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C.K.PITHAWALA INSTITUTE OF
MANAGEMENT
CASE STUDY ON MERGER BETWEEN
HDFC BANK AND CENTURION BANK OF
PUNJAB
SUB:- STRATEGIC MANAGEMENT
SUBMITTED BY:-MANDAVIYA DHAVAL (107060592090)
KOSHTI RAKESH (107060592102)
SUBMITTED TO:-
DR. SNEHAL MISTR
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CASE STUDY ON MERGER BETWEEN
HDFC BANK AND CENTURION BANK OF
PUNJAB
INTRODUCTION OF BANKS BEFORE MERGER
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.
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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.
HDFC is India's premier housing finance company and enjoys an impeccable track
record in India as well as in international markets.
Since its inception in 1977, the Corporation has maintained a consistent and
healthy growth in its operations to remain the market leader in mortgages.
Its outstanding loan portfolio covers well over a million dwelling units. HDFC hasdeveloped significant expertise in retail mortgage loans to different market
segments and also has a large corporate client base for its housing related credit
facilities.
With its experience in the financial markets, a strong market reputation, large
shareholder base and unique consumer franchise, HDFC was ideally positioned to
promote a bank in the Indian environment.
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,
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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.
BASIC INTRODUCTION OF MERGER
Globally mergers and acquisitions have become a major way of corporate
restructuring and the financial services industry has also experienced merger waves
leading to the emergence of very large banks and financial institutions. The key
driving force for merger activity is severe competition among firms of the same
industry which puts focus on economies of scale, cost efficiency, and profitability.
The other factor behind bank mergers is the too big to fail principle followed by
the authorities. In some countries like Germany, weak banks were forcefully
merged to avoid the problem of financial distress arising out of bad loans and
erosion of capital funds. Several academic studies (see for example Berger et.al.
(1999) for an excellent literature review) examine merger related gains in banking
and these studies have adopted one of the two following competing approaches.
The first approach relates to evaluation of the long term performance resulting
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from mergers by analyzing the accounting information such as return on assets,
operating costs and efficiency ratios.
A merger is expected to generate improved performance if the change in
accounting-based performance is superior to the changes in the performance of
comparable banks that were not involved in merger activity. An alternative
approach is to analyze the merger gains in stock price performance of the bidder
and the target firms around the announcement event. Here a merger is assumed to
create value if the combined value of the bidder and target banks increases on the
announcement of the merger and the consequent stock prices reflect potential net
present value of acquiring banks.
Our objective here is to present a panoramic view of merger trends in India, to
ascertain the perceptions of two important stake-holders viz. shareholders and
managers and to discuss dilemmas and other issues on this contemporary topic of
Indian banking. We believe that the currently available merger cases do not form a
sufficient data set to analyze the performance of mergers based on corporate
finance theory because almost all the mergers are through regulatory interventions
and market driven mergers are very few. In this paper, the perception of
shareholders is ascertained through an event study for analysis that documents the
impact of bank mergers on market value of equity of both bidder and target banks.
The perception of bank managers is ascertained through a questionnaire based
survey that brings out several critical issues on bank mergers with insights and
directions for the future.
Finally, we present arguments on why Indian banks should go for mergers. These
arguments are also applicable to other Asian countries which have bank
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consolidation on their agenda. To the best of our knowledge, this paper is perhaps
the first attempt at analyzing a plethora of issues on bank mergers in one place,
thus providing useful inputs for researchers as well as policy makers. This paper is
organized as follows. The next section presents a brief review of empirical studies
on bank mergers. Section II presents some cross country experience on bank
consolidation and also discusses consolidation trends in Indian banking. Adopting
standard event study methodology, the impact of both forced and voluntary
mergers on shareholders wealth is analyzed in section IV. Section V analyzes
some critical issues in mergers based on the perception of banks by reviewing
results from a questionnaire based survey. In section VI, we present arguments infavor of large banks and need for banking consolidation in India and other Asian
economies. Finally, section VII concludes the paper.
LITERATURE REVIEW OF MERGER
The two important issues examined by several academic studies relating to bank
mergers are: first, the impact of mergers on operating performance and efficiency
of banks and second, analysis of the impact of mergers on market value of equity
of both bidder and target banks.
Berger et.al (1994) :- provides an excellent literature review on both these issues.
Hence in what follows we restrict the discussion to reviewing some of the
important studies.
The first issue identified above is the study of post merger accounting profits,
operating expenses, and efficiency ratios relative to the pre-merger performance of
the banks. Here the merger is assumed to improve performance in terms of
profitability by reducing costs or by increasing revenues.
