9.

MERGERS OF HDFC BANK AND CENTURIAN BANK

OF PUNJAB
HDFC BANK
The Housing Development Finance Corporation Limited (HDFC) was amongst the
first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set
up a bank in the private sector, as part of the RBI's liberalisation of the Indian
Banking Industry in 1994. The bank was incorporated in August 1994 in the name of
'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank
commenced operations as a Scheduled Commercial Bank in January 1995.The
following year, it started its operations as a Scheduled Commercial Bank. Today, the
bank boasts of as many as 1412 branches and over 3275 ATMs across India.
Amalgamations
In 2002, HDFC Bank witnessed its merger with Times Bank Limited (a private sector
bank promoted by Bennett, Coleman & Co. / Times Group). With this, HDFC and
Times became the first two private banks in the New Generation Private Sector Banks
to have gone through a merger
About Centurion Bank of Punjab
Centurion bank of Punjab is a new generation private bank offering a wide spectrum
of retail, SME and corporate banking products and services. It has been among the
earliest banks to offer a technology enabled customer interface that provides easy
access and superior customer service.
Centurion Bank of Punjab has a nationwide reach through its network of 241 branches
and 389 ATMs.The bank aims to serve all the banking and financial needs of its
customers through multiple delivery channels, each of which is supported by state of
the art technology architecture.
Centurion Bank of Punjab was formed by the merger of Centurion Bank and Bank of
Punjab, both of which had strong retail franchises in their respective markets.
Centurion Bank had a well managed and growing retail assets business, including
leadership positions in two wheeler loans and commercial vehicles loans and a strong
capital base. The shares of the bank are listed on the major stock exchanges in India
and also on the Luxembourg Stock exchange
39
MERGER POSITION
HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion
Bank of Punjab (CBoP) for Rs 9,510 crore in one of the largest merger in the financial
sector in India. CBoP shareholders will get one share of HDFC Bank for every 29
shares held by them.
HDFC Bank and Centurion Bank of Punjab have agreed to the biggestmerger inIndian banking
history, valued at about $2.4 billion. It is likely the beginning of awave of M&A deals in the
financial services industry, as India prepares to easerestrictions on bank ownership in 2009.
This will be HDFC Bank’s second acquisition after Times Bank. HDFC Bank will
jump to the 7th position among commercial banks from 10th after the merger.
However, the merged entity would become second largest private sector bank.
The merger will strengthen HDFC Bank's distribution network in the northern and the
southern regions. CBoP has close to 170 branches in the north and around 140
branches in the south. CBoP has a concentrated presence in the in the Indian states of
Punjab and Kerala. The combined entity will have a network of 1148 branches.
HDFC will also acquire a strong SME (small and medium enterprises) portfolio from
CBoP. There is not much of overlapping of HDFC Bank and CBoP customers.
The entire process of the merger had taken about four months for completion. The
merged entity will be known as HDFC Bank. Rana Talwar's Sabre Capital would hold
less than 1 per cent stake in the merged entity from 3.48 in CBoP, while Bank
Muscat's holding will decline to less than 4 per cent from over 14 per cent in CBoP.
HDFC shareholding falls to will fall from 23.28 per cent to around 19 per cent in the
merged entity.
Rana Talwar, chairman of Centurion Bank of Punjab, says, “I believe that the mergerwith HDFC
Bank will create a world-class bank in quality and scale and will set thestage to compete with
banks both locally as well as on a global level.”
According to HDFC Bank Managing Director and Chief Executive Officer Aditya
Puri, Integration will be smooth as there is no overlap. In an interview, he mentioned
that at 40% growth rate there will be no lay-offs. The integration of the second rung
officials should be smooth as there is hardly any overlap.
40

The boards of the two banks had meeton February 28 to consider the draft scheme of
amalgamation, which will be subject to regulatory approvals. HDFC Bank will
consider making a preferential offer to its parent Housing Development Finance Corp
Ltd (HDFC). The move would allow HDFC to maintain the same level of
shareholding in the bank.
HIGHLIGHTS OF THE MERGER- HDFC AND
CENTURION BANK OF PUNJAB

1)HDFC bank is merged with Centurion Bank of punjab

2)New entity is named as “HDFC bank itself”.

