HDFC - CENTURION BANK MERGER

MPE-15
by Subhash, Gayathri, Kalpana, Lal Bahadur, Jerilee, Rupam

Agenda

Company Profiles

Strategic Intent behind the Merger

Benefits from the Merger

Immediate Fallout of the Merger with Potential Roadblocks

Post-Acquisition Status

View of the Combined Entity

Company Profile HDFC Bank

Incorporated in 1994, promoted in 1995

HDFC, Indias leading housing finance company - one of Indias premier banks providing a
wide range of financial products and services to its over 11 million customers (prior to
merger).

Uses multiple distribution channels - pan-India network of branches, ATMs, Phone Banking,
Net Banking and Mobile Banking

Emerged as a leading player in Retail Banking, Wholesale Banking and Treasury Operations

Competitive strength - use of Technology and ability to deliver world-class service with rapid
response time

Successfully gained market share in its target customer franchises while maintaining healthy
profitability and asset quality

As of 2007, the Bank had a network of 754 branches and 1906 ATMs in 327 cities

As of 2007, Profits were around INR 1141.45 Crores

HDFCs key strategies included:

Increase market share in India

Maintain Low costs

Strong Asset quality

Disciplined Risk Management

High earnings in the low volatile range

Incorporated in 1994

Company
Profile
Centurion
Bank of Punjab
One of the leading new
generationprivate
sector banks in India
Served Individual Consumers, small and medium businesses and large corporations with full
(CBoP)

range of financial products and services - investing, lending and advice on Financial Planning

Offered its customers an array of wealth management products such as mutual funds, life and
general insurance

Leadership position in some key markets in North India

Strong player in Forex services, Personal Loans, Mortgages as well as Agricultural loans.

Offered a full suite of NRI banking products to Overseas Indians

In 2007, merged with Lord Krishna Bank (LKB) which strengthened geographical reach

Nationwide Franchise of 394 Branches and 452 ATMs in 180 locations across the country

Employee base of over 7500 employees and was listed in major India stock Exchanges

2007 profits were around INR 121 Crores

JVs with Century Finance and Keppel Group

Bank of Punjab merged with Centurion Bank - to form Centurion Bank of Punjab

Strategic Intent
Merger
Merger Date : February 25

behind

the

2008
Value of the Merger : $ 2.5 billion (Rs 1500 billion)
th

HDFC Bank one of the first private-sector banks to get off the ground when Indian regulators began giving out new privatesector banking licences in the early 1990s
Looking for an appropriate merger opportunity that would add scale, geography and experienced staff to its franchise
Centurion Bank of Punjab was a right fit in terms of culture, strategic intent and approach to business. CBoP was concentrated
in the northern parts of the country, HDFC Bank was focused throughout India.
Centurion Bank of Punjab set benchmarks for growth and had a large nationwide network, an extremely valuable franchise,
7,500 talented employees, and strong leadership positions in the market place.
Merger was expected to provide economies of scale, wide range of products, and Dominance in the competitive Banking Industry
Merger was important to face competition from foreign banks looking to enter the Indian Banking front
Both banks had a strong foothold in various sectors like SME, Retail Segments, Retail deposit franchise, vehicle financing, etc.
and the combined entity was expected to have bigger synergies in these areas.

Benefits Expected from the

Merger
Regional strength is one of the benefits that HDFC Bank was looking for, but the merger will also offer several others.
Organic growth with a merger that would add scale, geographical reach and experienced staff, which are in short supply.
HDFC Bank had 23,000 employees while CBoP had about 7,500 the combined entity should allow the Bank to scale.
The deal will add 394 branches and 452 ATMs to HDFC Bank's existing 754 branches and 1,906 ATMs
The new entity will have assets of about Rs1.5 Trillion.
The merged entity will also have a deposit base of around Rs1.2 Trillion and net advances of around Rs 850 bn.

Immediate Fallout - Potential Roadblocks

On the day the swap ratio was announced, CBoP shares, which had run up in anticipation, fell 14.5% to Rs 48.25 per
share in adjustment to the ratio.
HDFC Bank shares fell 3.5% to close at Rs 1,422.70 a share, reflecting investor concerns that CBoP's valuation was too
high.

CBoP's asset quality and resource profile, though healthy, were slightly weaker than HDFC Bank's own and could have
impacted HDFC Bank adversely in the short term.

According to rating agency CRISIL, the benefits of an expanded branch network and wider geographical coverage will
more than offset any short-term negatives.
Overall the merger strengthened HDFC Bank's distribution network in the northern and the southern regions.
Integration was smooth as there was no overlap
Some roadblocks expected post merger were technological aspects, HR Mapping and operational Issues

Post-Acquisition
Status
Merged entity was profitable with profits over Rs 1590 Crores in the year immediately after the merger.
The group managed profits of INR 2244 Crores in 2009 and INR 2948 Crores in 2010.
Some of the other benefits reaped by HDFC from this merger are:

Access to 394 branches of CBoP and an increased presence in Southern and Northern States.

Greater penetration to many parts of Northern India with a strong presence of CBoP pre-merger.

CBoPs strong SME relationships complemented HDFC bias towards highly rated corporates thus expanding HDFCs
base.

Induction of a strong and capable management team with extensive Industry

Experience
and proven capabilities
Gain
to Shareholders

Increased presence in Metros

Became the 7th largest bank with assets worth Rs. 1097 billion

Increase in Net Profits by 44.6%

Increase in Interest Income by 74.9%

Advances and Deposits grew by 60.4%

View of the Combined

Entity

THANK
YOU