HDFC BANK-CENTURION BANK OF PUNJAB PRESENTED BY:

Sachi Bani Perhar MBA-IB 2010-2012

Seminar on Mergers, Acquisitions & Collaborations

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OBJECTIVES

1. Overview 2. The Merger 3. Nature of merger and motives

4. Financial performance analysis

5. Post merger analysis

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HDFC BANK
Brief Overview Incorporated in Aug 1994, by housing development finance corporation (HDFC) Registered office: Mumbai, India. Commenced operations as a Scheduled Commercial Bank in January 1995.

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 11 million customers 754 branches

1,906 ATMs
327 cities across India

Net profit (2007): Rs. 4.3 billion

Employees: 23,000
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CENTURION BANK OF PUNJAB

Brief overview
Incorporation of Centurion Bank: 30th June 1994 2005: Bank of Punjab merged with Centurion Bank- Centurion Bank of Punjab Nationwide franchise: 394 branches 425 ATMs in 180 locations across India Employees: 7500 Listed on: Indian Stock Exchange and Luxembourg Stock Exchange
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Operational statistics
(Rs. Bn)
Advances Deposits CASA(%) Branches (nos) ATM (nos) Asset Size Net worth NIMs (%)

HDFC BANK
713.9 993.9 51 754 1906 1314.4 113.6 4.30

CBOP
150.8 207.1 25 394 425 254.0 19.6 3.60

RoE(%)
RoA(%) Net NPA(%)

17.54
1.43 0.40

9.86
0.80 1.69

REGULATORY FRAMEWORK:
Section 44 A of the Banking Regulation Act 1949 Other companies which are bound by Section 390 396 of Indian Companies Act 1956. 1. Draft scheme approved by the respective boards of the amalgamating banks and passed to the EGM of the shareholders. 2. Majority (2/3 rd) voting of the shareholders 3. Scheme to be submitted to RBI for vetting giving compliances of Section 44 of the Banking Regulation Act 1949 4. Scheme of merger need not be approved by the High Court as mandatory for companies under the Companies Act 1956.
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The Merger
On Feb 23,2008 both the banks agreed to the conditions of the proposed merger that became effective from May 23, 2008. The largest ever private bank merger Creation of countrys 3rd largest bank on the basis of assets Created the largest branch distribution network for a private bank in India Share Swap ratio: 1:29 The shareholders of CBoP were allotted 6,98,83,956 equity shares of Rs.10/- of HDFC Bank Limited for every 29 shares of Re.1/- each held in CBoP. CBoP was valued at Rs. 9,510 crores Valuation of CBOP done by: Dalal & Shah and Ernst & Young
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 Principle shareholders of CBoP- Bank Muscat, Sabre Capital and Kephinance Investment (Mauritius) decided to move away from this partnership No single lay off of employee Advisor to HDFC Bank: KPMG Advisor to Centurion Bank: Investment bank Ambit Corporate Finance

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Pooling of interest method used for accounting

Accordingly, the assets and liabilities of CBoP that vested in

HDFC Bank as on April 1, 2008 were accounted at the values at which they were appearing in the books of CBoP as on March 31, 2008

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Nature and context of the Merger

Merger through Absorption Horizontal Merger The principle objectives: Achieve economies of scale Widening the line of products To get more dominance on the market Management bandwidth Strategic motive - complementary business interests can strengthen their positions in the market through merger.
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 To face the competition posed by foreign banks looking to enter on account of RBIs liberal policies and the domestic competition posed by ICICI bank

Great potential for Business synergy Increased utilisation of CBOP branches CBOPs SME focus complemented HDFCs Corporate focus

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YEAR
2001

PAT
210.52

2002
2003 2004 2005 2006

297.58
386.87 509.8 665.42 870.59

Net profit earned by the company after deducting all expenses like interest, depreciation and tax.

PAT
3500 3000 2500 2000 1500 1000 500 0

2007
2008 2009 2010

1142.13
1589.77 2242.09 2945.96

PAT

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RATIO ANALYSIS
DEBT COVERAGE RATIOS

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The proportion of loans generated by banks from the deposits received

YEAR 2001 2002

CREDITDEPOSIT RATIO 39.82 39.06

2003
2004 2005

46.39
55.89 64.87

CREDIT-DEPOSIT RATIO
80 70 60 50 40 30

2006
2007 2008 2009 2010
CREDIT-DEPOSIT RATIO

65.79
66.08 65.28 66.64 72.44

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YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

CASH DEPOSIT RATIO (%) 9.14 7.5 8.23 8.76 7.78 6.46 6.75 10.43 10.71 9.35

The cash-deposit ratio is a measure of the liquidity of banks' assets.

CASH DEPOSIT RATIO (%)

12 10

6 CASH DEPOSIT RATIO (%) 4

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To determine the financial institutions short term viability.

YEAR 2001 2002 2003

INVESTMENTDEPOSIT RATIO(%) 64.19 65.33 63.43 62.05 57.99 51.81 47.51 47.29 44.43 37.85

INVESTMENT-DEPOSIT RATIO(%)
70 60 50 40 30 20 10 0 INVESTMENT-DEPOSIT RATIO(%)

2004 2005 2006 2007 2008 2009 2010

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PROFIT AND LOSS ACCOUNT RATIOS

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YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009

INTEREST EXPENDED/INT EREST EARNED (%) 59.85 63.05 59.2 47.51 42.53 43.11 47.83 48.32 54.56
70 60 50 40 30 20 10 0

This ratio represents the expenses over the earnings.

