Final Hdfc Merger

8/4/2019 Final Hdfc Merger

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Introduction of Mergers andAcquisitions.

Mergers and acquisitions are arguably the most popularand influential form of discretionary business investment (DeWitt & Meyer, 1998). Mergers and acquisitions areoperations by which the control of the corporate capitalchanges hand. In the case of merger, two companies decideto combine their activities and to organise a common control

of the assets. In the case of acquisition - friendly or hostile -one of the companies buy out the other (Sachwald, 1993).Mergers and acquisitions coincide with a technological andeconomic upheaval, which brings to wonder about theinteractions between waves of re-organisation and waves ofinnovation.We could also consider that the mergers are the grouping oftwo entities or more, to become stronger together bymerging the resources. Acquisitions is defined when a firmbuy an other one and get the total control of the new entity

constituted.

Most of the authors divide the process of acquisitions intwo phases, these are the planning of the acquisition andthe integration (Ivancevich et al., 1987; Marks & Mirvis,1985).

The phase of planning, within pre-acquisition, means toprepare and negotiate the process of acquisition. The pre-

acquisition phase is defined as the elaboration and theobservation of the main motives of the firms.

S.P.B.Patel Engg. College (M.B.A.Programme) Linch. 1


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M&A in the globalization.

Mergers and acquisitions count among the mostspectacular and most obvious strategic demonstrations onthe scale of the company. The respect of a strategic logicand the continuation of a true effort of integration areessential to ensure the success of transnational mergers andacquisitions.

Globalisation is a key feature of the new competitivelandscape within which the mergers and acquisitions frenzyis taking place. Today we observe the rapidly growing trendof cross-border mergers and acquisitions. It is associatedwith a growing convergence in economic systems, cultureand management practices. (Child J.et al, 2001).

Globalisation has seen an increase in mergers andacquisitions in recent years. According to Securities Data(Gasmi, 1998), more than 2,000 transnational acquisitionswere announced in 1996, for a value higher than 252 billion

dollars. That is to say an increase of almost 54% of thenumber of the operations since 1991, but also a tripling oftheir value for this period. The process of mergers andacquisitions supports the conquest of new markets. It isclear today to say that mergers and transnationalacquisitions are an unavoidable phenomenon in theinternational business world.



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A good understanding of the difficulties and theopportunities linked to the parallel between transnationalfirms is essential to apprehend most of the mergers and

acquisitions, and also any world strategy of enterprise.

PURPOSE

The objective of this paper is to integrate major Merger &Acquisitions theories in order to establish a warning modelpointing out the main pitfalls changing promising

motivations into failed implementation in the process ofMerger & Acquisition. Such a model will aim at preventingmanagers engaged in a transnational horizontal merger fromthe potential hazards leading to value destruction.

Concept of market share growth

The market share of a firm corresponds to theproportion of production volume or the turnover the firmpossess in a given sector of a global market in relation to therest of competitive companies concerned. In our case themeasuring unit of the market share, will be turnover. The



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market share of an entity corresponds to its demandproportion compared to the total demand of the sector. Thedemand (sales volume) is never constant, so the marketshare deviates as well. (Ibid)

The increase of the turnover or the production volume,involve as well that the company realised a growth. Thegrowth concept is relative to a quantitative increase of itsturnover or its production. If the company growth is higherthan the competitors one, the growth concept means thatthe company has a market share growth, but if all thecompetitors increase their turnover, there is not an increaseof the market share. Thus, an entity expands its market

share when their turnover volume (sales) increasescompared to its competitors. (Ibid)

M & A IMPLEMENTATIONThe introduction of post-acquisition change implies that

there is a degree of integration with the merging company.We will focus the integration process through 3 cornerstones: strategic, organisational and cultural management.

Strategic management

Vision

The strategy of an organisation involves how it plans toachieve its mission and goals and is partly determined by itsculture. In the case of mergers, strategy focuses mainly on



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the goal and the type of merger intended. (Nahavandi A.,Malikzadeh Ali R., 1993). When two firms decide to be one,the managers have to keep in mind the strategic vision of allthe operational process. The strategic vision is where all

acquisitions begin. Managements vision of the acquisition isshared with suppliers, customers, lenders, and employees asa framework for planning, discussions, decisions andreactions to changes. The vision must be clear to largeconstituent groups and adaptable to many unknowncircumstances. (De Witt B, & Meyer R., 1998).