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Piloff (1996) and Berger (1997):- Do not find any evidence in post-merger
operating performance. Berger and Humphrey (1994) reported that most studies
that examined pre-merger and post-merger financial ratios found no impact on
operating cost and profit ratios. The reasons for the mixed evidence are: the lag
between completion of merger process and realization of benefits of mergers,
selection of sample and the methods adopted in financing the mergers. Further,
financial ratios may be misleading indicators of performance because they do not
control for product mix or input prices. On the other hand they may also confuse
scale and scope efficiency gains with what is known as X-efficiency gains. Recent
studies have explicitly employed frontier X-efficiency methods to determine the X-
efficiency benefits of bank mergers. Most of the US based studies concluded that
there is considerable potential for cost efficiency benefits from bank mergers (since
there exists substantial X-inefficiency in the industry), but the data show that on
an average, such benefits were not realized by the US mergers of the 1980s
Landerman (2000):- explores potential diversification benefits to be had from
banks merging with non banking financial service firms. Simulated mergers
between US banks and non-bank financial service firms show that diversification
of banks into insurance business and securities brokerage are optimal for reducing
the probability of bankruptcy for bank holding companies. Wheelock and Wilson
(2004) find that expected merger activity in US banking is positively related to
management rating, bank size, competitive position and geographical location of
banks and negatively related to market concentration. Substantial gains from
mergers are expected to come from cost savings owing to economies of scale and
scope. In a survey of US studies, Berger and Humphrey (1994) concluded that the
consensus view of the recent scale economy literature is that the average cost curve
has a relatively flat U-shape with only small banks having the potential for scale
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efficiency gains and usually the measured economies are relatively small. Studies
on scope economies found no evidence of these economies.
Literature, Berger and Humphrey (2002) conclude that synergies in joint
products in banking are rather small. The second issue identified above is the
analysis of merger gains in terms of stock price performance of the bidder and
target banks on announcement of merger. A merger is expected to create value if
the combined value of the bidder and target banks increases on the announcement
of the merger.
Pilloff and Santomero (2005):- conducted a survey of the empirical evidence and
reported that most studies fail to find a positive relationship between merger
activity and gains in either performance or stockholder wealth. But studies by
Baradwaj,
MERGER OF THE HDFC BANK AND CENTURION BANK OF PUNJABLIMITED
HDFC Bank and Centurion Bank of Punjab merger at share swap ratio of 1:29
The Boards of HDFC Bank and Centurion Bank of Punjab met on 25 February,
2008 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
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billion and net advances of around Rs. 850billion. The balance sheet size of the
combined entity would be over Rs. 1,500 billion.
During the year ended March 31, 2009 the Centurion Bank of Punjab got merged
with HDFC Bank Ltd. The Scheme of Amalgamation the Scheme of Centurion
Bank of Punjab Limited with HDFC Bank Ltd. under section 44 A (4) of the
Banking Regulation Act, 1949 which was approved by the shareholders of both
the banks on March 27, 2008 and was effective from May 23, 2008. The
appointed date of the merger was April 1, 2008. Both the entities were banking
companies incorporated under the Companies Act, 1956 and licensed by the RBI
under the Banking Regulation Act, 1949.
As per the Scheme, upon its coming into effect from the appointed date i.e. April 1,
2008, the entire undertaking of CBoP including all its assets and liabilities stood
transferred / deemed to be transferred to and vest in HDFC Bank. As per the
Scheme, in consideration of the transfer of and vesting of the undertaking of CBoP,
one equity share of HDFC Bank of the face value of Rs.10/- each fully paid-up was
issued to members of the eCBoP for every twenty nine equity shares of the face
value of Re.1/- each of CBoP held by them on the record date i.e. June 16, 2008.
Accordingly 6,98,83,956 equity shares of Rs.10/- each of HDFC Bank were
allotted at par to the shareholders of CBoP vide board resolution dated June 24,
2008. The excess of the value of net assets transferred over the paid up value of
shares issued in consideration have been adjusted in Amalgamation Reserve as per
the Scheme of Amalgamation.
The amalgamation has been accounted using the pooling of interest method.
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
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books of CBoP as on March 31, 2008 and provisions arising out of harmonization
of accounting policies and estimates, as approved by the Board of Directors of
HDFC Bank and as prescribed in the Scheme, were made for the difference
between the net value appearing in the books of CBoP and the value as determined
by HDFC Bank. Also the Bank provided for merger related expenses on a best
estimate basis. Such adjustments, as per the Scheme, were made by the Bank
against the reserves arising on amalgamation. After accounting the assets,
liabilities and reserves of CBoP and after effecting the above adjustments, a
surplus of Rs. 1,049,03 lacs arose, which was credited to Amalgamation Reserve
in accordance with the Scheme.
