Introduction of Acquisitions.

Mergers

and

Mergers and acquisitions are arguably the most popular and influential form of discretionary business investment (De Witt & Meyer, 1998). Mergers and acquisitions are operations by which the control of the corporate capital changes hand. In the case of merger, two companies decide to combine their activities and to organise a common control of the assets. In the case of acquisition - friendly or hostile one of the companies buy out the other (Sachwald, 1993). Mergers and acquisitions coincide with a technological and economic upheaval, which brings to wonder about the interactions between waves of re-organisation and waves of innovation. We could also consider that the mergers are the grouping of two entities or more, to become stronger together by merging the resources. Acquisitions is defined when a firm buy an other one and get the total control of the new entity constituted. Most of the authors divide the process of acquisitions in two phases, these are the planning of the acquisition and the integration (Ivancevich et al., 1987; Marks & Mirvis, 1985). The phase of planning, within pre-acquisition, means to prepare and negotiate the process of acquisition. The preacquisition phase is defined as the elaboration and the observation of the main motives of the firms.

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M&A in the globalization.

Mergers and acquisitions count among the most spectacular and most obvious strategic demonstrations on the scale of the company. The respect of a strategic logic and the continuation of a true effort of integration are essential to ensure the success of transnational mergers and acquisitions. Globalisation is a key feature of the new competitive landscape within which the mergers and acquisitions frenzy is taking place. Today we observe the rapidly growing trend of cross-border mergers and acquisitions. It is associated with a growing convergence in economic systems, culture and management practices. (Child J.et al, 2001). Globalisation has seen an increase in mergers and acquisitions in recent years. According to Securities Data (Gasmi, 1998), more than 2,000 transnational acquisitions were announced in 1996, for a value higher than 252 billion dollars. That is to say an increase of almost 54% of the number of the operations since 1991, but also a tripling of their value for this period. The process of mergers and acquisitions supports the conquest of new markets. It is clear today to say that mergers and transnational acquisitions are an unavoidable phenomenon in the international business world.
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A good understanding of the difficulties and the opportunities linked to the parallel between transnational firms is essential to apprehend most of the mergers and acquisitions, and also any world strategy of enterprise.

PURPOSE
The objective of this paper is to integrate major Merger & Acquisitions theories in order to establish a warning model pointing out the main pitfalls changing promising motivations into failed implementation in the process of Merger & Acquisition. Such a model will aim at preventing managers engaged in a transnational horizontal merger from the potential hazards leading to value destruction.

Concept of market share growth

The market share of a firm corresponds to the proportion of production volume or the turnover the firm possess in a given sector of a global market in relation to the rest of competitive companies concerned. In our case the measuring unit of the market share, will be turnover. The
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market share of an entity corresponds to its demand proportion compared to the total demand of the sector. The demand (sales volume) is never constant, so the market share deviates as well. (Ibid) The increase of the turnover or the production volume, involve as well that the company realised a growth. The growth concept is relative to a quantitative increase of its turnover or its production. If the company growth is higher than the competitors one, the growth concept means that the company has a market share growth, but if all the competitors increase their turnover, there is not an increase of the market share. Thus, an entity expands its market share when their turnover volume (sales) increases compared to its competitors. (Ibid)

M & A IMPLEMENTATION
The introduction of post-acquisition change implies that there is a degree of integration with the merging company. We will focus the integration process through 3 cornerstones : strategic, organisational and cultural management.

Strategic management Vision

The strategy of an organisation involves how it plans to achieve its mission and goals and is partly determined by its culture. In the case of mergers, strategy focuses mainly on

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the goal and the type of merger intended. (Nahavandi A., Malikzadeh Ali R., 1993). When two firms decide to be one, the managers have to keep in mind the strategic vision of all the operational process. The strategic vision is where all acquisitions begin. Managements vision of the acquisition is shared with suppliers, customers, lenders, and employees as a framework for planning, discussions, decisions and reactions to changes. The vision must be clear to large constituent groups and adaptable to many unknown circumstances. (De Witt B, & Meyer R., 1998).