Communication

The achievement of merger integration goals dependson how well managers can persuade constituencies tobelieve in a vision and act to bring it about. This is ultimatelya communications task, pure and simple. At first glance, itappears to be the easiest and least complicated aspect ofmerger integration, but communication 55 Mergers &Acquisitions : Avoiding the path of decay wont just happen.Managers must take control of it, plan it carefully, and then

back it with investment and commitment. Effectivecommunication requires working out communication goals,pursuing them flexibility, and obtaining feedback to know ifthey have been achieved. Nonetheless,

inadequate communication seems to be common inmerger integration. (Habeck M. M. et al, 2000) Informationcan become quite distorted as it circulates. Obtainingfrequent feedback is therefore essential to determine

whether the right message has reached the right people atthe right time.

Furthermore it is important as well that at all times,with all stakeholders, to be aware of the main goal of thecompany for the communication. Mergers and acquisitionshave two fundamental effects : they disrupt thousands of



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relationships, some of them established over decades. Newrelationships will be created and will be perceived asopportunities. So, according to Habeck et al, 2000,managing all communications in the merger integration

phase demands a comprehensive, centrally-controlled plan.

Leaders

For todays business elite, leadership qualitiesmatter. Prominent American pundit John Kotter (1990)argues that in the turbulent fast-changing environment ofthe 1990s it is leadership, not just plain old managementthat is required. (Whittington R., 2001). Corporate leaderssuch as Steve Jobs of Apple, Jack Welch of General Electricand Jan Carlzon of SAS are lauded as exemplars formanagerial imitation. These men56 Mergers & Acquisitions : Avoiding the path of decay have acapacity to impress on their employees inspirationalvisions of what their organisations are for and where theyare going.

As a leader of persons grouped in a hierarchy ofsuborganisations, the president must be the taskmaster,mediator, motivator, and organisation designer.

It is commonly agreed that leaders have tremendousinfluence on their organisations. The focus on top managersin the popular business press is an indication of theimportance we give leaders. Organisations that do notperform up to expectations often change top managers.Obviously, leaders are one of the most important elements

in organisations. Leaders are the one who negotiate themerger. They make the final decisions, and they guide the

organisation through the stages of conflict. They aresymbols of the organisation, and they come to be symbols ofmergers.



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Mergers tend to create a state of crisis, which providesfor an increase in the leaders influence. During a merger,some of the most strategic aspects of an organisation are

challenged. Dress code and norms for relationships areexamined. Reporting relationships and managementpractices are challenged, and assumptions are questioned.

Job titles are changed, company logos are replaced, andretirement plans are modified to match those of the mergerpartner. Work forces are right-sized or delayered. Allthese internal changes, along with many more, create awhirlwind of change that can shake an organisationscultural core. All existing practices become suspect and

therefore cannot be relied on. Consequently, leaders aremuch in demand by the employees. These major changesare most likely to occur in the acquired firm. Their havingbeen purchased is in and to itself taken as weakness, thus

justifying changing many of their practices.The external environment is also likely to change. If two

firms are from the same industry,, they each may deal withnew clients and suppliers. If they are from differentindustries, they will have to learn a whole new world and thismay include new markets and new technologies. In eithercase, they have to navigate in a highly uncertain externalenvironment at a time when internal cultures and structuresare unstable. Such extreme uncertainty creates dependencyon leadership, which explains the frequent changes ofleadership that accompany mergers. The leaders areexpected to provide the guidance and stability that werepreviously the result of internal and external calm.

Therefore, leadership becomes a vital link in themanagement of a merger. (Ibid).

Some researchers have considered the impact of aCEOs functional background on an organisations strategicchoices.(Song, J.H., 1982). The success of a selectedstrategy depends on its proper implementation. This needfor control will be one of the major determinants of theleaders preference for the way strategy is implemented. In



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spite of the differences in the concepts used to identifyleadership characteristics, there are two broad themes thatrun through them. The first theme is the degree to which anindividual seeks challenge and its takes risks the extent to

which a leader exhibits openness to change and innovation.Individuals who are challenge

seekers generally feel comfortable with change and arelikely to be entrepreneurial. They are likely to attempt high-risk and innovative strategies and feel comfortable withchallenging and changing organisation practices. On theother hand, individuals who are challenge averse are notcomfortable with change and are likely to try to maintain the

status quo. As a result, the strategies they select will bemore conservative, requiring only minimal change in theorganisation. Secondly, in the second theme is the need forthe leaders to control and it refers to how willing the leaderis to give up control namely, how willing he or she is todelegate authority and allow others to participate indecisions.

REASONS OF M&A FAILURE

It is very difficult to estimate how many mergers andacquisitions of the 1980s have succeeded. It is even moredifficult to define what success means. Some estimate,however, that close to 80 percent of mergers do not meettheir pre-merger financial goals and that almost 50 percentare failures. The common measure of stock market reactionsone day or even few months after the merger is

undoubtedly inadequate. In spite of theories that the stockmarket, in evaluating and valuing a merger, takes intoaccount all the managerial and human factors, they clearlydo not reflect the human and cultural costs of mergers particularly in light of the fact that the managers and leadersinvolved in a merger often voice their inability to predict its



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exact outcome. So it is unrealistic to expect that financialmarkets, having only partial information, are able to makeaccurate predictions about the outcome of a merger.(Nahavandi, A, Malekzadeh, A. R., 1993).