Capital Infusion
During the year, the Bank allotted 2,62,00,220 equity shares of Rs. 10 each at a
premium of Rs. 1,520.13 per share to Housing Development Finance Corporation
Limited (HDFC Ltd.), on their exercising the warrants issued to them in June 2008.
As a result, equity share capital increased by Rs. 26,20 lacs and share premium by
Rs. 3,982,77 lacs.
Capital Adequacy
The Banks capital to risk weighted assets ratio (Capital Adequacy Ratio) is
calculated in accordance with the Reserve Bank of India (RBI) 'Prudential
Guidelines on Capital Adequacy and Market Discipline - Implementation of the
New Capital Adequacy Framework (Basel II). The Bank has migrated to this
framework effective March 31, 2009. Under the Basel II Framework, the Bank is
required to maintain a minimum Capital Adequacy Ratio of 9% on an ongoing
basis for credit risk, market risk and operational
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CORE REASON OF MERGER
In terms of performance, CBoP has not been performing well operationally its
costs were high and growth was low as compared to industry standards. Whilemerging it with HDFC Bank would give it a shot in the arm, as HDFC Bank is
know to be among the best Indian bank for past many years.
COMMENTING ON THE PROPOSED MERGER
Mr. Deepak Parekh, Chairman, HDFC said, We were amongst the first to get a
banking license, 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 theIndian 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.
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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 individualbanks.
THE MERGED ENTITY WILL DEFINITELY HAVE TO YANK FOR OPERATIONAL
EFFICIENCIES IN ITS LINES OF BUSINESS.
NEXT STOP: OVERSEAS
Rival ICICI Bank has already initiated its foreign odyssey. Now it is present in 18
countries, and its overseas operations accounted for around 23% of the
consolidated banking assets as on December 31, 2007. Axis Bank, the third-largest
private sector bank, boasts of having three international branches in Singapore,
Hong Kong and Dubai and a representative office in Shanghai. This might have
swayed HDFC Bank's thinking. It has already acquired a license for a branch in
Bahrain, which will be opened very soon. It is also planning to raise $1 bn through
a medium-term note issuance program. That's where CBoP may come in handy.
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The bank is already present in Canada. Moreover, what could be of immense help
to the bank, going forward, in its international foray is the presence of Rana
Talwar, the former CEO of Standard Chartered Bank, on its boardwho, through
Sabre Capital, a fund which he has spearheaded along with other partners, has
gained immense experience in international banking as well as in M&A activities.
On the issue of overseas expansion, HDFC Bank MD Aditya Puri has commented,
"We could. I think with Rana Talwar coming on board; he's got a lot of experience
on this and we would examine it. Is there something hot? No, but let's see." Puri
has further said, "But we have something very specific in mind. We are not about
to challenge the Citigroups of the world. We want to provide a global range of
products for Non-Resident Indians (NRIs), and we want to participate in trade
(India-specific export-import-related) finance. We are not talking about becoming
a big bank abroad at this point of time." He further added that the bank is not
looking at the crowded western markets. HDFC would seriously check where the
bank's strengths and benefits, like good processing, good credit skills and good
distributions, come into play. So, it would not definitely be an overcrowded market
but probably somewhere in Eastern Europe, Indonesia or the rest of Asia.
POST-MERGER CHALLENGES
Although this merger is the largest of its kind in the history of Indian banking, it is
not free from loopholes. The merged entity will definitely have to yank for
operational efficiencies in its lines of business. Moreover, it is anticipated that
there will be a dilution of profits, at least in the short-term. "The challenge could
be that CBoP is 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," comments a PwC source. The source further adds, "How well
the CBoP team gels with HDFC products could be an area of challenge." At the
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time of finalizing the deal, HDFC Bank had considered branch network as an
important parameter and savored the moment of surpassing its nearest competitor
ICICI Bank in terms of number of branches. Although ICICI had 955 branches as
on the date of merger, it has 425 in the pipeline, which are in the process of
implementation by mid-2008. So post mid-2008, as usual, the ICICI Bank would
be the largest private sector bank in terms of branch network also.
