HDFC Bank and Centurion Bank of Punjab merger at

share swap ratio of 1:29

Mumbai, February 25, 2008: The Boards of HDFC Bank and Centurion Bank
of Punjab met today and approved, subject to due diligence, the share
swap ratio for the proposed merger of Centurion Bank of Punjab with
HDFC Bank. The Scheme of Amalgamation envisages a share exchange
ratio of one share of HDFC Bank for twenty nine shares of Centurion Bank
of Punjab.
The combined entity would have a nationwide network of 1,148 branches
(the largest amongst private sector Banks) a strong deposit base of
around Rs. 1,200 billion and net advances of around Rs. 850 billion. The
balance sheet size of the combined entity would be over Rs. 1,500 billion.
The share exchange ratio approved by the respective Boards was based
on the recommendations made by M/s Dalal & Shah, Chartered
Accountants, and Ernst & Young Private Ltd. who acted as independent
joint valuers to the transaction.
The draft Scheme of Amalgamation, the due diligence report and any
other matters as required will be considered by the Board of HDFC Bank in
their meeting scheduled on February 28, 2008. The Board of CBOP will
meet on the same day in order to consider the draft Scheme of
Amalgamation and any other matters as required.
HDFC Banks Board noted that in the event of the merger of Centurion
Bank of Punjab with HDFC Bank being approved at its meeting on
February 28, 2008, it would consider making a preferential offer to its
promoter Housing Development Finance Corporation (HDFC), to enable
HDFC to maintain its percentage shareholding in the merged entity. HDFC
Banks Board also noted that Mr. Rana Talwar has been offered a seat on
the Board as non executive director and Mr. Shailendra Bhandari will be
invited to join the Board as Executive Director.
Commenting on the proposed merger, Mr. Deepak Parekh, Chairman,
HDFC said, We were amongst the first to get a banking licence, the first
to do a merger in the private sector with Times Bank in 1999, and now if
this deal happens, it would be the largest merger in the private sector
banking space in India. HDFC Bank was looking for an appropriate merger
opportunity that would add scale, geography and experienced staff to its
franchise. This opportunity arose and we thought it is an attractive route
to supplement HDFC Banks organic growth. We believe that Centurion
Bank of Punjab would be the right fit in terms of culture, strategic intent
and approach to business.
 Mr. Aditya Puri, Managing Director, HDFC Bank said, These are
exciting times for the Indian banking industry. The proposed merger will
position the combined entity to significantly exploit opportunities in a
market globally recognized as one of the fastest growing. Im particularly
bullish about the potential of business synergies and cultural fit between
the two organizations. The combined entity will be an even greater force
in the market.
Mr. Rana Talwar, Chairman, Centurion Bank of Punjab stated, Over
the last few years, Centurion Bank of Punjab has set benchmarks for
growth. The bank today has a large nationwide network, an extremely
valuable franchise, 7,500 talented employees, and strong leadership
positions in the market place. I believe that the merger with HDFC Bank
will create a world-class bank in quality and scale and will set the stage to
compete with banks both locally as well on a global level.
Mr. Shailendra Bhandari, Managing Director and CEO, Centurion Bank
of Punjab said, We are extremely pleased to receive the go ahead from
our board to pursue this opportunity. A merger between the banks
provides significant synergies to the combined entity. The proposed
merger would further improve the franchise and customer proposition
offered by the individual banks.

About HDFC Bank:-

Promoted in 1995 by Housing Development Finance Corporation (HDFC),
India's leading housing finance company, HDFC Bank is one of India's
premier banks providing a wide range of financial products and services to
its over 11 million customers across over three hundred cities using
multiple distribution channels including a pan-India network of branches,
ATMs, phone banking, net banking and mobile banking. Within a relatively
short span of time, the bank has emerged as a leading player in retail
banking, wholesale banking, and treasury operations, its three principal
business segments.
The bank's competitive strength clearly lies in the use of technology and
the ability to deliver world-class service with rapid response time. Over
the last 13 years, the bank has successfully gained market share in its
target customer franchises while maintaining healthy profitability and
asset quality. 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, up 45.2%, over
the corresponding quarter of previous year. Total deposits were Rs. 993.9
billion, up 48.9% over the corresponding quarter of previous year. Total
balance sheet size too grew by 46.7% to Rs.1,314.4 billion.
About Centurion Bank of Punjab
Centurion Bank of Punjab is one of the leading new generation private
sector banks in India. The bank serves individual consumers, small and
medium businesses and large corporations with a full range of financial
products and services for investing, lending and advice on financial
planning. The bank offers its customers an array of wealth management
products such as mutual funds, life and general insurance and has
established a leadership 'position'. The bank is also a strong player in
foreign exchange services, personal loans, mortgages and agricultural
loans. Additionally the bank offers a full suite of NRI banking products to
overseas Indians.