1 The paradox of Manager vs. Shareholder

1.1 Shareholders' expectation : maximizing value throughsynergies

1.2 The managerialism strategy

1.3 The Hubris hypothesis

1.4 Failure as no trade-off

2 No planned integration cost

2.1 Cost of interrelationships

2.2 The Penrose effect

2.3 Cost of job cutbacks

3 The problem of social compatibility

3.1 Demotivating employees

3.2 Resignation risk

3.3 Cultural compatibility

3.4 Culture clash measurement



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History of both bank

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 toits over 11 million customers across hundreds of Indian cities using multipledistribution channels including a pan-India network of branches, ATMs,

phone banking, net banking and mobile banking. Within a relatively shortspan of time, the bank has emerged as a leading player in retail banking,

wholesale banking, and treasury operations, its three principal businesssegments.

The bank's competitive strength clearly lies in the use of technology and theability to deliver world-class service with rapid response time. Over the last13 years, the bank has successfully gained market share in its targetcustomer franchises while maintaining healthy profitability and asset



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quality.

As on March 31, 2008, the Bank had a network of 761 branches and 1,977ATMs in 327 cities. For the year ended March 31, 2008, the bank reported a

net profit of INR 15.90 billion (Rs.1590.2crore), up 39.3%, over thecorresponding year ended March31, 2007. As of March 31, 2008 totaldeposits were INR 1,007.69 billion, (Rs.100,769 crore) up 47.5% over thecorresponding year ended March 31, 2007. Total balance sheet size too grew

by 46.0% to INR 1,331.77 billion (133177 crore).

About Centurion Bank of Punjab:

Centurion Bank of Punjab is one of the leading new generation privatesector banks in India. The bank serves individual consumers, small andmedium 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 hasestablished a leadership 'position'. The bank is also a strong player in foreignexchange services, personal loans, mortgages and agricultural loans.Additionally the bank offers a full suite of NRI banking products to overseasIndians.

On 29th August 2007, Centurion Bank of Punjab merged with LordKrishna Bank (LKB), post obtaining all requisite statutory and regulatoryapprovals. This merger has further strengthened the geographical reach of



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the Bank in major towns and cities across the country, especially in the Stateof Kerala, in addition to its existing dominance in the northern part of thecountry.

Centurion Bank of Punjab now operates on a strong nationwidefranchise of 404 branches and 452 ATMs in 190 locations across thecountry, supported by employee base of over 7,500 employees. In additionto being listed on the major Indian stock exchanges, the Banks shares arealso listed on the Luxembourg Stock Exchange.

On February 25th the boards of HDFC Bank and Centurion Bank ofPunjab (CBoP) agreed to the biggest merger in Indian banking history,valued at around Rs95.2bn (US$2.4 billion). The merger is subject tostatutory and regulatory approvals and will take some four months to gothrough. CBoP shareholders will get one share of HDFC Bank for 29 sharesof CBoP. The merged entity will be called HDFC Bank and CBoP's non-

executive chairman, Rana Talwar, and its managing director and CEO,Shailendra Bhandari, will join the new board as a non-executive andexecutive director, respectively.

HDFC Bank was one of the first private-sector banks to get off theground when Indian regulators began giving out new private-sector bankinglicences in the early 1990s. It was set up by the blue-blooded HousingDevelopment Finance Corporation (HDFC), India's most reputed mortgage-finance company. HDFC Bank has lived up to its parent's pedigree, turningout consistent growth of at least 30% in net profits year after year and

becoming a stockmarket favourite. It was also the first of the new privatebanks to merge with another, Times Bank, in 1999.



