Merger of Centurion Bank of Punjab and HDFC Bank Altaf Hussain Siddiqui Rahul Dh andania Pankaj Singh Vikram

Duggal Rajendra Inani Vaibhav Samant 2. Background In 2008, RBI sanctioned merger of CBoP with HDFC All branches of C boP => branches of HDFC Bank Nationwide network of 1,167 branches Deposit base o f around Rs. 1,22,000 Net advances of around Rs. 89,000 crores Balance sheet siz e would be over Rs. 1,63,000 crores 3. History - CBoP 30 June 94 Incorporation of Centurion Bank JV - Century Finance and Keppel Group 2005 - Bank of Punjab merges with Centurion bank - Centurion B ank of Punjab 2006 - CBOP acquires Lord Krishna Bank 4. History HDFC Bank August 1994 Incorporation of HDFC Bank 2000- Times Bank Lim ited 2008- Centurion Bank of Punjab Limited 5. HDFC Strategy Increase market share in India Maintain low cost of funds Stron g asset quality Disciplined risk management High earnings growth with low volati lity 6. Environment Despite the economic crunch worldwide Indian banking houses had m anaged 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. 7. Nature and context of the merger Horizontal merger The principal objectives: Achieve economies of scale Widening the line of products To get more dominance o n the market 8. Nature and context of the merger This merger was also important to face the c ompetition posed by foreign banks looking to enter on account of RBI s liberal pol icies and the domestic competition posed by ICICI bank CBoP had traditionally be en strong in high yielding SME and retail segments, while HDFC Bank had an envia ble retail deposit franchise Both the banks had a strong foothold in vehicle fin ancing, which formed the basis for a natural synergy 9. Product Breakup Number of Branches Banks CBOP HDFC Merged Metro 127 287 414 N on metro 267 467 734 Total 394 754 1148 % metro 32% 38% 36% %Non metro 68% 62% 6 4% Increase for HDFC 44% 57% 52% Increase for CBoP 226% 175% 191% 10. Intent of Merger Increase in scale of operations Increase in geography Manag ement bandwidth Potential of Business synergy and cultural fit HDFC s Brand levera ge and increased utilization of CBOP Branches CBOP s SME focus complement HDFC s Cor porate focus 11. Deal Size and Structure CBOP was valued at $2.63 billion (Rs 9510 crores) Al l stock deal Swap ratio was fixed at 1:29 26,200,220 warrants convertible into a n equivalent number of equity shares to HDFC Limited on a preferential basis at a rate of Rs. 1,530.13 each. 12. Deal Size and Structure Principal shareholders of CBoP Bank Muscat, Sabre Ca pital and the Kephinance Investment (Mauritius) decided to move away from this p artnership. No single lay off of employee Pooling of interest method used for ac counting 13. Roadblocks Technological Issues Finacle Vs Finware HR Issues Mapping of Empl oyees Operational Issues Account opening, cheque book issue, net banking, Recurri ng Deposits 14. Roadblocks Infrastructural Issues Multiplicity of branches, ATMs Risk Issues NPA , cost of funds, CASA Ongoing agitation by unions of public sector banks ag ainst consolidation of SBI 15. Regulatory & Legal Frame Work 1. SEBI (substantial Acquisition of shares &Ta keovers) Regulations 1997 2. The Securities and Exchange Board of India Act,1992 . 3. Security Contract Regulation Act ,1956 . 4. RBI Mergers & Acquisition Appr oval 5. The Depositories Act,1956. 6. SEBI Disclosure and Investor Protection Gu idelines 2000. 7. Securities and Exchange Board of India (Prohibition of Insider Trading Regulation ),1992. 8. Securities and Exchange Board of India (Merchant Bankers) Rules/Regulation 1992. 9. SEBI (Delisting of Securities )Guidelines,200 3. 10. Foreign Exchange Management Act,1999. 11. Companies Act,1956. 16. Impact of the Merger Increased footprint and metro presence 7th largest bank with asset size of Rs.1097 billion Recorded growth figures as follows Net profi t by 44.6% to Rs. 4.6 billion Net Interest Income by 74.9% to Rs.17.2 billion Ad vances grew by 79.8% & deposits by 60.4% High level of write-offs due to bad ass

et quality of CBoP in personal loans and 2 wheeler loans Net interest margins an d CASA were impacted adversely 17. Gains to Shareholders Sept SWAP SWAP Value April-10 2007 Ratio value App. HD FC 1433 1 1433 1984 38.45% CBOP 41 29 1189 1984 66.86% Index 5001 1 5001 5250 4. 98% 18. Key Learning Integrating of IT systems without disrupting customer service M apping of Employees Customer communication Elimination of redundancies Top manag ement vision Coordination between different functions Structuring of the deal an d tax implications ================================== . Acquisition in which all assets andliabilities are absorbed by the buyer. . More generally, any combination of twocompanies.

. Horizontal Merger . Vertical Merger . Conglamerate Merger . Cocentric Merger

. To Create Synergy . Reduce Expenses . Lack of Self-sufficiency

. HDFC Bank was incorporated in August 1994. . Currently has an nationwide network of 1,416Branches and 3,570 ATM's in 550 Indi an towns andcities. . Bank reported a net profit of Rs. 4.3 billion, p45.2%. . Total deposits were Rs. 993.9 billion, up 48.9%. . Total balance sheet size too grew by 46.7% toRs.1,314.4 billion.

. Centurion Bank was incorporated on 30 June 1994 and received its certificate of Commencement of Business on 20 July. . On 29 June 2005, the Boards of Directors ofCenturion Bank and Bank of Punjab agr eed to amerger of the two banks. The combined bank took as its name Centurion Bank of Punjab. Bank of Punjab had been founded in 1995. . It operated on a strong nationwide franchise of 403 branches and had over 5,000 employees. . In addition to being listed on the major Indian stock exchanges, the Bank's shares are also listed on theLuxembourg Stock Exchange.

. Merger took Place on 25th February 2008. . Merger took place with a swap ratio 1:29 . The combined entity would have a nationwide network of 1,148 branches. . Deposit base of around Rs. 1,200 billionand net advances of around Rs. 850 billion. . The balance sheet size of the combined entity would be over Rs. 1,500 billion.

HDFC CENTURION BANK OF PUNJAB First to get banking license Large nationwide network first to do a merger in the privatesector with Times Bank in 1999 Extremely valuable franchise strength clearly lies in the use oftechnology Highly talented employees Ability to deliver world-classservice with rapid response time. Strong Leadership position in market

. A merger between the banks providessignificant synergies to the combinedentity. . The proposed merger would furtherimprove the franchise and customerproposition o ffered by the individualbanks." . This merger would create a world-classbank in quality and scale and would set th estage to compete with banks both locallyand globally.

. Minimum Balance should be reduced from 10000 to 1000. . Make people understand about variousproducts. . Company should open more branches incities.

THANK YOU

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