Centurion Bank of Punjab, HDFC Bank to merge TNN Feb 23, 2008, 12.

19am IST

NEW DELHI: It's official now. HDFC Bank and Centurion Bank of Punjab (CBoP) will be merged to form a bigger bank. The announcement of merger will be made after both the banks' board meeting on Saturday. Banking sources said both banks have agreed to merge as it fits into their growth prospects. For around 25 shares of Re 1 of CBoP, an investor will get one share of Rs 10 of HDFC Bank. In last two days, share price of CBoP moved from Rs 49.85 on Wednesday to Rs 56.40 on Friday. However, it seems, investors of HDFC Bank did not like the development. The share price of HDFC Bank on Thursday moved up from Rs 1,534.50 to Rs 1,543. But on Friday, it fell sharply to Rs 1,475. Prior to this, in August 2007, CBoP was merged with Lord Krishna Bank. A senior banker said according to terms and conditions, Rana Talwar, the present chairman of CBoP, will be the chairman, and present MD of HDFC Bank Aditya Puri will be MD of the merged bank. At present, CMD of HDFC Ltd Deepak Parekh is the chairman of HDFC Bank. A senior official of HDFC Ltd denied any such arrangement where the chairmanship of the combined entity will go to Rana Talwar. At present HDFC Ltd owns 23.28% of equity capital in HDFC Bank After the merger, its holding in the combined entity will come down to 19.20%. Rana Talwar, who owns 2.45% in CBoP through Sabre Capital, will be reduced to a marginal shareholder in the combined company. However, Bank of Muscat, which owns 14.02% in CBoP will get around 2.45% share in the combined entity. Total branches of the combined entity will be around 1,100 in over 400 cities and towns. A senior bank official said the merger will help HDFC Bank to penetrate rural areas. Lord Krishna Bank merger gave CBoP an access to rural network. The total depsoits of the new merged entity will be around Rs 1.35 lakh crore. As on March 2007, HDFC Bank had deposits of Rs 99,400 crore and that of CBoP was Rs 14,863 crore. Analysts feel the merger will affect profitability of HDFC Bank. Net non performing assets of CBoP are higher at 1.13% than 0.4% of HDFC Bank. Besides, HDFC Bank has a much stronger stream of income from fees and commission, In 2006-07, it had earned around Rs 1,300 from fees and commission. Similar income of CBoP is much smaller

The biggest financial sector takeover in the country HDFC Banks decision to acquire Centurion Bank of Punjab could only be a precursor to the events to unfold in the banking sector. Boards of HDFC Bank, the third biggest bank in the country by share market value, and Centurion Bank of Punjab met on Saturday and agreed to pursue the merger. The boards of both the banks will meet again on Monday to decide the share swap ratio, HDFC Bank said in a release here. So far, the Indian banking sector has not seen many marriages unless mandated by the banking regulator. Global Trust Bank, a private bank was merged with state-owned Oriental Bank of Commerce in 2004, while United Western Bank was merged with the Industrial Development Bank of India in 2006. Centurion Bank of Punjab itself had acquired the privately-owned Lord Krishna Bank in last year. With capital requirements for banks set to get more stringent next year onward as per the Reserve Bank of India's Basel II norms, more banks may be forced to follow suit. Further, consolidation in the banking industry seems to be an imperative to survive in a world of new-age lenders. Larger banks make stronger banks. Size and scale do matter in the banking space and this deal has not come as a surprise. Stricter capital adequacy norms with Basel II implementation could force more banks, especially several of them down south, to merge with bigger entities. Thus, consolidation in the banking sector should go on for a while, said Kamlesh Gandhi, country head of Investment banking at Religare. Basel II implementation could see banks operational costs shooting up and a consequent rise in charges levied from customers. Thus, bigger banks with a better scale of economies would be able to provide services at a lower cost and prevent customer attrition. Basel II mandates stricter capital requirements based on the banks own measures of risk that require comprehensive data collection and analysis, which will be expensive to implement. Further, the norm will require significant changes in internal systems and processes, which are expensive as well