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Reason of mergerr

The expected merger of the HDFC Bank with the Centurion Bank ofPunjab (CBoP) is believed to broaden the scope and reach of HDFC by creditingto its already well-distributed network. The HDFC Bank, which currently spans

India with its chain of 746 branches, will add to itself 394 branches of the CBoPto itself, to make its network bigger and stronger. The merger talks between thetwo banks began in January 2008, after the principal shareholders of CBoP Bank Muscat with 14.02 per cent stake, Sabre Capital with 3.48 per cent stakeand the Kephinance Investment (Mauritius) with 6.13 per cent stake decided tomove away from this partnership. The HDFC Bank is further expected to pay Rs100 billion to Rs 120 billion in shares for acquiring the CBoP. In what claims tobe the largest ever private bank merger, the share swap ratio stands at 1:29, thatis every shareholder of CBoP will get one share of HDFC Bank for every 29shares of CBoP owned. Though this ratio is believed to have been worked outafter rigorous discussions among the Board of Directors of both the banks, it has

failed to receive a positive reaction from the CBoP shareholders. It has come asa yet another setback for them after a volatile period witnessing a decline inCBoP shares and an unstable management. The HDFC Bank which presentlyenjoys the 10th position in the list of largest banks in India on the basis of assets,and with this merger, will now witness a jump to the 7th position. At the sametime, the current stake of HDFC in the CBoP, which is 23.38% is projected to fallto about 19% on completion of the deal.Another important concern that rises withsuch mergers is the question of blending the two distinct and diverse styles of

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functioning and ensuring a smooth transition to a new work culture, absorbingthe strengths of both the merging companies. It is a meticulous task to ensurethat the fundamental ways of working and the ideology of the two companiessupplement the growth of each other rather than leaving any one of the potentialorganizations obsolete. This merger has come after a series of activities markingan eventful past for CBoP, which include acquiring the Lord Krishna Bank andthe Bank of Punjab. As the CBoP stands at a new dawn, we wish it brings somereason to rejoice for the shareholders that have stood through its history of highsand lows.

Valuation

HDFC Bank, CBoP seal largest banking merger

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

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

The two banks did not comment on the price at which the shares were

valued for the purpose of the swap ratio. The valuation arrived at is based onHDFC Banks closing share price of 1,474.95 last Friday and the totaloutstanding shares of CBoP.

HDFC Bank shares fell 3.54 per cent on the Bombay Stock Exchange onMonday to close at Rs 1,422.70 a share as investors felt the acquisition was alittle costlier, while CBoP shares were down 14.45 per cent to Rs 48.25 a shareas the price got aligned with the share-swap ratio.

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The swap ratio was based on the recommendations made by joint valuers

Dalal & Shah, a chartered accounting firm, and Ernst & Young, a consultingfirm.

The merger will affect the performance parameters of the merged entity,which is compared to HDFC Bank now, as the productivity at CBoP wascomparatively lower.

The boards of the two banks will meet again on February 28 to considerthe draft scheme of amalgamation, which will be subject to regulatoryapprovals.

The HDFC Bank board will also consider making a preferential offer to itspromoter, Housing Development Finance Corporation (HDFC), to enable it tomaintain its shareholding in the merged entity.

HDFC held 23.28 per cent in HDFC Bank at the end of December 31,2007. HDFC will need about Rs 3,900 crore to raise its shareholding after itfalls to around 19 per cent after the merger.

CBoPs Non-Executive Chairman Rana Talwar will be appointed the non-executive director of the merged entity, while its Managing Director and CEOShailendra Bhandari will join the board as executive director.

Rana Talwar's Sabre Capital would hold less than 1 per cent stake in themerged entity from 3.48 in CBoP, while Bank Muscat's holding will decline toless than 4 per cent from over 14 per cent in CBoP.

HDFC Bank and Centurion Bank of Punjab

receive RBI approval for merger

The Reserve Bank of India has sanctioned the Scheme of Amalgamationof Centurion Bank of Punjab Ltd. with HDFC Bank Ltd. The Scheme has beensanctioned in exercise of the powers contained in Sub-section (4) of Section44A of the Banking Regulation Act, 1949.

All the branches of Centurion Bank of Punjab will function as branches ofHDFC Bank with effect from May 23, 2008. With RBIs approval, all requisitestatutory and regulatory approvals for the merger have been obtained.

The combined entity would have a nationwide network of 1,167branches; a strong deposit base of around Rs. 1,22,000 crores and netadvances of around Rs. 89,000 crores. The balance sheet size of thecombined entity would be over Rs. 1,63,000 crores.



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HDFC Bank Board on 25th February 2008 has approved the acquisition of

Centurion Bank of Punjab (CBoP) for Rs 9,510 crore in one of the largest merger inthe financial sector in India. CBoP shareholders will get one share of HDFC Bank forevery 29 shares held by them. This will be HDFC Banks second acquisition after

Times Bank. the main motives of the firms is to aim threemain strategies : cost synergies through economy of scopeand of scale, revenue synergies through market shareexpansion, and financial savings through targeting theright and cheapest financial profile.

The phase of integration within post-acquisition, ischaracterised by many operational and cultural changes.

The changes relative to the operation start to appear whenagreement is effective, which means as soon as the

announcement of acquisition or merger is done. We willhighlight three main implementation perspectives of theintegration process : strategic, operational and culturalmanagement.

