded growth figures as follows Oby marchI%59N

; -et profit by ::.7 to Ds. :.7 billion

; -et 'nterest 'ncome by J:.6 to Ds.5J.I billion

; Advances grew by J6.L & deposits by 7%.:

N"#ati:" i!a$t

V =igh level of writeoffs due to bad asset quality of 0>oB in

personal loan and I wheeler loans

1.NO(AT an) Co't o6 )"8t o6 HDFC 8an%

26


27/30

V "he cost of debt is showing a continues increase because of the

monetary policies of the Deserve >ank of 'ndia.

V "he -1BA" of the bank was increasing at a higher rate before merger.

2.T," /"ta an) $o't o6 "5*it< o6 HDFC 8an%

27


28/30

V "he : years average >eta of =/0 bank before merger was %.79

which is increase to %.JI after merger.

V "he :year average cost of equity before merger was I: which is

decreased by I.5: in past four year after merger (:year average after

merger is I5.L7)

.S,ar" ri$" o6 HDFC /an%

- >efore merger (GanI%%L) Ds.5L%

After merger (MayI%59) Ds.J5L Oincreased by I6L.L6N

0urrent position (sepI%59)Ds.7I5 Oincreased by I:$N

. N"t 'a"' an) N"t ro6it $,art

28


29/30

1.CONCLUSION

Merger result are satisfactory but merger is took in long term prospective,

following are few more benefit to =/0

Acess to 96: branches of 0>oB and an increased presence in

southern and northern states.

Ereater acess to the -orth (BunGab and =aryana) as well as the south

(particulary kerala), thereby strenghtening its presence in those region.

0boB!s strong M* relationships will complement =/0 bias towards

highly rated corporates thus e#panding =/0!s base.

"he creation of india!s Jthlargest bank, Gust behind public giants like

bank of baroda, bank of india.

'nduction of a strong and capable management team with e#tensive

industry e#perience and proven capabilities.

ue to an influ# of 96:$ branches from 0boB, there will be a

significvant increase in the number of branches for =/0.

29


30/30

/I/LIOGRA(H9

"he *conomics times

www.wikipedia8acquisition.com

www.smartmanagementonline.com8Maga

PROJECT sm.doc

Documents

Transcript of PROJECT sm.doc