HDFC Bank, CBoP merger ratio at 1:29

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The board of HDFC Bank on Monday approved issuance of one equity share for every 29 held in Centurion Bank of Punjab for merger of the two financial institutions. The board has approved the share swap ratio of one share of Rs 10 each of HDFC Bank for every 29 shares of Re 1 each held in Centurion Bank of Punjab, HDFC Bank said in a filing to the Bombay Stock Exchange. The share swap ratio is subject to due diligence to be conducted in this regard, it said. The board noted that in the event of the merger, it would consider making a preferential offer to its promoter, Housing Development Finance Corporation Ltd, to enable HDFC to maintain its shareholding percentage in the bank. HDFC Bank's board will meet on February 28 to consider the draft scheme of amalgamation, it said. Earlier on Sunday, the boards of directors of HDFC Bank and Centurion Bank of Punjab (CBoP) separately gave their in-principle approvals for merger of the two banks. HDFC Bank is expected to pay Rs 10,000-Rs 12,000 crore (Rs 100-120 billion) in shares for absorbing CBoP. Independent firms -- Dalal & Shah and Ernst & Young -- appointed by the two banks would work over the weekend to prepare their reports on the valuation of CBoP in time for boards of the two banks to consider when they meet again on Monday to consider the swap ratio for the all-stock deal. The boards of both banks will meet on February 25 to consider the swap ratio and on February 28, to consider the draft scheme of amalgamation and any other matters as required. Consulting firm KPMG is the advisor to HDFC Bank and investment bank Ambit Corporate Finance to Centurion Bank. "The swap ratio is expected to be around 1:25-30," said a banking source. The merger will make HDFC Bank the country's seventh largest bank after Bank of India (BoI) and ahead of IDBI Bank, from the current 10th position. The merger talks between the two 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 stake and Kephinance Investment (Mauritius) with 6.13 per cent -decided to exit.

The three had signed a shareholders' agreement in 2003, which provided that any decision to sell the stake would be taken together. HDFC Bank is hopeful of completing the integration process in about five to seven months. The merged entity will not offer home loans as this would lead to a conflict of interest with HDFC Bank's parent, Housing Development Finance Corporation. HDFC Bank will have the option to sell the home loan portfolio of CBoP to HDFC. HDFC holds 23.28 per cent stake in HDFC Bank. Its holding is expected to fall below 20 per cent after the merger. Banking sources said HDFC would approach RBI to allow HDFC to maintain its stake at 20 per cent. HDFC Bank, like in the past, could make a preferential offer to HDFC, which had earlier indicated that it would want to hold at least 20 per cent stake in the bank at all times. A senior HDFC Bank official indicated that Rana Talwar, the chairman of Centurion, will have no role to play in the merged entity. Shailendra Bhandari, the managing director and CEO of Centurion will be appointed as a member of the merged bank and will have no role in the day-to-day operations of the bank. Bhandari will help in the process of integrating the two entities." The official added, "There is no scope for appointment of a deputy managing director (in the merged entity)." HDFC will continue to have two representatives on the board of the merged entity." The merger will be a win-win situation for HDFC Bank as it would acquire around 400 branches and skilled personnel. The branch acquisitions will boost the presence of HDFC Bank in the northern and the southern regions. CBoP has close to 170 branches in the north and around 140 branches in the south. While HDFC Bank has nearly 250 branches in the north and nearly150 branches in southern India. CBoP has a concentrated presence in the southern state of Kerala, where HDFC would have to consider reorganisation. "We will also acquire a strong SME (small and medium enterprises) portfolio from CBoP. There is no overlapping of HDFC Bank and CBoP customers," the HDFC Bank official said. The integration will be a challenge for HDFC Bank. Though the cultures of Centurion Bank employees would match with HDFC Bank but the culture of employees of Lord Krishna Bank and Bank of Punjab will definitely not be very similar to HDFC Banks. Additional input: Business Standard