STRONG NATIONAL NETWORK

HDFC BANK



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HDFC BANK PRODUCT AND CUSTOMERSEGMENTS

PERSONAL BANKING

Loan Product Deposit Product Investment & Insurance

Auto Loan

Loan Against

Saving a/c

Current a/c

Mutual Fund

Bonds



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Security

Loan Against

Property

Personal loan

Credit card

2-wheeler loan

Commercial

vehicles finance

Home loans

Retail business

banking

Tractor loan

Working

Capital

Finance

Construction

Equipment

Finance

Health Care

Finance

Education

Loan

Gold Loan

Fixed deposit

Demat a/c

Safe Deposit

Lockers

Knowledge Centre

Insurance

General and Health

Insurance

Equity and

Derivatives

Mudra Gold Bar

Cards Payment Services Access To Bank

Credit Card

Debit Card

Prepaid Card

----------------------------

----

Forex Services----------------------------

----

NetSafe

Merchant

Prepaid Refill

Billpay

Visa Billpay InstaPay

DirectPay

VisaMoney

Transfer

eMonies

NetBanking

OneView

InstaAlert

MobileBanking

ATM Phone Banking

Email Statements

Branch Network



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Product &

Services

Trade Services

Forex service

Branch Locater

RBI Guidelines

Electronic

Funds Transfer

Online

Payment of

Direct Tax

WHOLESALE BANKING

Corporate Small and MediumEnterprises

Financial Institutionsand Trusts

FundedServices

Non FundedServices

ValueAddedServices

Internet

Funded Services

Non FundedServices

SpecializedServices

Value addedservices

Internet Banking

BANKS

Clearing Sub-Membership

RTGS submembership

Fund Transfer

ATM Tie-ups

Corporate Salary



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Banking a/c

Tax CollectionFinancial Institutions

Mutual Funds

Stock Brokers

Insurance Companies

Commodities Business

Trusts

BUSINESS MIX

Total Deposits Gross Advances Net Revenue



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Retail Wholesale

HDFC Bank is a consistent player in the private

sector bank and have a well balanced product andbusiness mix in the Indian as well as overseasmarkets.

Customer segments (retail & wholesale) account for84% of Net revenues ( FY 2008)

Higher retail revenues partly offset by higheroperating and credit costs.

Equally well positioned to grow both segments.

.

NRI SERVICES

Accounts & Deposits Remittances

Rupee Saving a/c

Rupee Current a/c

Rupee Fixed Deposits

Foreign CurrencyDeposits

Accounts for ReturningIndians

North America

UK

Europe

South East Asia

Middle East

Africa Others

Quick remitIndiaLinkCheque LockBoxTelegraphic/ Wire TransferFunds Transfer



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Cheques/DDs/TCs

Investment & Insurances Loans

Mutual Funds Insurance

Private Banking

Portfolio InvestmentScheme

Home Loans Loans Against Securities

Loans Against Deposits

Gold Credit Card

Payment Services Access To Bank

NetSafe

BillPay InstaPay

DirectPay

Visa Money

Online Donation

NetBanking

OneView InstaAlert

ATM

PhoneBanking

Email Statements

Branch Network

AFTER MERGER STRETEGY OF HDFC BANK

HDFC BANK mission is to be "a World Class Indian Bank",benchmarking themselves against international standards and bestpractices in terms of product offerings, technology, service levels,

risk management and audit & compliance. The objective is to buildsound customer franchises across distinct businesses so as to be apreferred provider of banking services for target retail and wholesalecustomer segments, and to achieve a healthy growth in profitability,consistent with the Bank's risk appetite. Bank is committed to do thiswhile ensuring the highest levels of ethical standards, professionalintegrity, corporate governance and regulatory compliance. Continue



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to develop new product and technology is the main business strategyof the bank. Maintain good relation with the customers is the mainand prime objective of the bank.

HDFC BANK business strategy emphasizes thefollowing :

Increase market share in Indias expanding banking andfinancial services industry by following a disciplined growthstrategy focusing on quality and not on quantity and deliveringhigh quality customer service.

Leverage our technology platform and open scaleable systemsto deliver more products to more customers and to controloperating costs.

Maintain current high standards for asset quality throughdisciplined credit risk management.



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Develop innovative products and services that attract the

targeted customers and address inefficiencies in the Indianfinancial sector.

Continue to develop products and services that reduce bankscost of funds.

Focus on high earnings growth with low volatility.

MERGER OF HDFC BANK & CBOP



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OVERVIEW

The combined entity would have a nationwide network of 1167branches; a strong deposit base of around Rs.1,22,000 crores andnet advances of around Rs.89,000 crores. The balance sheet size ofthe combined entity would be over Rs.1,63,000 crores.