Moreover, on the basis of pro forma consolidation as on December 31, 2007, the
gross Non-Performing Asset (NPA) of the merged bank would be higher than
current gross NPA asset of HDFC Bank. Also, given CBoP's comparatively weak
resource profile, the proportion of Current and Savings Account (CASA) for the
merged entity is likely to go a little lower than the current CASA for HDFC Bank.
The integration of technology and people would be a serious challenge as well as a
sensitive issue. Centurion Bank of Punjab, by virtue of its acquisitions of Bank of
Punjab and Lord Krishna Bank, is currently on two different technology
platformsFinacle and i-flex. The erstwhile Centurion Bank was on Misys, but
after taking over Bank of Punjab, the bank shifted to Finacle. And the 2006 merger
with Lord Krishna Bank had further complicated things, as Lord Krishna Bank was
on (and partly still remains) i-flex. So CBoP is still in the process of
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(%) (As on December 31,2007. Figures in Rs Cr) Source: Respective Banks
bringing all its branches on to the Finacle platform. Given these circumstances,
the entry of HDFC Bank which works on i-flex platform will further complicate
the situation. Moreover, bringing the banks onto a single platform will take
considerable time and resources, and the banks will also have to ensure that
customers do not become disgruntled. Whatsoever, the rating agency Crisil
believes that the benefits accruing from access to a larger branch network and
wider geographical coverage will more than offset the negative impact of a
slightly weakened asset quality and other integration snags in the short-term.
Besides this, the merger of CBoP with HDFC Bank will be a big blow to their
bancassurance partners. (Bancassurance is the sale of life, pension and investment
products through the branch network of a bank.) This merger will adversely impact
the business of Aviva Life Insurance and ICICI Lombard General Insurance Co.
How They Piled Up
HDFC Bank CBoPNet Profit 1,119 118
Advances 71,386 15,083De osits 99 386 20 710
Total Assets 1,31,439 25,403
Net Interest
Mar in *
4.3 3.6
ATMs 1,906 452
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Centurion Bank is the bancassurance partner for these two insurers, while HDFC
Bank sells insurance for group company HDFC Standard Life. Post-merger dis-
tribution deal between Aviva Life Insurance and ICICI Lombard will be scrapped
because as per the existing law of the Insurance Regulatory and Development
Authority (IRDA), a bank can't sell products for more than one insurance
company. Moreover, the merger may lead to a clash with HDFC Ltd., which
provides home loans to customers and has a large customer base in this segment.
CBoP also has a strong presence in home loans. Now the merged entity may not
sell home loans as this may lead to conflict of interests with HDFC Ltd. But given
the phenomenal progress HDFC Bank has made in recent times through its tech-
nology-driven and customer-centric business model, intertwined with smart and
dedicated workforce and able leadership, it is most likely that it would be able to
tackle the post-merger challenges and optimize the synergies.
EMERGING TRENDS
This HDFC-CBoP merger is a precursor to what lies ahead in the post-2009 sce-
nario when the banking sector will be opened up. Cut-throat competition and RBI's
stingy branch licensing policy mean that the scale and geographical reach have
become critical for the survival of the bank. So it is better to grow inorganically
rather than through slow organic process. Through merger, banks will manage the
costs better and enjoy economies of scale. Moreover, retail lending will also get a
boost.
But despite the discernible synergies, the truth is that except for those negotiated
by the RBI, including the banks in financial trouble, M&As in the Indian banking
sector have been few and far between. But the trigger should come from the
government-owned Public Sector Banks (PSBs). These PSBs, though not quite
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occupying the 'commanding heights' once envisioned for them, still are in a
position of some strength to initiate consolidation moves. But these PSBs suffer
from political and institutional compulsions that come in the way of the merging
of these banks despite having distinct operational synergies. The foreign banks
which are operating in India see themselves more as predators in the M&A game
and are not willing to be a target of acquisition by domestic banks. So the only
private sector banks, both old and newly licensed, are left for acquisition target.
The new-age private banks, which successfully battled their turbulent initial days,
have every reason to be optimistic and so would be looking for acquisition rather
than being the target of one. Finally, the older private sector banks, though did not
grow much, have a history of independent operations. Unless their operations
suffer a dramatic downturn, they are unlikely to offer themselves as prospective
candidates for acquisition.
This is not to say that there will be no consolidation in the future. In fact, the
Indian banks, which are small compared to their overseas counterparts, are likely
to go for consolidation given the fact that post-2009 foreign banks are likely toenjoy greater operational freedom in the Indian market. Moreover, with increased
competition, the banking sector is witnessing a general slump on all important pa-
rameters of profitability, such as return on assets, profit per employee, etc. This
underscores the need for bringing cost-efficiencies and opening up new revenue
streams that only size can confer. So the basic instinct of survival will keep the
consolidation activities ticking in the Indian banking sector. And the present
merger of two healthy banks shows that none can stop the inevitable.