Communication
The achievement of merger integration goals depends on how well managers can persuade constituencies to believe in a vision and act to bring it about. This is ultimately a communications task, pure and simple. At first glance, it appears to be the easiest and least complicated aspect of merger integration, but communication 55 Mergers & Acquisitions : Avoiding the path of decay wont just happen. Managers must take control of it, plan it carefully, and then back it with investment and commitment. Effective communication requires working out communication goals, pursuing them flexibility, and obtaining feedback to know if they have been achieved. Nonetheless, inadequate communication seems to be common in merger integration. (Habeck M. M. et al, 2000) Information can become quite distorted as it circulates. Obtaining frequent feedback is therefore essential to determine whether the right message has reached the right people at the right time. Furthermore it is important as well that at all times, with all stakeholders, to be aware of the main goal of the company for the communication. Mergers and acquisitions have two fundamental effects : they disrupt thousands of
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relationships, some of them established over decades. New relationships will be created and will be perceived as opportunities. So, according to Habeck et al, 2000, managing all communications in the merger integration phase demands a comprehensive, centrally-controlled plan.

Leaders
For todays business elite, leadership qualities matter. Prominent American pundit John Kotter (1990) argues that in the turbulent fast-changing environment of the 1990s it is leadership, not just plain old management that is required. (Whittington R., 2001). Corporate leaders such as Steve Jobs of Apple, Jack Welch of General Electric and Jan Carlzon of SAS are lauded as exemplars for managerial imitation. These men 56 Mergers & Acquisitions : Avoiding the path of decay have a capacity to impress on their employees inspirational visions of what their organisations are for and where they are going. As a leader of persons grouped in a hierarchy of suborganisations, the president must be the taskmaster, mediator, motivator, and organisation designer. It is commonly agreed that leaders have tremendous influence on their organisations. The focus on top managers in the popular business press is an indication of the importance we give leaders. Organisations that do not perform up to expectations often change top managers. Obviously, leaders are one of the most important elements in organisations. Leaders are the one who negotiate the merger. They make the final decisions, and they guide the organisation through the stages of conflict. They are symbols of the organisation, and they come to be symbols of mergers.
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Mergers tend to create a state of crisis, which provides for an increase in the leaders influence. During a merger, some of the most strategic aspects of an organisation are challenged. Dress code and norms for relationships are examined. Reporting relationships and management practices are challenged, and assumptions are questioned. Job titles are changed, company logos are replaced, and retirement plans are modified to match those of the merger partner. Work forces are right-sized or delayered. All these internal changes, along with many more, create a whirlwind of change that can shake an organisations cultural core. All existing practices become suspect and therefore cannot be relied on. Consequently, leaders are much in demand by the employees. These major changes are most likely to occur in the acquired firm. Their having been purchased is in and to itself taken as weakness, thus justifying changing many of their practices. The external environment is also likely to change. If two firms are from the same industry,, they each may deal with new clients and suppliers. If they are from different industries, they will have to learn a whole new world and this may include new markets and new technologies. In either case, they have to navigate in a highly uncertain external environment at a time when internal cultures and structures are unstable. Such extreme uncertainty creates dependency on leadership, which explains the frequent changes of leadership that accompany mergers. The leaders are expected to provide the guidance and stability that were previously the result of internal and external calm. Therefore, leadership becomes a vital link in the management of a merger. (Ibid). Some researchers have considered the impact of a CEOs functional background on an organisations strategic choices.(Song, J.H., 1982). The success of a selected strategy depends on its proper implementation. This need for control will be one of the major determinants of the leaders preference for the way strategy is implemented. In
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spite of the differences in the concepts used to identify leadership characteristics, there are two broad themes that run through them. The first theme is the degree to which an individual seeks challenge and its takes risks the extent to which a leader exhibits openness to change and innovation. Individuals who are challenge seekers generally feel comfortable with change and are likely to be entrepreneurial. They are likely to attempt highrisk and innovative strategies and feel comfortable with challenging and changing organisation practices. On the other hand, individuals who are challenge averse are not comfortable with change and are likely to try to maintain the status quo. As a result, the strategies they select will be more conservative, requiring only minimal change in the organisation. Secondly, in the second theme is the need for the leaders to control and it refers to how willing the leader is to give up control namely, how willing he or she is to delegate authority and allow others to participate in decisions.

