ASSIGNMENT OF DISCUSSION OF CURRENT

AFFAIRS ON MERGER OF BANK OF PUNJAB

AND CENTURION BANK

SUBMITTED TO:
MR.ANOOP MOHANTY

SUBMITTED BY:

NAVJOT KAUR
B.COM(P)
 10805687

ACKNOWLEDGEMENT
I HEREBY DECLARE THAT THIS ASSIGNMENT IS MY
INDIVIDUAL WORK.ANY PART OF IT HAS NOT BEEN
PREPARED BY ANYONE ELSE EXCEPT WHERE DUE
KNOWLEDGE OF TEACHER IS NEEDED.

NAVJOT KAUR.
 MERGER OF BANK OF PUNJAB
AND
CENTURION BANK

MERGER
INTRODUCTION TO MERGER
Merger is a tool used by companies for the purpose of expanding their operations often aiming at
an increase of their long term profitability. Mergers and acquisitions are almost a daily
occurrence in the life sciences. Competition is fierce, and companies must team up to survive in
an industry where specialized knowledge is king. One of the largest, most critical, and most
difficult parts of a business merger is the successful integration of the enterprise networks of the
merger partners. The prime objective of a firm is to grow profitably. The growth can be
achieved either through the process of introducing or developing new products or by expanding
or enlarging the capacity of existing products. This wave was driven by globalization,
liberalization and technological changes. A complete combination of two separate corporations
involving in a business is referred as business merger. A merger in the official sense is said to be
worth when both businesses dissolve and double their assets and convert into a newly created
third unit. This requires a creation of a new corporation. Most of the mergers are friendly rather
being a forced affair. Acquisitions on the other hand are take-over. In this case one company
actually buys another company. In take-over or acquisition generally a larger company buys a
smaller one.
 Reasons for Mergers
o Capacity: Capacity refers to the amount of output that a firm is capable of producing
given its existing assets. Acquiring another business might enable it to be able to increase
its capacity relatively quickly.

o Economies of Scale: Economies of scale are the advantage of large scale production that
result in lower cost per unit produced.

o Accessing technology or skills: A firm may be targeted for acquisition because it has
specific skills within its staff or has a particular technology that would be useful to
another business.

o Tax reason: Businesses are always looking for ways to reduce their tax exposure. A firm
has large sums of money lying idle, using these sums to acquire another business that
would not only enhance its operations but would also reduce its tax liability

Benefits of Mergers
o Greater Value Generation

Companies go for Mergers and Acquisition from the idea that, the joint company will be able
to generate more value than the separate firms. When a company buys out another, it expects that
the newly generated shareholder value will be higher than the value of the sum of the shares of
the two separate companies. Mergers and Acquisitions can prove to be really beneficial to the
companies when they are weathering through the tough times.

o Gaining Cost Efficiency

When two companies come together by merger or acquisition, the joint company benefits
in terms of cost efficiency. A merger or acquisition is able to create economies of scale which in
turn generates cost efficiency. Mergers and Acquisitions may generate tax gains, can increase
revenue and can reduce the cost of capital

BANK OF PUNJAB
Bank of Punjab is operating from April 1995 when its first branch was opened in Chandigarh. By
March 1996, its deposit base was Rs. 2342.17 Crores. In 4 years, the annual growth rose to Rs.
3244.76 which was 200%.Bank of Punjab is the first bank to focus on retail banking and to
introduce faxbanking and telebanking for its customers. Bank of Punjab offers a range of
services to its customers through internet and fully computerised branch or off-site ATM
Network.
Centurion Bank has merged with Bank of Punjab on June 29, 2005 to form Centurion Bank of
Punjab at swap ratio to 4:9. This mean that for every four shares of Bank of Punjab, its
shareholders will receive nine shares of Cunturion Bank.

CENTURION BANK
Centurion Bank, a joint venture between 20th Century Finance Corporation and Keppel Group of
Singapore through Kephinance Investment, was established on June 30, 1994. Initially it started
with a network of ten branches. In the following year, Centurion Bank amalgamated 20th
Century Finance Corporation.Centurion Bank was one of the leading private sector banks in
India providing retail and corporate banking products and services. It has got an extensive
network of branches spread across the country. Currently more than 5,000 employees work for
Centurion Bank in its 403 branches. The shares of Centurion Bank were listed on the major stock
exchanges in India. These were also listed on the Luxembourg Stock Exchange.