Merger of Centurion Bank of Punjab During the year ended March 31, 2009, the Reserve Bank of India accorded its consent to the Scheme of Amalgamation of Centurion Bank of Punjab Limited (CBoP) with HDFC Bank Limited. Pursuant to the order of amalgamation, the operations of both banks were merged with effect from May 23, 2008. On June 24, 2008 our Share Allotment Committee approved the allocation of 69,883,956 equity shares of Rs. 10/- each to the shareholders of CBoP pursuant to the share swap ratio of one equity share of Rs. 10/- each of HDFC Bank Limited for every twenty nine equity shares of Re. 1/- each held in CBoP by them as on the record date viz. June 16, 2008. The amalgamation was accounted for as a business combination under the purchase method of accounting. During the year ended March 31, 2009, our employees were allotted 1,067,233 equity shares pursuant to the exercise of options under the employee stock option scheme. These include options granted upon the acquisition of CBoP. This excerpt taken from the HDB 20-F filed Sep 29, 2008. Merger of Centurion Bank of Punjab Our merger with Centurion Bank of Punjab Ltd. (CBoP) became effective on May 23, 2008. CBoP had arround 400 branches operating out of about 180 locations supported by an employee base of over 7,500 employees. Loans outstnading of CBoP as of March 31, 2008 were Rs. 161,818.7 million and deposits outstanding of CBoP as of this same date were Rs. 218,092.7 million, as per Indian GAAP. To maintain the promoter group shareholding in the Bank, the shareholders, on March 27, 2008, accorded their consent to issue equity shares and/or warrants convertible into equity shares to HDFC Limited and/or other promoter group companies. Pursuant to the said consent of the shareholders accorded on March 27, 2008, the Bank issued 26,200,220 warrants to HDFC Limited on a preferrential basis during the quarter ended June 30, 2008. (Also see, I. The Bank, in Notes to the Consolidated Financial Statements.)

HDFC Bank to acquire Centurion Bank of Punjab

HDFC Bank, Centurion swap ratio fixed at 1:29 HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion Bank of Punjab (CBoP) for Rs 9,510 crore in one of the largest merger in the financial sector in India. CBoP shareholders will get one share of HDFC Bank for every 29 shares held by them. This will be HDFC Banks second acquisition after Times Bank. HDFC Bank will jump to the 7th position among commercial banks from 10th after the merger. However, the merged entity would become second largest private sector bank. The merger will strengthen HDFC Bank's distribution network in the northern and the southern regions. CBoP has close to 170 branches in the north and around 140 branches in the south. CBoP has a concentrated presence in the in the Indian states of Punjab and Kerala. The combined entity will have a network of 1148 branches. HDFC will also acquire a strong SME (small and medium enterprises) portfolio from CBoP. There is not much of overlapping of HDFC Bank and CBoP customers. The entire process of the merger would take about four months for completion. The merged entity will be known as HDFC Bank. Rana Talwar's Sabre Capital would hold less than 1 per cent stake in the merged entity from 3.48 in CBoP, while Bank Muscat's holding will decline to less than 4 per cent from over 14 per cent in CBoP. HDFC shareholding falls to will fall from 23.28 per cent to around 19 per cent in the merged entity. Mr Rana Talwar, Chairman of Centurion Bank, has been offered a seat on the Board as nonexecutive director and Mr Shailendra Bhandari, Managing Director, Centurion Bank, has been invited to join as the Executive Director on the board post merger. According to HDFC Bank Managing Director and Chief Executive Officer Aditya Puri, Integration will be smooth as there is no overlap. In an interview, he mentioned that at 40% growth rate there will be no lay-offs. The integration of the second rung officials should be smooth as there is hardly any overlap. The boards of the two banks will meet again on February 28 to consider the draft scheme of amalgamation, which will be subject to regulatory approvals. HDFC Bank will consider making a preferential offer to its parent Housing Development Finance Corp Ltd (HDFC). The move would allow HDFC to maintain the same level of shareholding in the bank

RBI approves merger of Lord Krishna Bank with Centurion Bank of Punjab
The Reserve Bank of India has sanctioned the Scheme of Amalgamation of Lord Krishna Bank Ltd. with Centurion Bank of Punjab Ltd. The Scheme has been sanctioned in exercise of the powers contained in Sub-section (4) of Section 44A of the Banking Regulation Act, 1949. The Scheme will come into force with effect from August 29, 2007. All the branches of Lord Krishna Bank Ltd. will function as branches of Centurion Bank of Punjab Ltd. with effect from August 29, 2007. RBI decision follows a dismissal of a petition against the merger by the Kerala High Court. The LKB-CBoP merger in the ratio 5:7 was approved by the AGMs of the respective banks in September 2006. However, one of the shareholders Umeshkumar Pai had challenged the merger and had sought an investigation into the affairs of LKB, while arguing that the decision was taken without sufficient discussion and many shareholders were not permitted in the meeting hall. The merger will add Rs 300 crore to CBoPs balance sheet, which is around Rs 18,480 crore at present, and another 112 branches to its current 279 branches. CBoP plans to add more than 200 branches by December 2007. The all-stock merger deal of LKB with CBoP followed the acquisition of Bank of Punjab by Centurion Bank, after which it was rechristened as CBoP