REASONS OF M&A FAILURE

It is very difficult to estimate how many mergers and acquisitions of the 1980s have succeeded. It is even more difficult to define what success means. Some estimate, however, that close to 80 percent of mergers do not meet their pre-merger financial goals and that almost 50 percent are failures. The common measure of stock market reactions one day or even few months after the merger is undoubtedly inadequate. In spite of theories that the stock market, in evaluating and valuing a merger, takes into account all the managerial and human factors, they clearly do not reflect the human and cultural costs of mergers particularly in light of the fact that the managers and leaders involved in a merger often voice their inability to predict its

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exact outcome. So it is unrealistic to expect that financial markets, having only partial information, are able to make accurate predictions about the outcome of a merger. (Nahavandi, A, Malekzadeh, A. R., 1993). 1 The paradox of Manager vs. Shareholder 1.1 Shareholders' expectation : maximizing value through synergies 1.2 The managerialism strategy 1.3 The Hubris hypothesis 1.4 Failure as no trade-off 2 No planned integration cost 2.1 Cost of interrelationships 2.2 The Penrose effect 2.3 Cost of job cutbacks 3 The problem of social compatibility 3.1 Demotivating employees 3.2 Resignation risk 3.3 Cultural compatibility 3.4 Culture clash measurement

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History of both bank 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
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quality. As on March 31, 2008, the Bank had a network of 761 branches and 1,977 ATMs in 327 cities. For the year ended March 31, 2008, the bank reported a net profit of INR 15.90 billion (Rs.1590.2crore), up 39.3%, over the corresponding year ended March31, 2007. As of March 31, 2008 total deposits were INR 1,007.69 billion, (Rs.100,769 crore) up 47.5% over the corresponding year ended March 31, 2007. Total balance sheet size too grew by 46.0% to INR 1,331.77 billion (133177 crore).

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 29th August 2007, Centurion Bank of Punjab merged with Lord Krishna Bank (LKB), post obtaining all requisite statutory and regulatory approvals. This merger has further strengthened the geographical reach of

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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 404 branches and 452 ATMs in 190 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. On February 25th the boards of HDFC Bank and Centurion Bank of Punjab (CBoP) agreed to the biggest merger in Indian banking history, valued at around Rs95.2bn (US$2.4 billion). The merger is subject to statutory and regulatory approvals and will take some four months to go through. CBoP shareholders will get one share of HDFC Bank for 29 shares of CBoP. The merged entity will be called HDFC Bank and CBoP's non-

executive chairman, Rana Talwar, and its managing director and CEO, Shailendra Bhandari, will join the new board as a non-executive and executive director, respectively. HDFC Bank was one of the first private-sector banks to get off the ground when Indian regulators began giving out new private-sector banking licences in the early 1990s. It was set up by the blue-blooded Housing Development Finance Corporation (HDFC), India's most reputed mortgagefinance company. HDFC Bank has lived up to its parent's pedigree, turning out consistent growth of at least 30% in net profits year after year and becoming a stockmarket favourite. It was also the first of the new private banks to merge with another, Times Bank, in 1999.

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Reason of mergerr
The expected merger of the HDFC Bank with the Centurion Bank of Punjab (CBoP) is believed to broaden the scope and reach of HDFC by crediting to its already well-distributed network. The HDFC Bank, which currently spans India with its chain of 746 branches, will add to itself 394 branches of the CBoP to itself, to make its network bigger and stronger. The merger talks between the two banks began in January 2008, after the principal shareholders of CBoP Bank Muscat with 14.02 per cent stake, Sabre Capital with 3.48 per cent stake and the Kephinance Investment (Mauritius) with 6.13 per cent stake decided to move away from this partnership. The HDFC Bank is further expected to pay Rs 100 billion to Rs 120 billion in shares for acquiring the CBoP. In what claims to be the largest ever private bank merger, the share swap ratio stands at 1:29, that is every shareholder of CBoP will get one share of HDFC Bank for every 29 shares of CBoP owned. Though this ratio is believed to have been worked out after rigorous discussions among the Board of Directors of both the banks, it has failed to receive a positive reaction from the CBoP shareholders. It has come as a yet another setback for them after a volatile period witnessing a decline in CBoP shares and an unstable management. The HDFC Bank which presently enjoys the 10th position in the list of largest banks in India on the basis of assets, and with this merger, will now witness a jump to the 7th position. At the same time, the current stake of HDFC in the CBoP, which is 23.38% is projected to fall to about 19% on completion of the deal.Another important concern that rises with such mergers is the question of blending the two distinct and diverse styles of S.P.B.Patel Engg. College (M.B.A.Programme) Linch. 13