Merger with Centurion Bank of Punjab Limited

On March 27, 2008, the shareholders of the Bank accorded theirconsent to a scheme of amalgamation of Centurion Bank of PunjabLimited with HDFC Bank Limited. The shareholders of the Bank



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approved the issuance of one equity share of Rs.10/- each of HDFCBank Limited for every 29 equity shares of Re. 1/- each held inCenturion Bank of Punjab Limited. This is subject to receipt ofApprovals from the Reserve Bank of India, stock exchanges and

Other requisite statutory and regulatory authorities. Theshareholders Also accorded their consent to issue equity sharesand/or warrants convertible into equity shares at the rate ofRs.1,530.13 each to HDFC Limited and/or other promoter groupcompanies on preferentialbasis, subject to final regulatory approvals in this regard. TheShareholders of the Bank have also approved an increase in theauthorized capital from Rs.450 crores to Rs.550 crores.

ACHIEVEMENT IN 2008

Business Today-

Monitor Group

survey

One of India's "Most Innovative Companies"

Financial Express-Ernst & Young

Award

Best Bank Award in the Private Sector category



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Global HR

Excellence Awards

- Asia Pacific

HRM Congress:

'Employer Brand of the Year 2007 -2008'Award - First Runner up, & many more

Business Today 'Best Bank' Award

Dun & Bradstreet

American

Express Corporate

Best Bank Award

2008

'Corporate Best Bank' Award

Outlook Money &

NDTV Profit

Best Bank Award in the Private sector category.

The Asian Banker

Excellence in

Retail Financial

Services Awards

Best Retail Bank in India

SWOT ANALYSIS

STRENGTH

Right strategy for theright products.

Superior customer

service vs.

competitors.

WEAKNESSES

Some gaps in range for

certain sectors.

Customer service staff

need training.

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Great Brand Image

Products have required

accreditations.

High degree of

customer satisfaction.

Good place to work

Lower response time

with efficient and

effective service.

Dedicated workforceaiming at makinga long-term career inthe field.

Processes and systems,

etc

Management cover insufficient.

Sectoral growth isconstrained by lowunemployment levels andcompetition for staff



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Opportunities

Profit margins will be

good.

Could extend to overseas

broadly.

New specialist

applications.

Could seek better

customer deals.

Fast-track career

development

opportunities on an

industry-wide basis.

An applied researchcentre to createopportunities for developing techniques toprovide added-valueservices.

Threats

Legislation could impact.

Great risk involved

Very high competition

prevailing in the industry.

Vulnerable to reactive

attack by majorcompetitors

Lack of infrastructure in

rural areas could

constrain investment.

High volume/low costmarket is intenselycompetitive.



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HDFC-CBoP mega merger: Mgmt

speaks to CNBC-TV18

It's a move that will help HDFC Bankbecome the largest private sectorlender in terms of branch network - a merger with Centurion Bank ofPunjab.

The HDFC Bank board, which met to consider a merger with CBoP today,has approved a swap ratio of 1:29 - so every 29 shares of CBoP will fetch 1share of HDFC Bank. However, the share swap ratio is subject to duediligence that is yet to be conducted in this regard.The draft scheme of amalgamation, due diligence report and any othermatter, as required, would be considered by the board of HDFC Bank in itsmeeting on February 28.

The Board of CBoP would also meet the same day to consider the draftscheme of amalgamation.The combined entity's branch network would go up to 1,148 branchesnation-wide. While some of HDFC Bank's ratios would soften due to the

merger, Aditya Puri, MD, HDFC Bank said that the return on assets shouldrecover to current levels in just over one year of operations.I think a year plus WIPE it could be earlier. Point that you should see iswhat we are looking to get that right ROA, is a combination of getting theright deposit costs and getting the economies of scale in the products that weoffer. We are talking about a larger amount of products going to the retailcustomers which will up the current account and savings balances, largernumber of branches available, which will bring cost of funds down. On theasset side we'll have a lower operation cost, largely because of highervolumes -the combination of these will result in, if not exceeding, reachingthis reasonably fast, he said.CBoP Chairman Rana Talwar would be offered a seat on the Board of themerged entity as a Non-Executive Director. Its Managing Director andCEO Shailendra Bhandari would be offered a seat as the ExecutiveDirector.

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HDFC Bank says this will help the merged entity focus on acceleratinggrowth, especially in international markets.

Deepak Parekh, Chairman, HDFC said, It depends on opportunities -whether they are there, whether we can afford these opportunities; just

because one bank is available in Turkey/Greece, we cant just jump at it. Wemust have a strategy for international expansion and growth. We have to sitwith Rana, use his expertise and experience. In fact, we've already told himwhat we need from him is his experience in international banking; whatHDFC Banks strategy should be to grow abroad.