HDFC - Introduction Centurion - Introduction Deal b/w HDFC n Centurion Impact of deal (In Market) Advantage of deal Current Status Future Prospect

HDFC acquires Centurion Bank

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Responses to Sticklish Issues dated February 25

The merger comes as no surprise. With furtherliberalisation,post-2009, on account ofWTO regulations, there would begreater accessibility for foreignbanks to Indian shores and viceversa.With competition hotting up, Indianbanks will have to gear up tocompete with their global counterpartsin terms of products, technologyand people.While consolidation via themerger route is one option, scalingup operations through branch expansionis the other, as size becomesall important.Growth by Indian banks will,therefore, have to be both organicand inorganic.But in their quest for size andgrowth, the banks, especially thosein the private sector, will need toensure that the benefits of globalisationpercolate to the masses.Unfortunately, we don't see toomany private sector banks willingto lend to the weaker sections.Financial inclusion is the need ofthe hour to eradicate poverty inIndia, especially rural India, wherebulk of our population resides.R. Vishvesh, MumbaiIn this era of globalisation, every organisation needs a `scale' in orderto operate competitively. Hence,consolidation becomes mandatoryamong the banks, which will notonly help them compete with foreignbanks but also help themtransfer the benefits to consumers,achieved through reduced cost ofoperation.On the flip side, this situationmight lead to cartelisation, becauseof the less number of players in themarket. Hence, the Governmentmust ensure that the banks don'tcollude with each other with a motiveto exploit customers.Tamil Selvam, e-mailHDFC Bank, by way of mergingwith The Centurion Bank of Punjab,will become the third largestbank in the country.This move will also satisfy theexpectation of the Finance Ministerwho feels that the Indian Banks,despite their large size, does notcommand a leadership positionglobally. Though the consolidationmoves are thwarted by vested interest,it must be overcome.In case of merger of State Bankof India and its seven associates,the pressure from unions and politiciansshould be faced with courageand conviction.R. Swaminathan, e-mailThe swap ratio for Centurion Bank of Punjab & HDFC Bank is quite confusing and might be difficult to justify. While the share price of Centurion Bank is at Rs 51, HDFC Bank is at Rs 1,425. If we were to go by the market price of these shares, the swap ratio will come to 3:1. If the valuations are done by taking the face value into consideration, then the trading of shares can also be done based on their face value, so that it will at least result in more liquidity. Ramakanth Pai, emailHDFC Bank board approved the share swap ratio of one equity share of HDFC Bank share for 29 equity shares of CBoP. While the CBoP shareholders would definitely benefit from this merger, HDFC Bank shareholders would have to feel satisfied about the long term benefits from the merger move. Moreover, the merger will create a larger entity in terms of technology, products, distribution and manpower. HDFC Bank will also add more branches to its network and expand its business reach.V. Venkitasubramanian, Kochi Consolidation in banking sector is inevitable and they will have to gear up to meet the competition from the foreign banks. Though the public sector banks are expected to set a precedent, they obviously suffer form various institutional and political constraints. Even as some of the older private banks carry out their operations successfully, they become merger targets only when their balance sheets get worse. HDFC Bank has planned to merge with Centurion Bank of Punjab (CBoP), in order to augment its deposit and growth prospects. While the non-performing assets of CBoP are higher at 1.13 per cent, it is just 0.4 per cent in HDFC Bank. This will surely have a negative impact on HDFC Bank and its share price has fallen sharply. T.S. Sundareswaran, New Delhi The private sector banks have been given licence to make them more competitive and in the last ten years, there has been many mergers/takeovers among them. The new generation private sector banks enjoy many advantages in terms of technology, energetic staff, etc. With the opening up of the financial

sector, the need for strong balance sheet and size are gaining prominence. Even our Finance Minister prefers bank mergers. In the case of HDFC Bank-CBoP merger, though there are bound to be some issues, which can be ironed out, I am sure this will set the precedent for many more mergers among Indian banks. Krithivasan, e-mail If the HDFC Bank-CBoP merger goes through, it will result in cost reductions, leverage the strength of their manpower and increase the size and reach of their business. Sometimes, it really cannot be understood as why the unions of some public sector banks are opposing when they stand to gain from the move. A. Jacob Sahayam, Thiruvananthapuram
(This article was published in the Business Line print edition dated March 3, 2008)

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