On August 29, 2007, Lord Krishna Bank (LKB) merged with Centurion Bank
of Punjab, post obtaining all requisite statutory and regulatory approvals.
This merger has further strengthened the geographical reach of the Bank
in major towns and cities across the country, especially in the State of
Kerala, in addition to its existing dominance in the northern part of the
country.
Centurion Bank of Punjab now operates on a strong nationwide franchise
of 394 branches and 452 ATMs in 180 locations across the country,
supported by employee base of over 7,500 employees. In addition to
being listed on the major Indian stock exchanges, the Banks shares are
also listed on the Luxembourg Stock Exchange.
REASON FOR MERGER:-
The company was amongst the first to get a banking license, the first to do a merger in the
privatesector with Times Bank in 1999, and now after the merger of Centurion Bank of
Punjab, it was thelargest merger in the private sector banking space in India. HDFC Bank was
looking for anappropriate merger opportunity that would add scale, geography and
experienced staff to itsfranchise. This opportunity arose and the bank thought it is an
attractive route to supplement.HDFC Banks organic growth. The bank
believes that Centurion Bank of Punjab would be the rightfit in terms of culture, strategic
intent and approach to business.

The HDFC Bank-CBoP merger is expected to be a win-win for both banks in terms of both
asset sizeand footprint. While CBoP is concentrated in the northern and southern parts of the
country, HDFC Bank is focused throughout India.

These are exciting times for the Indian banking industry. The proposed merger will position
thecombined entity to significantly exploit opportunities in a market globally recognized as
one of thefastest growing. This is particularly bullish about the potential of business synergies
and cultural fitbetween the two organizations. The combined entity will be an even greater
force in the market.
Over the last few years, Centurion Bank of Punjab has set benchmarks for growth. The bank
onthat day has a large nationwide network, an extremely valuable franchise, 7,500
talentedemployees, and strong leadership positions in the market place. It is believe that the
merger with HDFC Bank will create a world-class bank in quality and scale and will set the
stage to compete with banks both locally as well on a global level.
Company analysis:-
In this study deals with merger of HDFC Bank Ltd (bidder bank) and Centurion
Bank of Punjab Ltd (Target Bank) . This deals took place in year 2008(i.e. may
23rd 2008). In order to analyses the financial performance of banks after the
merger, the financial and accounting ratios like Gross Profit Margin, Operating
Profit Margin, Return on Capital Employed, Return on Equity and Debt Equity
Ratio have been calculated. Table 3 indicates that the financial performance of
both the banks before the merger. Table 4 shows the financial performance of
HDFC Bank ltd (bidder bank) after merger.
FINANCIAL PERFORMANCE OF HDFC BANK LTD AND CENTURION BANK
OF PUNJAB FOR THE LAST THREE FINANCIAL YEARS IS ENDING BEFORE
THE MERGER

FINANCIAL RATIOS (IN PERCENTAGE)

HDFC Bank Ltd (Bidder Bank) Centurion Bank of Punjab(Target Bank)

RATIOS 31-03- 31-03- 31-03- 31-03- 31-03- 31-03-
2005 2006 2007 2005 2006 2007
Gross 74.1719 71.1233 69.9408 55.8583 53.4151 69.5703
Profit
Margin
Net Profit 21.5119 19.4573 16.5691 8.7116 15.2490 9.5683
Margin
Operating 53.1167 46.0083 47.9309 37.2331 22.4315 37.6088
Profit
Margin
Return on 1.2941 1.18463 1.2511 0.6538 1.0810 0.6567
Capital
Employed
Return on 214.7799 278.0801 357.3844 29.7572 86.9701 77.4651
Equity
Debt 134.3883 192.7486 222.6536 35.2757 67.1107 100.8016
Equity
Ratio

FINANCIAL PERFORMANCE OF HDFC BANK LTD FOR THE NEXT

THREE FINANCIAL YEAR WAS ENDING AFTER THE MERGER
ANNOUNCEMENT

FINANCIAL RATIOS (IN PERCENTAGE)

HDFC Bank Ltd (Bidder Bank)

RATIOS 31-03-2009 31-03-2010 31-03-2011

Gross Profit 74.76217 74.66454 76.2925
Margin
Net Profit Margin 13.74548 18.23227 19.70267
Operating Profit 54.61426 51.12141 54.53866
Margin
Return on Capital 1.22493 1.3255 1.41566
Employed
Return on Equity 527.75165 644.18447 843.96749
Debt Equity Ratio 342.04104 393.9357 479.29082
MEAN AND STANDARD DEVIATION OF PRE-MERGER AND POST-
MERGER RATIOS OF COMBINED (CBOP & HDFC BANKS) AND
ACQUIRING BANK (HDFC BANK)

Mean Std. t-value Sig.

