HDFC & Cbop

Presented By Rahul Mehrotra
"YOU'RE NOT JUST ANOTHER CUSTOMER, WE'RE NOT JUST ANOTHER BANK"
6/9/2013
CBOP- Introduction
CBOP was Incorporated in June 1994
Centurion Bank of Punjab has a nationwide reach through its network of 241 branches and 389 ATMs On August 29, 2007, Lord Krishna Bank (LKB) merged with Centurion Bank of Punjab (CBOP) The LKB-CBoP merger in the ratio 5:7 was approved by the AGMs of the respective banks in September 2006 The shares of the bank are listed on the major stock exchanges in India and also on the Luxembourg Stock exchange.
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HDFC- Introduction
HDFC Bank was incorporated in August 1994
As on December 31, 2007, the Bank had a network of 754 branches and 1,906 ATMs in 327 cities For the quarter ended December 31, 2007, the bank reported a net profit of Rs. 4.3 billion. In 2002, HDFC Bank witnessed its merger with Times Bank Limited In May, 2008 HDFC Bank Acquired CBOP
6/9/2013
HDFC Bank is merged with Centurion Bank of

Punjab New entity is named as HDFC bank itself. The merger will strengthen HDFC Bank's distribution network in the northern and the southern regions. HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion Bank of Punjab (CBoP) for Rs 9,510 Crore. Merger Type: Horizontal
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HDFC Bank increased their branches to 1140 from 746. HDFC Bank jump to the 7th position from 10th
position. Bank focus on technology and superior margins with support from low cost deposits will ensure profitable growth in future. 15-20% increase in the assets base to more than 1.7 Lakh Crore.
6/9/2013
HDFC Bank gets the top class management of Centurion Bank of Punjab.
Strong two-wheeler, commercial vehicle and construction equipment portfolio. About 40 per cent of CBoP's total retail assets comprise home loans, car loans and personal loans. Small and medium enterprises (SME) client base of 2,500 and advances of over Rs 1,500 Crore. Gets 393 branches and licences for 350 more when RBI is being very stingy on
doling out branch licences.
Gains geographical spread, especially in Punjab and Kerala.

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Share of low-cost deposits to decline marginally as CBoP has a much lower portfolio of such deposits than HDFC Bank.
CBoP has relatively high net NPAs of 1.31 per cent. This will affect HDFC Bank's asset quality. Employee integration to be a big issue as CBoP has a large workforce. Technology integration to take time and also cost a packet as the two banks operate on different platforms. It's an all-stock deal, but HDFC Bank promoter HDFC will have to pump in close to Rs 4,000 Crore to maintain its stake at a little over 23 per cent
6/9/2013
Background
In 2008, RBI sanctioned merger of CBOP with HDFC
All branches of CBOP
branches of HDFC Bank
Nationwide network of 1,167 branches

Deposit base of around Rs. 1,22,000 Net advances of around Rs. 89,000 crores Balance sheet size would be over Rs. 1,63,000 crores
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Environment
Despite the economic crunch worldwide Indian banking houses had managed to show positive growth
While banks in the developed economies were on a cost cutting spree Indian banks were on a growth phase Metro licenses were hard to come by for most banks.
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Nature and Context of the Merger

Horizontal merger
The principle objectives:

Achieve economies of scale Widening the line of products To get more dominance on the market
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Cont
This
merger was also important to face the competition posed by foreign banks looking to enter an account of RBIs liberal policies and the domestic competition posed by ICICI bank
CBOP had traditionally been strong in high yielding
SME and retail segments, while HDFC bank had an enviable retail deposit franchise
Both the banks had a strong foothold in vehicle
financing, which formed a basis for a natural synergy.

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Intent of Merger
Increase in scale of operations
Increase in geography
Management bandwidth
Potential of business synergy and cultural fit
HDFCs brand leverage and increased utilization of CBOP
branches
CBOPs SME focus Complement HDFCs corporate focus

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Deal Size and Structure

CBOP was valued at $2.63 billion (Rs 9510 crores)
All stock deal Swap ratio was fixed at 1:29 26,200,220 warrants convertible into an equivalent numbers of equity shares to HDFC limited on a preferential basis at a rate of Rs. 1,530.13 each.
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Cont
Principle shareholders of CBOP Bank Muscat, Sabre Capital and the Kephinance Investment (Mauritius) decided to move away from this partnership.
No single lay off of employee Pooling of interest method used for accounting
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Roadblocks
Technological issues Finacle Vs Finware
HR issues Mapping of employees

Operational issues Account opening, cheque
book issue, net banking, Recurring deposits
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Cont
Infrastructural issues Multiplicity of branches, ATMs Risk issues NPA, cost of funds, CASA
Ongoing agitation by unions of public sector bank against consolidation of SBI

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Regulatory and Legal Framework

1.
2. 3. 4. 5. 6. 7. 8. 9. 10.
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SEBI(Substantial Acquisition of share & takeovers) Regulation 1997 The securities and Exchange Board of India Act, 1992 Security contract regulation Act, 1956 RBI mergers and Acquisition Approval The Depositories Act, 1956 SEBI Disclosure and Investor Protection Guidelines 2000 Security and Exchange Board of India (Merchant Banker) Rules/Regulation 1992 SEBI (Delisting of Securities) Guidelines, 2003 Foreign Exchange Mgmt Act, 1999 Companies Act, 1956
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Impact of the Merger

Increased footprint and metro presence
7th largest bank with asset size of Rs. 1097 billion Recorded growth figure as follows
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%
High level of write-offs due to bad asset quality of CBoP in personal loans and 2 wheeler loans Net interest margin and CASA were impacted "YOU'RE NOT JUST ANOTHER CUSTOMER, adversely 6/9/2013 WE'RE NOT JUST ANOTHER BANK" 19
6/9/2013
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HDFC & Cbop

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HDFC & Cbop

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Presented By Rahul Mehrotra

HDFC Bank is merged with Centurion Bank of

doling out branch licences.

Gains geographical spread, especially in Punjab and Kerala.

branches of HDFC Bank

Nationwide network of 1,167 branches

Nature and Context of the Merger

The principle objectives:

CBOP had traditionally been strong in high yielding

financing, which formed a basis for a natural synergy.

HDFCs brand leverage and increased utilization of CBOP

CBOPs SME focus Complement HDFCs corporate focus

Deal Size and Structure

HR issues Mapping of employees

book issue, net banking, Recurring deposits

Ongoing agitation by unions of public sector bank against consolidation of SBI

Regulatory and Legal Framework

Impact of the Merger

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