3)The merger will strengthen HDFC Bank's distribution network in the northern
and the southern regions.
4)HDFC Bank Board on 25th February 2008 approved the acquisition of
Centurion Bank of Punjab (CBoP) for Rs 9,510 crore

HDFC Bank and Centurion Bank of Punjab receive RBI approval for
merger

The Reserve Bank of India has sanctioned the Scheme of Amalgamation of Centurion Bank of Punjab
Ltd. with HDFC Bank Ltd. The Scheme has been sanctioned in exercise of the powers contained in
Sub-section (4) of Section 44A of the Banking Regulation Act, 1949.

All the branches of Centurion Bank of Punjab will function as branches of HDFC Bank with effect from
May 23, 2008. With RBI’s approval, all requisite statutory and regulatory approvals for the merger
have been obtained.

The combined entity would have a nationwide network of 1,167 branches; a strong deposit base of
around Rs. 1,22,000 crores and net advances of around Rs. 89,000 crores. The balance sheet size of
the combined entity would be over Rs. 1,63,000 crores.
 HDFC Bank Board on 25th February 2008 has approved the acquisition of Centurion Bank of Punjab
(CBoP) for Rs 9,510 crore in one of the largest merger in the financial sector in India. CBoP
shareholders will get one share of HDFC Bank for every 29 shares held by them. This will be HDFC
Bank’s second acquisition after Times Bank. ... Read more on HDFC Bank, Centurion 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 hundreds of Indian 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.

HDFC Bank and CBOP boards met on Saturday, 23 February 2008, and have given an
inprinciple approval for a merger between the two banks. We believe a merger between the
two banks would be long-term positive for both the banks. At current price (Rs. 56 for CBOP
and Rs. 1,475 for HDFC Bank), the merger would be more in favour of CBOP’s shareholders
than HDFC Bank, given CBOP’s stretched valuation v/s its fundamentals. CBOP’s current
price already reflects a takeover premium and we therefore believe that HDFC Bank should
not be merging this bank at higher than the current price (25% premium to our fair value
estimate). At current price the merger ratio will be one share of HDFC Bank for 28 shares of
CBOP.

Valuation of CBOP is expensive relative to its fundamentals. CBOP and HDFC Bank, both
trade at similar valuations of 4X PBR FY2009E. However, HDFC Bank generates higher RoE
on a consistent basis of 18-20%, whereas this has been a low 10-12% for CBOP. Even on a
PER basis, CBOP trades at 34X EPS FY2009E v/s HDFC Bank 24X. At our fair value estimate
for CBOP of Rs. 45 the merger ratio should be 35 shares of CBOP for one share of HDFC
Bank (note CBOP per share face value is Rs. 1). However, we believe that in such a merger
the acquirer will likely need to pay a premium and the deal is unlikely to happen at a price
lower than the market price.

What would HDFC Bank get? HDFC Bank’s advances and deposits will both increase by 20%.
However, the bank would see an increase of 52% in its branch network to 1,148. We
believe HDFC Bank has a far superior brand name and would be in a position to increase
CBOPs CASA ratio from 25% (HDFC Bank has CASA ratio in excess of 50%) and shift its
deposit profile to retail (we estimate 50% of CBOP’s term deposits are non-retail).

Why is CBOP considering a merger? We believe the premium valuation at CBOP is likely
driven by expectations of a sale to a foreign bank. In our view, this scenario is unlikely to
materialize for another 5-7 years and CBOP’s valuations could thus carry risk of downside in
case the May 2009 election do not result in a pro-reform party at the centre. Sale of CBOP
to a bank like HDFC Bank at current valuations therefore makes sense. The only clear
advantage to HDFC Bank is the large branch network of CBOP. Since the current price
already reflects a takeover premium, we believe that the transaction should not be done at
higher than the current price.

HDFC Bank and Centurion Bank of Punjab Boards agreed, for a merger between the
two banks– in what is poised to be the biggest financial sector dealin India’s banking
history.
HDFC Bank is the third biggest bank in the country by share market value. Centurion
Bank of Punjab itself had acquired the privately-owned Lord Krishna Bank in last year.

HDFC Centurion Bank Of

Key Parameters
Bank Punjab
Branches 754 394
ATMs 1,906 452
Employees(approx) 99,387 20,710

Still the merged will be way below India’s biggest private sector bank ICICI and state-
run State Bank of India in terms of assets.