functioning and ensuring a smooth transition to a new work culture, absorbing the strengths of both the merging companies. It is a meticulous task to ensure that the fundamental ways of working and the ideology of the two companies supplement the growth of each other rather than leaving any one of the potential organizations obsolete. This merger has come after a series of activities marking an eventful past for CBoP, which include acquiring the Lord Krishna Bank and the Bank of Punjab. As the CBoP stands at a new dawn, we wish it brings some reason to rejoice for the shareholders that have stood through its history of highs and lows.

Valuation
HDFC Bank, CBoP seal largest banking merger
HDFC Bank on Monday approved the acquisition of Centurion Bank of Punjab (CBoP) for Rs 9,510 crore in the largest merger in the financial sector in India. However, the merged entity would still be two-fifth the size of the countrys second largest lender, ICICI Bank. CBoP shareholders will get one share of HDFC Bank for every 29 shares held by them. The two banks did not comment on the price at which the shares were valued for the purpose of the swap ratio. The valuation arrived at is based on HDFC Banks closing share price of 1,474.95 last Friday and the total outstanding shares of CBoP. HDFC Bank shares fell 3.54 per cent on the Bombay Stock Exchange on Monday to close at Rs 1,422.70 a share as investors felt the acquisition was a little costlier, while CBoP shares were down 14.45 per cent to Rs 48.25 a share as the price got aligned with the share-swap ratio. S.P.B.Patel Engg. College (M.B.A.Programme) Linch. 14

The swap ratio was based on the recommendations made by joint valuers Dalal & Shah, a chartered accounting firm, and Ernst & Young, a consulting firm. The merger will affect the performance parameters of the merged entity, which is compared to HDFC Bank now, as the productivity at CBoP was comparatively lower. The boards of the two banks will meet again on February 28 to consider the draft scheme of amalgamation, which will be subject to regulatory approvals. The HDFC Bank board will also consider making a preferential offer to its promoter, Housing Development Finance Corporation (HDFC), to enable it to maintain its shareholding in the merged entity. HDFC held 23.28 per cent in HDFC Bank at the end of December 31, 2007. HDFC will need about Rs 3,900 crore to raise its shareholding after it falls to around 19 per cent after the merger. CBoPs Non-Executive Chairman Rana Talwar will be appointed the nonexecutive director of the merged entity, while its Managing Director and CEO Shailendra Bhandari will join the board as executive director. 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 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 RBIs 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.

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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 Banks second acquisition after Times Bank. the main motives of the firms is to aim three

main strategies : cost synergies through economy of scope and of scale, revenue synergies through market share expansion, and financial savings through targeting the right and cheapest financial profile. The phase of integration within post-acquisition, is characterised by many operational and cultural changes. The changes relative to the operation start to appear when agreement is effective, which means as soon as the announcement of acquisition or merger is done. We will highlight three main implementation perspectives of the integration process : strategic, operational and cultural management.

STRONG NATIONAL NETWORK

HDFC BANK

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HDFC BANK PRODUCT AND CUSTOMER SEGMENTS

PERSONAL BANKING
Loan Product Auto Loan Loan Against Deposit Product Saving a/c Current a/c Investment & Insurance Mutual Fund Bonds
17

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 Cards

Security Loan Against Property Personal loan Credit card 2-wheeler loan Commercial vehicles finance Home loans Retail business banking Tractor loan Working Capital Finance Construction Equipment Finance Health Care Finance Education Loan Gold Loan

Fixed deposit Demat a/c Safe Deposit Lockers

Knowledge Centre Insurance General and Health Insurance Equity and Derivatives Mudra Gold Bar

Payment Services NetSafe Merchant Prepaid Refill Billpay Visa Billpay InstaPay DirectPay VisaMoney Transfer eMonies