Talwar said that the merger would be beneficial to capitalize on futureopportunities. I think a larger stronger better capitalised bank with 1150branches, USD 1,500 billion assets and market cap o Rs 65-70,000 crorewill be much better poised to capitalise on the growth opportunities, hesaid.CNBC-TV18s Banking Editor, Latha Venkatesh spoke to theManagements of HDFC Bank and CBoP.

Excerpts from CNBC-TV18s exclusive interview with Deepak Parekh,

Aditya Puri and Rana Talwar:Q: Your ROA is obviously 30 basis points higher than the bank that ismerging with you- by when will you do this 1.57 ROA, that you have beenmanaging?Puri: Around a year plusQ: A year plus would be 18 months, 15 months?

Puri: I wish I could make it that exact. It could be earlier. The point we haveto see is what we are looking to get that right ROA is a combination oflowering the deposit costs and getting the economies of scale in the productsthat we are in. Now it could be even earlier. But I dont want to commit. Sowe are talking about a larger amount of products going through to the retailcustomers, which will have current account and savings balances, a larger

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amount of branches being available for our transaction banking which willconsequently bring the cost difference down, and on the asset side, we have

a lower operating cost largely because of higher volumes. A combination of

these two will result in, if not exceeding; at least reaching this reasonablyfast.

Parekh: If you look at the branch network of Centurion BoP, they havealmost 400 branches, compared to our 750. So their branches are more thanhalf our branches. Now obviously we have to make these branches more

profitable. We have to collect more deposits from these branches, we mustlend more from these branches, offer our product range and make themmore competitive and make them like HDFC Bank. That will bring the

operating cost down, that will bring cost income ratio down and that willautomatically increase the ROA.When you look at a merger, you cannot look at it at one days share price.Unfortunately, everyone in India looks at one days share price. We arecreating value for the future, and for the medium term. You have to have

patience for us to integrate and take the benefits of a merger of this size.Q: Investors also look at the forward point and thats exactly why this

branch issue comes up. HDFC Bank generates profits of around Rs 90 crore

per branch; Centurion generates revenues around Rs 40 crore per branch.What is the cue for an investor as to when this will become Rs 90 crore forthe new merged entity?Parekh: As far as we are concerned, we cannot look at the stock market andtake decisions. We have to look at the opportunities that are in front of us,how we make good these opportunities and how do we create a high valueorganisation. So we do not look at the stock price. For instance today is theworst time in global capital markets. We have never seen such bad times inglobal capital markets in the last so many years. But that didnt deter us to

go ahead and talk about this merger.Q: You have in your board now, Mr. Rana Talwar, who is a past master atM&As of a global scale. He had done about five mergers when he was atStandard Chartered.Parekh: Not only abroad, even in India he has been responsible for mergers.

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Q: Yes, and even now as you say that the international environment is

absolutely right for mergers because you are getting things cheap. So, canwe expect HDFC bank or the HDFC entity to be able to announce one at afairly good base?Parekh: It depends on opportunities again. We have to see whether they arethere and can we afford these opportunities, will we be able to raise money;will we be able to enhance our ROEs for our shareholders? Just because one

bank is available in Turkey, or Greece or anywhere in the world, we cannotjust jump at it. We must have a strategy for international expansion andinternational growth. We have to sit with Rana, use his expertise and hisexperience in running large banks as CEO. In fact we have already told himwhat we need from him, is his experience in international banking. WhatHDFC Banks strategy should be to go abroad.Q: Would you say that that would be the big next growth area? Youll havestruck retail and done it well, you have gone through corporate banking. Sowill international be the next big thing?

Puri: We in the group work on a simplistic basis, and we are never about the

group or the bank. So all our businesses are growing, and we haveopportunities to increase market share across our businesses as we have seenin the first three quarters. We are almost adding 50% to our distribution

base.Behind that distribution base, we have been working on appropriate datawarehousing and other techniques, which makes selling easier for our front-end staff. So we will see substantial growth across the entire spectrum. Wehave tried going into the international market. Now what we are talkingabout is that we have a rep office in Canada, in Dubai, we have applied for a

branch in Bahrain, we have applied for a branch in Hong Kong. We are keenon this strategy. We are not about something over the next two years, no.For the next two years we will just take them on and deliver our goods orthey do a little better.



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Q: Why did you cash out at this juncture? Do you conclude that the best, thefastest period of growth in the banking sector is over. Was that one reason?

