MERGER OF CENTURION BANK OF PUNJAB AND

HDFC BANK

PRESENTED BY:

Naushad Chaudhary PGDM(Finance)

Barch2012-14

KOHINOOR BUSINESS SCHOOL (MUMBAI)

(INDIA)

INTRODUCTION

• The deal took place in February 2008

• It was the largest merger in the private sector banking space in India.

• CBOP was valued at $2.63 billion (Rs 9510 crores)

• In 2008 RBI sanctioned merger of CBoP with HDFC Bank.

• The operations of both banks were merged with effect from May 23, 2008.

BACKGROUND-CBoP• Founded in 1994 (as Centurion bank)

• It operated on a strong nationwide

• 394 branches and 452 ATMs in 180 locations across the country,

• 2005- Centurion Bank merge with Bank of Punjab and renamed as Centurion Bank of Punjab

• 2006 CBoP acquired Lord Krishna Bank.

• As of March 31, 2008: Loans outstanding Rs. 161,818.7 million Deposits outstanding Rs. 218,092.7 million

BACKGROUND- HDFC Bank• Founded - August 1994

• India’s largest private sector bank by market capitalization as of 25th September 2013, [152,815 (Rs.cr)]

• Fifth largest bank in India by assets

• India's largest housing finance company

• As on August 2013: HDFC Bank has -754 branches -11,088 ATMs, in 1,891 cities in India

• 2000 -Times bank Limited was merged with HDFC Bank Ltd

• 2008- Centurion Bank of Punjab

WHY HDFC BANK CHOSE CBoP

• Cultural fit between the organizations

• The bank had a large nationwide network

• Strong leadership positions in retail segment

• Strong asset quality

• High earning growth

• Both the banks had a strong position in vehicle financing

• Attractive route to supplement HDFC Bank’s organic growth

• 7,500 talented employees

NATURE AND OBJECTIVE OF MERGER

Horizontal merger (Both the companies were from same industry)

Core objectives: • Achieve economies of scale

• Widening the line of products

• To get more dominance on the market

• To face the competition posed by foreign banks and domestic banks (ICICI)

DEAL SIZE AND STRUCTURE• CBoP was valued at Rs 9510 crores

• All stock deal (no cash settlement)

• HDFC Bank paid Rs 9510 crores in shares for absorbing CBoP

• Swap ratio was fixed at 1:29 (1 share of Rs.10 each of HDFC Bank for every 29 shares of Rs.1 each held in CBoP)

• No single lay off of employee.

NUMBER OF ATM & BRANCHES BEFOR AND AFTER MERGER

BANKS Branch in Metros Branch in Non metros

TOTAL ATMs

CBoP 127 267 394 452

HDFC Bank 287 467 754 11,088

MERGED 414 734 1148 11540

POSITION OF HDFC BANK AFTER MERGER

• Total branched 1148

• Total ATM’s pan India 11540

• Deposit base was around Rs. 1,200 billion

• Net advances of around Rs. 850 billion.

• The balance sheet size of the combined entity was Rs. 1,500 billion

REGULATORY & LEGAL FRAME WORK

• SEBI (substantial Acquisition of shares & Takeovers) Regulations 1997

• Security Contract Regulation Act, 1956 (it prevent undesirable transactions in securities)

• RBI Mergers & Acquisition Approval

• SEBI Disclosure and Investor Protection Guidelines 2000.

• SEBI(Prohibition of Insider Trading Regulation),1992

• SEBI (Merchant Bankers) Rules/Regulation 1992.

• SEBI (Delisting of Securities )Guidelines,2003

• Companies Act,1956Foreign Exchange Management Act,1999

IMPACT OF THE DEAL ON HDFC BANK

Positive impact:• Increased geographical presence

• Recorded growth figures as follows: [by march-2013] – Net profit by 44.6% to Rs. 4.6 billion – Net Interest Income by 74.9% to Rs.17.2 billion – Advances grew by 79.8% & deposits by 60.4%

Negative impact:• High level of write-offs due to bad asset quality of CBoP in personal loan and 2

wheeler loans

CURRENT STATUS OF THE DEAL

1. NOPAT and Cost of debt of HDFC bank:

• The cost of debt is showing a continues increase because of the monetary policies of the Reserve Bank of India

• The NOPAT of the bank was increasing at a higher rate before merger.

2. The Beta and cost of equity of HDFC bank:

• The 4 years average Beta of HDFC bank before merger was 0.63 which is increase to 0.72 after merger.

• The 4year average cost of equity before merger was 24% which is decreased by 2.14% in past four year after merger (4year average after merger is 21.86%)

3. Share price of HDFC Bank: - Before merger (jan-2008) Rs.180 - After merger (May-2013) Rs.718 [increased by 298.89%] - Current position (sep-2013)Rs.621 [increased by 245%]

4. Net sales and Net profit chart:

CONCLUSION

The future of the HDFC Bank seems to be good by looking the performance trend of last four year

THAK YOU