INTEREST EXPENDED/INTEREST EARNED (%)

INTEREST EXPENDED/INTEREST EARNED (%)

2010

48.14

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OTHER INCOME/TOTAL INCOME RATIO (%)

25

20

YEAR
2001

OTHER INCOME/TOT AL INCOME RATIO (%) 12.92 16.4 18.85 16.16 19.12 21.33 19.35

15 OTHER INCOME/TOTAL INCOME RATIO (%)

2002 2003 2004

10

2005 2006 2007

2008

18.42
17.53 19.76

Represents income from activities other than normal business operations such as investment interest, foreign exchange gains, rent income etc.
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2009 2010

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OER (%)
35 30 25 20 15

OER (%)

YEAR 2001

OER (%) 21.5

10 5 0

2002
2003 2004 2005 2006 2007 2008 2009 2010

20.56
23.34 27.02 30.46 31.3 30.29 30.21 28.85 29.47

Shows the percentage of income that is being used to pay maintenance and operational expenses.

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MANAGEMENT EFFICIENCY RATIOS

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YEAR 2001 2002 2003 2004

Non Interest Income / Total Funds (%) 9.24 8.64 7.42 7 6.59 7.16 8.06 9.01 10.32 7.97

NON INTEREST INCOME/TOTAL FUNDS RATIO(%)

2.5 2 1.5 1 0.5 0

2005 2006 2007 2008 2009 2010

NON INTEREST INCOME/TOTAL FUNDS RATIO(%)

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YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Net Interest Income / Total Funds (%) 5.53 5.45 4.39 3.32 2.8 3.08 3.86 4.35 5.63 3.84

NET INTEREST INCOME/TOTALFUNDS RATIO(%)

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 NET INTEREST INCOME/TOTALFUNDS RATIO(%)

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OPERATING EXPENSES/TOTAL FUNDS(%)

4 3.5 3 2.5 2 1.5 1 0.5 0 OPERATING EXPENSES/TOTAL FUNDS(%)

YEAR 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

OPERATING EXPENSES/ TOTAL FUNDS(%) 2.28 2.12 2.13 2.25 2.48 2.85 3.03 3.34 3.61 2.93
25

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PROFITABILITY RATIOS

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RONW (%)
30 25 20 15

YEAR 2001 2002

RONW (%) 25.25 20.81

RONW (%)

10
5 0

2003
2004 2005 2006 2007 2008 2009 2010

18.51
20.64 18.46 17.74 19.46 17.74 16.91 16.12
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The ratio of after-tax income to net worth.

RATIOS OF FINANCIAL CONDITIONS

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CURRENT RATIO
0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0

CURRENT RATIO

YEAR 2001 2002 2003 2004 2005

CURRENT RATIO 0.07 0.06 0.06 0.03 0.03 0.04 0.04 0.04 0.04 0.03
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It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. Calculated by dividing the total of the current assets by total of the current liabilities
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2006 2007 2008 2009 2010

QUICK RATIO
8 7 6 5

YEAR 2001

QUICK RATIO 4.09

4 3 QUICK RATIO

2
1 0

2002
2003 2004 2005 2006 2007 2008 2009 2010

4.24
4.39 3.39 5.61 5.18 4.07 4.89 5.23 7.14

Is the sum of cash and receivables divided by the total current liabilities. The quick ratio is another measure of a company's immediate financial condition
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Net Income (profit) of a company divided by the number of outstanding shares.

YEAR 2001 2002 2003

EPS 8.63 10.56 15.53 21.26

EPS
70 60 50 40 30 20 10 0

2004

2005
2006 2007 2008
EPS

27.55
35.64 43.29 44.87 52.77 64.42

2009 2010

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POST-MERGER
(Rs. Bn) HDFC BANK CBOP MERGED

Advances
Deposits CASA(%) Branches (nos) ATM (nos) Asset Size Networth Net NPA(%) 4/15/2012

713.9
993.9 51 754 1906 1314.4 113.6 0.40

150.8
207.1 25 394 425 254.0 19.6 1.69

864.7
1200.9 46 1148 2358 1,660.9 225.74 0.6

HDFC AND ITS COMPETITORS

Market Cap. (Rs.Cr) HDFC Bank ICICI Bank Axis Bank Kotak Mahindra IndusInd Bank 110,449.72 103,342.75 45,479.88 33,917.14 12,473.99 Net Interest Income 19,928.21 25,974.05 15,154.81 4,303.56 3,589.36 Net Profit 3,926.39 5,151.38 3,388.49 818.18 577.32 Total Assets 277,352.61 406,233.67 242,713.37 50,850.66 45,635.85

YES BANK
Federal Bank ING Vysya Bank Karur Vysya JK Bank

10,231.90
6,593.88 4,453.08 4,033.73 4,038.20

4,041.74
4,052.03 2,694.06 2,217.69 3,713.13

727.13
587.08 318.65 415.59
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59,007.00
51,456.37 39,013.98 28,224.84 50,508.15
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In any merger, integration is primarily at three levels People Processes Technology,

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"The challenge was that CBoP was more about low-cost operations and distributes more low-cost products while HDFC's products are more universal and sophisticated and higher up the value chain

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How well the CBoP team gels with HDFC products : an area of challenge

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TECHNOLOGY DIFFERENCE
CBoP on two different technology platforms Finacle and i-flex. The Centurion Bank was on Misys, but after taking over Bank of Punjab, the bank shifted to Finacle. And the 2006 merger with LKB had further complicated things, as LKB was on i-flex. So CBoP is still in the process of bringing all its branches on to the Finacle platform. Given these circumstances, the entry of HDFC Bank which works on i-flex platform further complicated the situation.
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Questions
What are the three types of mergers and which one applies in this case? What are the two methods of accounting and which one was applied in this case? Under which Act does the amalgamation of banking companies comes?
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THANK YOU!

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