Access To Bank NetBanking OneView InstaAlert MobileBanking ATM Phone Banking Email Statements Branch Network

Credit Card Debit Card Prepaid Card

------------------------------Forex Services -------------------------------

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 Product & Services Trade Services Forex service Branch Locater RBI Guidelines

Electronic Funds Transfer Online Payment of Direct Tax

WHOLESALE BANKING
Corporate Funded Services Non Funded Services Value Added Services Internet Small and Medium Financial Enterprises and Trusts Funded Services Non Funded Services Specialized Services Value added services Internet Banking Institutions

BANKS Clearing SubMembership RTGS submembership Fund Transfer ATM Tie-ups Corporate Salary
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Banking

a/c Tax Collection Financial Institutions Mutual Funds Stock Brokers Insurance Companies Commodities Business Trusts

BUSINESS MIX

Total Deposits

Gross Advances

Net Revenue

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Retail

Wholesale

HDFC Bank is a consistent player in the private sector bank and have a well balanced product and business mix in the Indian as well as overseas markets.

Customer segments (retail & wholesale) account for 84% of Net revenues ( FY 2008)

Higher retail revenues partly offset by higher operating and credit costs. Equally well positioned to grow both segments.

NRI SERVICES
Accounts & Deposits Rupee Saving a/c Rupee Current a/c Rupee Fixed Deposits Foreign Currency Deposits Accounts for Returning Indians Remittances North America UK Europe South East Asia Middle East Africa Others Quick remit IndiaLink Cheque LockBox Telegraphic/ Wire Transfer Funds Transfer
21

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Cheques/DDs/TCs Investment & Insurances Mutual Funds Insurance Private Banking Portfolio Investment Scheme Loans Home Loans Loans Against Securities Loans Against Deposits Gold Credit Card

Payment Services NetSafe BillPay InstaPay DirectPay Visa Money Online Donation

Access To Bank NetBanking OneView InstaAlert ATM PhoneBanking Email Statements Branch Network

AFTER MERGER STRETEGY OF HDFC BANK

HDFC BANK mission is to be "a World Class Indian Bank", benchmarking themselves against international standards and best practices in terms of product offerings, technology, service levels, risk management and audit & compliance. The objective is to build sound customer franchises across distinct businesses so as to be a preferred provider of banking services for target retail and wholesale customer segments, and to achieve a healthy growth in profitability, consistent with the Bank's risk appetite. Bank is committed to do this while ensuring the highest levels of ethical standards, professional integrity, corporate governance and regulatory compliance. Continue
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to develop new product and technology is the main business strategy of the bank. Maintain good relation with the customers is the main and prime objective of the bank.

HDFC BANK following :

business

strategy

emphasizes

the

Increase market share in Indias expanding banking and financial services industry by following a disciplined growth strategy focusing on quality and not on quantity and delivering high quality customer service. Leverage our technology platform and open scaleable systems to deliver more products to more customers and to control operating costs. Maintain current high standards for asset quality through disciplined credit risk management.

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 Develop innovative products and services that attract the targeted customers and address inefficiencies in the Indian financial sector. Continue to develop products and services that reduce banks cost of funds. Focus on high earnings growth with low volatility.

MERGER OF HDFC BANK & CBOP

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OVERVIEW
The combined entity would have a nationwide network of 1167 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.

Merger with Centurion Bank of Punjab Limited

On March 27, 2008, the shareholders of the Bank accorded their consent to a scheme of amalgamation of Centurion Bank of Punjab Limited with HDFC Bank Limited. The shareholders of the Bank
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approved the issuance of one equity share of Rs.10/- each of HDFC Bank Limited for every 29 equity shares of Re. 1/- each held in Centurion Bank of Punjab Limited. This is subject to receipt of Approvals from the Reserve Bank of India, stock exchanges and Other requisite statutory and regulatory authorities. The shareholders Also accorded their consent to issue equity shares and/or warrants convertible into equity shares at the rate of Rs.1,530.13 each to HDFC Limited and/or other promoter group companies on preferential basis, subject to final regulatory approvals in this regard. The Shareholders of the Bank have also approved an increase in the authorized capital from Rs.450 crores to Rs.550 crores.