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ANALYSIS OF CASE (SOLUTION) OF MERGER BETWEEN
HDFC BANK AND CENTURIAN BANK
POST-MERGERThe inherent synergies of HDFC Bank and CBOP in their retail focus was the
driver for the merger, which added around 400 branches to HDFC Banks' branch
strength of 760 (as on March 2008) along with a 15-20 per cent increase in the
asset base to more than Rs 1.7 lakh crore. While the merger has helped increase the
size of HDFC Bank, it has also led to some pressure on key ratios (see Merger
Effects) for the combined entity; CBoP ratios were lower than that of HDFC Bank.
The next pertinent question is the pace of integration, and how fast HDFC Bank
can ramp up efficiency levels of CBOP to its own benchmarks.
The integration plan is on schedule. The re-branding of CBOP was completed in
May itself; training processes to assign all the employees of CBOP in their new
roles is marching ahead with almost 90 per cent of the people retrained. With
regards the systems, treasury, wholesale banking and retail loan segments, theyhave already been integrated with HDFC's platform, while the overall retail
banking is expected to be completed in the next two months.
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Effects
Rs crore CBOP **
9 Mths
HDFC
Bank**
9 Mths
Standalone
FY 08
Post-
merger
H1 FY09
Net Int. Income 505 3,586 5,228 3,590
Other Income 459 1,734 2,283 1,237
Net Profit 123 1,119 1,590 992
Cost/income (%) 63.0 49.7 49.9 55.4
NIM (%) 3.6 4.3 4.4 4.2
CASA (%) 24.5 50.9 55 44.0Net NPA (%) 1.7 0.4 0.5 0.6
CAR (%) 11.5 13.8 13.6 11.4
SUSTAINED GROWTH
STEADY GROWTH
Rs crore FY 2008 FY 2009E*
FY 2010 E*
Net InterestIncome
5,228 7,805 10,600
OtherIncome
2,283 3,222 4,085
Net Profit 1,590 2,290 2,950EPS (Rs) 45.4 54 66P/BV (x) 3.2 2.4 2.1
E *: estimates for merged entity
HDFC Banks' net revenues have grown at a CAGR of 44.5 per cent in the last five
years on the back of net interest income (NII) and other income growing by 43 per
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cent and 47.7 per cent, respectively. Net profits grew by 33 per cent; the lower
pace is due to the bank's prudent policy of higher provisioning (last three years).
Of late, HDFC Bank has been going slow on the retail loans and even CBoP's non-
issuance of fresh loans (since December 2007) to the two-wheeler and personal
loan segments, has ensured comfortable NPA (non-performing assets) levels for
the combined entity. Gross NPA and net NPA are up 40 basis points and 20 basis
points y-o-y in Q2 FY09 to 1.6 per cent and 0.6 per cent, but are comfortable in
comparison to peers. Analysts say that HDFC Bank, after the merger, would
provide higher provisions to the combined entity in line with its own superior
provision coverage of around 67 per cent (CBOP's at 55 per cent). Although, it will
add pressure on the profitability in the near term, it will help avoid slippages in
asset quality in the future.
The advances haven't slowed and this is indicated from the credit-deposit ratio
rising from 63 per cent (FY08) to around 75 per cent in Q2 FY09. The recent CRR
cut has released additional funds of around Rs 4,500 crore that could be used for
further loan disbursements and provide support to NIMs (CRR balances with RBI
do not yield any returns). The higher yield on advances and investments in
conjunction with high interest rates has meant that NIM is still comfortable at 4.2
per cent.
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IMPACT OF MERGER
Increased footprint and metro presence
7th largest bank with asset size of rs.1097 billion
Recorded growth figure as follow
1. Net profit by 44.6% to Rs. 4.6 billion
2. Net interest income by 74.9 % to Rs. 17.2 billion
3. Advances grew by 79.8% & deposits by 60.4%
High level of write offs due to bad assets quality of CBOP in personal loans
and 2 wheeler loans
Net interest margins and CASA were impacted adversely
GAIN TO SHARE HOLDER
Sept2007
SWAPRATIO
SWAPVALUE
April-10 ValueApp.
HDFC 1433 1 1433 1984 38.45%
CBOP 41 29 1189 1984 66.86%
Index 5001 1 5001 5250 4.98%