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HDFC Bank, Centurion boards okay merger plan - Mumbai, Feb. 23 2008

The boards of HDFC Bank and Centurion Bank of Punjab have approved in principle a merger between the two banks.

In a joint statement issued after the board meetings on Saturday, the banks said the merger will be subject to “satisfactory due diligence, a fair share-swap ratio, requisite statutory, regulatory and corporate approvals, including those from the Reserve Bank of India, the stock exchanges and shareholders of both banks.”

the stock exchanges and shareholders of both banks.” The boards of both banks will again meet

The boards of both banks will again meet on February 25 to consider the share swap ratio after the receipt of the valuation reports. A decision with regard to the draft scheme of amalgamation and any other matters as required will be taken by the boards on February 28, the statement said.

Mr Deepak Parekh, Chairman, HDFC, the promoter of HDFC Bank, said: “We get scale…we will get about 400 branches at one go. Today, size is important in the banking sector. They (Centurion) have good presence in Punjab thanks to Bank of Punjab, which was merged with Centurion where they have sizeable exposure in the agriculture sector. Similarly, they have a large branch network in Kerala following the merger of Lord Krishna Bank. This would help us leverage the NRI business and probably tap opportunities in the Gulf.”

According to analysts, the advantages of the merger for shareholders of both the banks can

According to analysts, the advantages of the merger for shareholders of both the banks can be ascertained only after knowing the exact swap ratio. A section of analysts, however, feels that the swap ratio could work out to be 20:1 or even more than that.

“The swap ratio could be 20:1, If we assume the share price of Centurion Bank to move up to say, Rs 75 (Rs 58 last traded price on Friday) post the news of merger, then the swap ratio could work out to be 20:1 (1474/75) Rs 1474 being the last traded price of HDFC Bank’s scrip; that is 20 shares of Centurion would fetch one share of HDFC Bank,” said Mr Vishwas Agarwal, an analyst.

Centurion Bank of Punjab has acquired a number of banks, the most recent one being the Lord Krishna Bank in August 2007. Earlier, it had acquired BankMuscat’s Indian operations in 2003, which was then followed by Bank of Punjab in 2005.

HDFC Bank, Centurion boards approve 1:29 share swap ratio - Mumbai, Feb. 25

2008

Shareholders of Centurion Bank of Punjab would be eligible to exchange 29 shares into one share of HDFC Bank. This follows the board of directors of the two banks approving on Monday a share-swap ratio of 1:29.

HDFC Bank’s share closed at Rs 1,422.70, down by 3.5 per cent while Centurion Bank ended the day at Rs 48.25, lower by 14.45 per cent on the BSE on Monday.

Both the shares have adjusted to the exchange ratio on the bourses during the day, said a stock broker.

The entire process of the merger would take about four months for completion. The merged entity will be known as HDFC Bank. Mr Rana Talwar, Chairman of Centurion Bank, has been offered a seat on the Board as non-executive director and Mr Shailendra Bhandari, Managing Director, Centurion Bank, has been invited to join as the Executive Director on the board post merger.

“The near-term impact on HDFC’s financials would be moderately negative considering the relatively poor financials of Centurion Bank. It would take HDFC

Bank a while to leverage the branch network of Centurion Bank to improve its financials. The Centurion Bank shareholders would definitely benefit from this merger, while for the HDFC shareholders it would create wealth for them in the medium-to-long term,” said Mr Vaibhav Agrawal, Senior Analyst-Banking, Angel Broking Ltd.

Mr Aditya Puri, Managing Director, HDFC Bank, said that the merger will create a larger entity and bring together the strengths of both banks in terms of technology, products, distribution, manpower and experience.

Talking about the impact of the merger on the bank’s margin, Mr Puri said that the merger would not have any negative impact on the margin or the growth rate of HDFC Bank in the medium or long term.

Margin impact

Analysts, however, feel that the merger could have a bearing on the bank’s margin in the short-term.

“There could be a slight decline in the margin of HDFC Bank in the short-term, however, in the medium- and long-term, HDFC Bank will be able to leverage the branch strength of Centurion Bank of Punjab,” said Mr Sanjeev Agarwal, Partner, Ernst & Young. The net non-performing assets as a percentage of net advances for HDFC Bank for the year 2006-07 stands at 0.43 per cent while that for Centurion Bank is at 1.26 per cent. Post merger, the NPA of HDFC Bank might decline further by 15-20 basis points to 0.6 per cent, said Mr Agarwal.

The draft scheme of amalgamation, the due diligence report and any other matters as required will be considered by the board of HDFC Bank at its meeting scheduled on February 28.

HDFC Bank, CBoP seal largest banking merger Mumbai February 26, 2008

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 country’s

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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 Bank’s 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

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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

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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

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CBoP’s Non-Executive Chairman Rana Talwar will be appointed the non- executive 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.

(Source:

Questions:

1. What were the positive and negatives sides to this merger, to each of the

parties, in your point of view?

2. In due course, in the light of evolution of the financial system and Narasimham

Committee’s recommendation, ultimately there would be only banks and restructured NBFCs in operation.”

3. Do you believe that this trend of consolidations in the banking industry is likely to

continue globally, in line with the above statement?