ACHIEVEMENT IN 2008
Business Monitor survey TodayGroup One of India's "Most Innovative Companies"

Financial ExpressErnst & Young Award

Best Bank Award in the Private Sector category

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Global HR 'Employer Brand of the Year 2007 -2008' Excellence Awards Award - First Runner up, & many more - Asia Pacific HRM Congress: Business Today

'Best Bank' Award

Dun & Bradstreet American Express Corporate 'Corporate Best Bank' Award Best Bank Award 2008 Outlook Money & Best Bank Award in the Private sector category. NDTV Profit The Asian Banker Best Retail Bank in India Excellence in Retail Financial Services Awards

SWOT ANALYSIS

STRENGTH
Right strategy for the right products. Superior service competitors. customer vs.

WEAKNESSES

Some gaps in range for certain sectors.

Customer

service

staff

need training.

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 Great Brand Image Products have required accreditations. High degree of

Processes and systems, etc

Management insufficient.

cover

customer satisfaction. Good place to work Lower response time with efficient and effective service. Dedicated workforce aiming at making a long-term career in the field.

Sectoral growth is constrained by low unemployment levels and competition for staff

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Opportunities

Threats
will be

Profit good.

margins

Legislation could impact. Great risk involved Very high competition

Could extend to overseas broadly.

prevailing in the industry. specialist

New applications.

Vulnerable to reactive by major

Could

seek

better

attack competitors

customer deals.

Lack of infrastructure in rural areas could constrain investment.

Fast-track development opportunities on

career an

industry-wide basis.

High volume/low cost market is intensely competitive.

An applied research centre to create opportunities for developing techniques to provide added-value services.

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HDFC-CBoP mega merger: Mgmt speaks to CNBC-TV18

It's a move that will help HDFC Bank become the largest private sector lender in terms of branch network - a merger with Centurion Bank of Punjab. The HDFC Bank board, which met to consider a merger with CBoP today, has approved a swap ratio of 1:29 - so every 29 shares of CBoP will fetch 1 share of HDFC Bank. However, the share swap ratio is subject to due diligence that is yet to be conducted in this regard. The draft scheme of amalgamation, due diligence report and any other matter, as required, would be considered by the board of HDFC Bank in its meeting on February 28. The Board of CBoP would also meet the same day to consider the draft scheme of amalgamation. The combined entity's branch network would go up to 1,148 branches nation-wide. While some of HDFC Bank's ratios would soften due to the merger, Aditya Puri, MD, HDFC Bank said that the return on assets should recover to current levels in just over one year of operations. I think a year plus WIPE it could be earlier. Point that you should see is what we are looking to get that right ROA, is a combination of getting the right deposit costs and getting the economies of scale in the products that we offer. We are talking about a larger amount of products going to the retail customers which will up the current account and savings balances, larger number of branches available, which will bring cost of funds down. On the asset side we'll have a lower operation cost, largely because of higher volumes -the combination of these will result in, if not exceeding, reaching this reasonably fast, he said. CBoP Chairman Rana Talwar would be offered a seat on the Board of the merged entity as a Non-Executive Director. Its Managing Director and CEO Shailendra Bhandari would be offered a seat as the Executive Director.

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HDFC Bank says this will help the merged entity focus on accelerating growth, especially in international markets. Deepak Parekh, Chairman, HDFC said, It depends on opportunities whether they are there, whether we can afford these opportunities; just because one bank is available in Turkey/Greece, we cant just jump at it. We must have a strategy for international expansion and growth. We have to sit with Rana, use his expertise and experience. In fact, we've already told him what we need from him is his experience in international banking; what HDFC Banks strategy should be to grow abroad. Talwar said that the merger would be beneficial to capitalize on future opportunities. I think a larger stronger better capitalised bank with 1150 branches, USD 1,500 billion assets and market cap o Rs 65-70,000 crore will be much better poised to capitalise on the growth opportunities, he said. CNBC-TV18s Banking Editor, Latha Managements of HDFC Bank and CBoP. Venkatesh spoke to the