Deviation

Gross Profit Margin Pre 70.2136 1.9711 -4.008 0.016

Post 75.2397 0.9130

Net Profit Margin Pre 18.8413 3.3731 0.610 0.575

Post 17.2268 3.1033

Operating Profit Pre 46.7550 4.5640 -2.319 0.081

Margin
Post 53.4248 1.9951

Return on Capital Pre 1.1877 0.0475 -2.182 0.095

Employed
Post 1.3220 0.0954

Return on Equity Pre 2.1775 48.0414 -4.711 0.009

Post 6.7197 159.9283

Debt Equity Ratio Pre 1.4876 36.5495 -5.667 0.005

Post 4.0509 69.3013
Financial analysis:-
NOPAT and cost of debt
NOPAT (Rs. Lacs) Cost of debt

Before Merger

2005 215734 3.51%

2006 328004 3.85%

2007 518191 4.90%

2008 769334 5.54%

After Merger

2010 1267393 4.78%

2011 1407450 4.65%

2012 2105215 6.07%

2013 2739016 6.42%

Beta and cost of equity

Year Beta cost of Equity

Before Merger

2005 0.468616 25.91%

2006 0.632092 36.86%

2007 0.64367 17.00%

2008 0.788716 16.23%

 After Merger

2010 0.641519 22.17%

2011 1.09156 34.38%

2012 0.579217 27.71%

2013 0.601879 3.17%

EVA
Year EVA
Before Merger
2005 705
2006 -18562
2007 175373
2008 191709

After Merger
2010 212950
2011 -160417
2012 175032
2013 1207893
FINANCIAL RESULTS:-
Profit & Loss Account: Quarter ended June 30, 2008
Total income for the bank for the quarter ended June 30, 2008 grew by
59.6% to Rs.4,215.2 crores as against Rs.2,641.7 crores in the
corresponding quarter ended June 30, 2007. Net revenues (net interest
income plus other income) were Rs.2,316.9 crores for the quarter ended
June 30, 2008, an increase of 48.7% over Rs.1,558.1 crores for the
corresponding quarter of the previous year. Interest earned (net of loan
origination costs and amortization of premia on investments held in the
Held to Maturity (HTM) category) increased from Rs.2,069.2 crores in the
quarter ended June 30, 2007 to Rs.3,621.7 crores in the quarter ended
June 30, 2008, up by 75.0%. Net interest income (interest earned less
interest expended) for the quarter ended June 30, 2008 increased by
74.9% to Rs.1,723.5 crores, driven by average asset growth of 68.0% and
a core net interest margin of just over 4.1%.
Fees and commission was the main contributor to other income for the
quarter and increased by 37.3% to Rs.511.2 crores. The other two major
components of other income were foreign exchange/derivatives revenues
of Rs.157.4 crores (corresponding quarter ended June 30, 2007 Rs 146.5
crores) and (loss) on revaluation/sale of investments of Rs. (77.6) crores,
as against profit of Rs.52.6 crores for the quarter ended June 30, 2007.
Other income (non-interest revenue) for the quarter ended June 30, 2008
was Rs.593.4 crores as against Rs.572.5 crores for the quarter ended June
30, 2007. Operating expenses for the quarter ended June 30, 2008 were
at 30.6% of total income and 55.7% of net revenues. Provisions and
contingencies for the quarter were Rs.344.5 crores (against Rs.307.1
crores for the corresponding quarter ended June 30, 2007), comprising
primarily of specific provisions for non-performing assets and general
provisions for standard assets of Rs.324.4 crores against Rs. 299.7 crores
for the quarter ended June 30, 2007. After providing Rs.218.7 crores for
taxation, the Bank earned a Net Profit of Rs.464.4 crores, an increase of
44.6% over the quarter ended June 30, 2007.
Balance Sheet: As of June 30, 2008
Total balance sheet size increased by 59.5% from Rs.105,695.3 crores as
of June 30, 2007 to Rs.168,598.7 crores as of June 30, 2008. Total deposits
were Rs.130,918 crores, an increase of 60.4% from June 30, 2007. With
savings account deposits of Rs.31,853 crores and current account deposits
at Rs.26,866 crores, the CASA mix for the merged entity was around
44.9% of total deposits as at June 30, 2008. Net advances as at June 30,
2008 were Rs.96,797 crores, an increase of 79.8% over June 30, 2007. The
Banks total customer assets (including advances, corporate debentures,
investments in securitised paper, etc. net of loans securitized and
participated out) were Rs.99,554 crores as of June 30, 2008.