Talwar: No, far from that - I dont view this as cashing out at all because tothe extent that I have Centurion shares, I will now own HDFC shares. So theanswer to your question is this is not cashing out at all; its merging twovery strong institutions - one much larger than the other.The second part of your question; in terms of growth - on the contrary Ithink a larger, stronger, better capitalised bank with 1,150 branches, USD1,500 billion of assets and a market cap of Rs 65,000-70,000 crore will bemuch better poised to capitalise on the growth opportunities that we have.

Thats the rationale; its certainly not about cashing out or about lack ofopportunities in the Indian financial services markets.

Q: What do you see yourself as contributing in the new position? Do youexpect to stay put and see through another growth face for HDFC?Talwar: I will contribute in whatever way the Board and the Chairman andthe shareholders think it makes sense. I do have quite a lot of experience infinancial services; I have a lot of global international experience whichcould be valuable.

Q: Is this from HDFC Bank's point of view, leveraging to use your personalservices to expand internationally. Is that one of the things that might have

been informally discussed?A: Yes, it has been touched upon. Any role that I have will be in, will be a

Non-Executive role. Shailendra Bhandari will be joining the HDFC board asan Executive Director. In any place that I can add value, I will be delightedto help. If I am just getting in the way, then I am quite happy to do otherthings.

Q: So, no question of taking even part of the savers money. After all, it musthave multiplied several times?A: That is a thing for my partners and colleagues to decide. That is just oneway of keeping score. I am proud of having taken a small bank likeCenturion, which was having trouble, and a bunch of people, who were



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relatively demoralised and dispirited, and see the pride that we have in whatwe have created. That is the main reward. To see the professionalism of the

people and the management is the real reward.

Q: You have been kind of an M&A artist. During your last stint at StandardChartered, you managed Grindlay among other acquisitions and within thecountry Centurion itself and then Bank Muscat, Bank of Punjab and LKB.Would you say that the regulatory environment for mergers is alright orwould you want it faster or more professional in some way?A: You are right. I have had quite a lot of experience all the way fromGrindlay to these rather unique transactions. I have found the regulatorsthoroughly professional.

Once in a while, it can be frustratingly slow. But they have a differentagenda and a different set of interest that they have to look after. Grindlaywas a mega merger. From my point of view, it impacted what we weredoing in ten different countries because they looked at the Indian regulatoras the lead regulator.

Q: Did you look at other entities to merge with or sell to? Did you look atprivate equity investors and at other banks?

A: We certainly didnt look at private equity investors because I dont thinkthat would be acceptable in this environment. So, it clearly had to be amerger. The starting point is that the Indian industry is globalising andscaling many sectors where they can be competitive globally.

India doesnt have a bank of global scale, reach and distribution. So, over aperiod of time, India needs fewer, stronger, better-capitalized banks that cangrow with Indian industry and expand globally. So, there has to beconsolidation and I am happy that I have been part of that consolidation.

The options were limited and we have considered in terms of cultural fit,past performance, and opportunity for our people. We thought that HDFCwould be the best partner. So, it was quite an easy decision. So, its notanother merger of two small banks.

Q: Was there a bidding war?

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A: No; I dont think so. We decided very early that we were not going to getinto some sort of an auction situation. One alternative would have been tosay that, we are looking for a partner and lets look at all the suitors. We

decided no to do it and there was a lot of mutual trust between the twobanks.Q: Was it frustrating that foreign banks have not been allowed an entry,

because that would have given you more people and more options?A: I think it would have in terms of more people in terms of bidding for the

bank. But in terms of whats good for the country, there should beconsolidation within in the Indian banking system. Lets get 3-4 large, global

sized banks and let them compete on a level playing field. So, its going tobe a while and that was never really a consideration.Q: From an outsiders point of view, it looks like the 2009 opening toforeign banks now doesnt look as promising as it looked in 2004. Theforeign entities are also much weaker. Was all this part of the reason whyyou thought this is a very good bet?A: Somewhere as a minor factor maybe, but we always said we are part of

the Indian banking scene. To consolidate and help create one of the

premier financial institutions in this country, that is exciting rather thanjust cashing out with a larger cheque.

BIBLIOGRAPHY

www.hdfcbabk.com

www.timesofindia.comwww.in.com

www.smcindiaonline.com

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FUTURE GROWTH OF HDFC BANK



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CONCLUSIONIn many ways Indian banking is a reflection of the Indian economy. With the Indian

economy moving on to a high growth trajectory, consumption levels soaring andinvestment riding high, the Indian banking sector is also set to grow faster.

However the banking industry has been growing faster than the real economy since

last 10 years. The total business (advances+ deposits) of banking industry has grown

at a CAGR 18% and the GDP has grown at a CAGR of 14% over 1990-2008.So

after merger hdfc growth is good. Ti also cross market capitalization of icici

bank .Now hdfc is second largest private bank in India.



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