Excerpts from CNBC-TV18s exclusive interview with Deepak Parekh, Aditya Puri and Rana Talwar: Q: Your ROA is obviously 30 basis points higher than the bank that is merging with you- by when will you do this 1.57 ROA, that you have been managing? Puri: Around a year plus Q: A year plus would be 18 months, 15 months? Puri: I wish I could make it that exact. It could be earlier. The point we have to see is what we are looking to get that right ROA is a combination of lowering the deposit costs and getting the economies of scale in the products that we are in. Now it could be even earlier. But I dont want to commit. So we are talking about a larger amount of products going through to the retail customers, which will have current account and savings balances, a larger
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amount of branches being available for our transaction banking which will consequently bring the cost difference down, and on the asset side, we have a lower operating cost largely because of higher volumes. A combination of these two will result in, if not exceeding; at least reaching this reasonably fast. Parekh: If you look at the branch network of Centurion BoP, they have almost 400 branches, compared to our 750. So their branches are more than half our branches. Now obviously we have to make these branches more profitable. We have to collect more deposits from these branches, we must lend more from these branches, offer our product range and make them more competitive and make them like HDFC Bank. That will bring the operating cost down, that will bring cost income ratio down and that will automatically increase the ROA. When you look at a merger, you cannot look at it at one days share price. Unfortunately, everyone in India looks at one days share price. We are creating value for the future, and for the medium term. You have to have patience for us to integrate and take the benefits of a merger of this size. Q: Investors also look at the forward point and thats exactly why this branch issue comes up. HDFC Bank generates profits of around Rs 90 crore per branch; Centurion generates revenues around Rs 40 crore per branch. What is the cue for an investor as to when this will become Rs 90 crore for the new merged entity? Parekh: As far as we are concerned, we cannot look at the stock market and take decisions. We have to look at the opportunities that are in front of us, how we make good these opportunities and how do we create a high value organisation. So we do not look at the stock price. For instance today is the worst time in global capital markets. We have never seen such bad times in global capital markets in the last so many years. But that didnt deter us to go ahead and talk about this merger. Q: You have in your board now, Mr. Rana Talwar, who is a past master at M&As of a global scale. He had done about five mergers when he was at Standard Chartered. Parekh: Not only abroad, even in India he has been responsible for mergers.
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Q: Yes, and even now as you say that the international environment is absolutely right for mergers because you are getting things cheap. So, can we expect HDFC bank or the HDFC entity to be able to announce one at a fairly good base? Parekh: It depends on opportunities again. We have to see whether they are there and can we afford these opportunities, will we be able to raise money; will we be able to enhance our ROEs for our shareholders? Just because one bank is available in Turkey, or Greece or anywhere in the world, we cannot just jump at it. We must have a strategy for international expansion and international growth. We have to sit with Rana, use his expertise and his experience in running large banks as CEO. In fact we have already told him what we need from him, is his experience in international banking. What HDFC Banks strategy should be to go abroad. Q: Would you say that that would be the big next growth area? Youll have struck retail and done it well, you have gone through corporate banking. So will international be the next big thing? Puri: We in the group work on a simplistic basis, and we are never about the group or the bank. So all our businesses are growing, and we have opportunities to increase market share across our businesses as we have seen in the first three quarters. We are almost adding 50% to our distribution base. Behind that distribution base, we have been working on appropriate data warehousing and other techniques, which makes selling easier for our frontend staff. So we will see substantial growth across the entire spectrum. We have tried going into the international market. Now what we are talking about is that we have a rep office in Canada, in Dubai, we have applied for a branch in Bahrain, we have applied for a branch in Hong Kong. We are keen on this strategy. We are not about something over the next two years, no. For the next two years we will just take them on and deliver our goods or they do a little better.