MERGER OF CENTURION BANK

AND BANK OF PUNJAB

Bank of Punjab (BOP) and Centurion Bank (CB) have been merged to form Centurion Bank of
Punjab (CBP). RBI has approved merger of Centurion Bank and Bank of Punjab effective from
October 1, 2005. The merger is at a swap ratio 9:4 and the combined bank is will be called
Centurion Bank of Punjab. The merger of the banks will have a presence of 240 branches and
extension counters, 386 ATMs, about 2.2 million customers. As on March 2005, the net worth of
the combined entity is Rs 696 crore and the capital adequacy ratio is 16.1 per cent. The boards
of directors of Centurion Bank Limited and Bank of Punjab Limited approved the merger of the
two banks. The combined bank will be called Centurion Bank of Punjab and will build upon the
strong brand identities of the two banks in their respective markets. The proposal is subject
to all the requisite statutory, regulatory and shareholder approvals.
Centurion Bank's chairman Rana Talwar, and MD Shailendra Bhandari, will be
the chairman,. and managing director respectively of the merged entity,
while Tejbir Singh, executive director, Bank of Punjab will be the whole-time
executive director. The appointments are subject to regulatory approvals.
Centurion Bank's chairman Rana Talwar, and MD Shailendra Bhandari, will be
the chairman,. and managing director respectively of the merged entity,
while Tejbir Singh, executive director, Bank of Punjab will be the whole-time
executive director. The appointments are subject to regulatory approvals.
The share swap ratio has been fixed at 4:9 - for every four shares of Bank of
Punjab, its shareholders will receive nine shares of Centurion Bank. KPMG
India Private Limited and NM Raiji & Co. are the independent valuers and
Ambit Corporate Finance is the sole investment banker to the transaction.
After the merger, the bank will have total assets of Rs9,395 crore and
deposits of Rs7,837 crore.

The merger will change the holding pattern in the bank. Bank of Muscat, which holds 31 per cent
in Centurion Bank, will now hold 25 per cent in the merged bank. Similarly, the holdings of
Capital Corporation and Sabre Capital, which were 14 per cent and 5.4 per cent respectively in
Centurion Bank will come down to 11 per cent and 4.4 per cent respectively in the new bank.
The 27 per cent holding of Tejbir Singh in BOP, will also come down to 5per cent. The
combination of Centurion Bank and Bank of Punjab will create one of the strongest full service
banks in the country. Centurion Bank of Punjab will have a nationwide network and a very
strong presence. Centurion Bank of Punjab will have powerful earnings potential and will follow
world class standards of balance sheet management and provisioning. Both banks have excellent
young motivated staff and I am confident that we will together be able to accelerate the growth
of our businesses in our core markets. The growth momentum of both banks will now combine
and the resulting multiplier effect will produce electrifying results. The two banks represent a
perfect fit in all respects with virtually negligible overlaps. "The combined entity will have
significant synergies. Centurion Bank of Punjab will have strong capital adequacy, NPA's well
under control and one of highest net interest margins in the industry. It will also provide great
growth opportunities for the staff of both organizations. with over 2.2 million customers,
Centurion Bank of Punjab will be a force to reckon with."
EFFECT OF MERGER ON BOTH BANKS
1.The merger has helped the both the banks to gain in terms of market share and customer base.
The merged entity of Centurion Bank of Punjab was expected to stand among the top ten private
sector banks of India. The customer base of the merged bank was expected to be widened as the
branch network of the two banks would be integrated to provide a nationwide service.

2. The merged bank will gain significantly in respect of sectoral dominance as well because the
Centurion Bank had dominance in the retail sector financing and the Bank of Punjab had
dominance in agricultural sector and SME financing.

3. It was also anticipated that this merger would raise the book value of the bank which would in
turn help the merged bank to channelize its funds at a lower rate compared to the pre-merger
period.