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Q: Why did you cash out at this juncture? Do you conclude that the best, the fastest period of growth in the banking sector is over. Was that one reason? Talwar: No, far from that - I dont view this as cashing out at all because to the extent that I have Centurion shares, I will now own HDFC shares. So the answer to your question is this is not cashing out at all; its merging two very strong institutions - one much larger than the other. The second part of your question; in terms of growth - on the contrary I think a larger, stronger, better capitalised bank with 1,150 branches, USD 1,500 billion of assets and a market cap of Rs 65,000-70,000 crore will be much better poised to capitalise on the growth opportunities that we have. Thats the rationale; its certainly not about cashing out or about lack of opportunities in the Indian financial services markets. Q: What do you see yourself as contributing in the new position? Do you expect to stay put and see through another growth face for HDFC? Talwar: I will contribute in whatever way the Board and the Chairman and the shareholders think it makes sense. I do have quite a lot of experience in financial services; I have a lot of global international experience which could be valuable. Q: Is this from HDFC Bank's point of view, leveraging to use your personal services to expand internationally. Is that one of the things that might have been informally discussed? A: Yes, it has been touched upon. Any role that I have will be in, will be a Non-Executive role. Shailendra Bhandari will be joining the HDFC board as an Executive Director. In any place that I can add value, I will be delighted to help. If I am just getting in the way, then I am quite happy to do other things. Q: So, no question of taking even part of the savers money. After all, it must have multiplied several times? A: That is a thing for my partners and colleagues to decide. That is just one way of keeping score. I am proud of having taken a small bank like Centurion, which was having trouble, and a bunch of people, who were
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relatively demoralised and dispirited, and see the pride that we have in what we have created. That is the main reward. To see the professionalism of the people and the management is the real reward. Q: You have been kind of an M&A artist. During your last stint at Standard Chartered, you managed Grindlay among other acquisitions and within the country Centurion itself and then Bank Muscat, Bank of Punjab and LKB. Would you say that the regulatory environment for mergers is alright or would you want it faster or more professional in some way? A: You are right. I have had quite a lot of experience all the way from Grindlay to these rather unique transactions. I have found the regulators thoroughly professional. Once in a while, it can be frustratingly slow. But they have a different agenda and a different set of interest that they have to look after. Grindlay was a mega merger. From my point of view, it impacted what we were doing in ten different countries because they looked at the Indian regulator as the lead regulator. Q: Did you look at other entities to merge with or sell to? Did you look at private equity investors and at other banks? A: We certainly didnt look at private equity investors because I dont think that would be acceptable in this environment. So, it clearly had to be a merger. The starting point is that the Indian industry is globalising and scaling many sectors where they can be competitive globally. India doesnt have a bank of global scale, reach and distribution. So, over a period of time, India needs fewer, stronger, better-capitalized banks that can grow with Indian industry and expand globally. So, there has to be consolidation and I am happy that I have been part of that consolidation. The options were limited and we have considered in terms of cultural fit, past performance, and opportunity for our people. We thought that HDFC would be the best partner. So, it was quite an easy decision. So, its not another merger of two small banks. Q: Was there a bidding war?
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A: No; I dont think so. We decided very early that we were not going to get into some sort of an auction situation. One alternative would have been to say that, we are looking for a partner and lets look at all the suitors. We decided no to do it and there was a lot of mutual trust between the two banks. Q: Was it frustrating that foreign banks have not been allowed an entry, because that would have given you more people and more options? A: I think it would have in terms of more people in terms of bidding for the bank. But in terms of whats good for the country, there should be consolidation within in the Indian banking system. Lets get 3-4 large, global sized banks and let them compete on a level playing field. So, its going to be a while and that was never really a consideration. Q: From an outsiders point of view, it looks like the 2009 opening to foreign banks now doesnt look as promising as it looked in 2004. The foreign entities are also much weaker. Was all this part of the reason why you thought this is a very good bet? A: Somewhere as a minor factor maybe, but we always said we are part of the Indian banking scene. To consolidate and help create one of the premier financial institutions in this country, that is exciting rather than just cashing out with a larger cheque.

BIBLIOGRAPHY
www.hdfcbabk.com www.timesofindia.com www.in.com www.smcindiaonline.com

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FUTURE GROWTH OF HDFC BANK

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CONCLUSION
In many ways Indian banking is a reflection of the Indian economy. With the Indian economy moving on to a high growth trajectory, consumption levels soaring and investment riding high, the Indian banking sector is also set to grow faster. However the banking industry has been growing faster than the real economy since last 10 years. The total business (advances+ deposits) of banking industry has grown at a CAGR 18% and the GDP has grown at a CAGR of 14% over 1990-2008.So after merger hdfc growth is good. Ti also cross market capitalization of icici bank .Now hdfc is second largest private bank in India.

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