4. It is also anticipated that this merger would raise the book value of the bank which would in
turn help the merged bank to channelize its funds at a lower rate compared to the pre-merger
period.

5. Combined entity the Punjab-centurion bank would be the among the top 10 private sector
banks in the country.

6. Merged entity would benefit from the fact that centurion bank had recently written of its bad
loans against equity.

7. Branch network of the two banks will complement each other. The combined entity will have
a nationwide reach.

8. Centurion Bank is strong in South India, Maharashtra and Goa whereas Bank of Punjab is
strong in Punjab, Haryana and Delhi. While Centurion Bank has 82 per cent of its business
coming from retail, Bank of Punjab is strong in the Small and Medium Enterprises (SMEs)
segment and agricultural sector.

9. The book value of the bank would also go up to around Rs 300 crore. The higher book value
should help the combine entity to mobilize funds at lower rate.

10. The combined bank will be full-service commercial bank with a strong presence in the Retail,
SME and Agricultural segments.
11. Centurion Bank of Punjab will have strong capital adequacy, NPA's well under control and
one of highest net interest margins in the industry. It will also provide great growth opportunities
for the staff of both organizations

FINANCIALS OF THE MERGED ENTITY-

CENTURION BANK OF PUNJAB
1.The cost of deposit of BoP were lower than Centurion, while Centurion had a net interest
margin of around 5.8%,. The net interest margin of the merged entity will be at 4.8%.

2.The combined entity will have net non performing assets (NPAs) of about 3.6 per cent as per
performa March 2005 data. Centurion banks net NPAs as on 31 March 2005 stood at 2.49 per
cent while for Bank of Punjab the figure stood at 4.6 per cent.

3.The combined entity will have adequate capital adequacy of 16.1 per cent to provide for its
growth plans. Centurion banks capital adequacy on a standalone basis stood at 23.1 per cent
while for Bank of Punjab the figure stood at 9.21per cent.

4.The Performa net worth of combined entity as at March 2005 stood at Rs 696 crore with
Centurion's net worth at Rs 511 crore and Bank of Punjab's net worth at Rs 181 crore, and the
combine entity (Centurion Bank of Punjab) will have total asset 9,395 crore, deposit 7,837crore
and operating profit 43 crore.

5.The merged entity will have a paid up share capital of Rs 130 cr and a net worth of Rs 696
cr. The merged entity will have 235 Branches & extension counters, 382 ATMs and 2.2 million
customers .

SHAREHOLDING PATERN OF CENTURION

BANK OF PUNJAB
After the merger the share holding of Bank of Punjab (BoP) promoters will shrink to 5%.The
family of Darshanjit Singh which promoted BoP currently holds 15.62%, while associates
 hold another 11.40%.the promoter stake will now fall down to around 5% and for associate
that would be7-8%. The major stakeholder of the centurion bank, bank of Muscat's stake will
fall to 20.5% from 25.91%, Keppel's stake will be at 9% from current level of 11.33% and
Rana talwar's saber capital will have a stake of 4.4% as against 5.61%. The promoters of the
BoP and major stakeholders of centurion bank will have a combine stake of around 42% in
the merged entity- centurion Bank of the Punjab.

CONCLUSION
Mergers and Acquisitions have emerged as a positive tool for the growth of the Banking sector
as well as for the companies also. Banking firms now have to face increased competition not
only from firms within the country but also from international business giants. Making the
mergers work successfully is not that easy as here we are not only just putting the two
organizations together but also integrating people of two organizations with different cultures,
attitudes and mindsets. While making the merger deals, it is necessary not only to make analysis
of the financial aspects of the acquiring firm but also the cultural and people issues of both the
concerns for proper post-acquisition integration. This merger of bank of Punjab and centurion
bank is beneficial for both banks and will strong the bank to face the increasing competition and
make its mark in banking sector. The combination of Centurion Bank and Bank of Punjab will
create one of the strongest full service banks in the country. Both Bank of Punjab and Centurion
Bank are very strong brand names in their respective markets and Centurion Bank of Punjab will
build upon these powerful brands." Centurion Bank of Punjab will have powerful earnings
potential and will follow world class standards of balance sheet management and provisioning.