HDFC Bank and Centurion Bank of Punjab Merger at Share Swap Ratio of 1:29
HDFC Bank and Centurion Bank of Punjab Merger at Share Swap Ratio of 1:29
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.
REASON FOR MERGER:-
The company was amongst the first to get a banking license, the first to do a merger in the
privatesector with Times Bank in 1999, and now after the merger of Centurion Bank of
Punjab, it was thelargest merger in the private sector banking space in India. HDFC Bank was
looking for anappropriate merger opportunity that would add scale, geography and
experienced staff to itsfranchise. This opportunity arose and the bank thought it is an
attractive route to supplement.HDFC Banks organic growth. The bank
believes that Centurion Bank of Punjab would be the rightfit in terms of culture, strategic
intent and approach to business.
The HDFC Bank-CBoP merger is expected to be a win-win for both banks in terms of both
asset sizeand footprint. While CBoP is concentrated in the northern and southern parts of the
country, HDFC Bank is focused throughout India.
These are exciting times for the Indian banking industry. The proposed merger will position
thecombined entity to significantly exploit opportunities in a market globally recognized as
one of thefastest growing. This is particularly bullish about the potential of business synergies
and cultural fitbetween the two organizations. The combined entity will be an even greater
force in the market.
Over the last few years, Centurion Bank of Punjab has set benchmarks for growth. The bank
onthat day has a large nationwide network, an extremely valuable franchise, 7,500
talentedemployees, and strong leadership positions in the market place. It is 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.
Company analysis:-
In this study deals with merger of HDFC Bank Ltd (bidder bank) and Centurion
Bank of Punjab Ltd (Target Bank) . This deals took place in year 2008(i.e. may
23rd 2008). In order to analyses the financial performance of banks after the
merger, the financial and accounting ratios like Gross Profit Margin, Operating
Profit Margin, Return on Capital Employed, Return on Equity and Debt Equity
Ratio have been calculated. Table 3 indicates that the financial performance of
both the banks before the merger. Table 4 shows the financial performance of
HDFC Bank ltd (bidder bank) after merger.
FINANCIAL PERFORMANCE OF HDFC BANK LTD AND CENTURION BANK
OF PUNJAB FOR THE LAST THREE FINANCIAL YEARS IS ENDING BEFORE
THE MERGER
Before Merger
After Merger
Before Merger
EVA
Year EVA
Before Merger
2005 705
2006 -18562
2007 175373
2008 191709
After Merger
2010 212950
2011 -160417
2012 175032
2013 1207893
FINANCIAL RESULTS:-
Profit & Loss Account: Quarter ended June 30, 2008
Total income for the bank for the quarter ended June 30, 2008 grew by
59.6% to Rs.4,215.2 crores as against Rs.2,641.7 crores in the
corresponding quarter ended June 30, 2007. Net revenues (net interest
income plus other income) were Rs.2,316.9 crores for the quarter ended
June 30, 2008, an increase of 48.7% over Rs.1,558.1 crores for the
corresponding quarter of the previous year. Interest earned (net of loan
origination costs and amortization of premia on investments held in the
Held to Maturity (HTM) category) increased from Rs.2,069.2 crores in the
quarter ended June 30, 2007 to Rs.3,621.7 crores in the quarter ended
June 30, 2008, up by 75.0%. Net interest income (interest earned less
interest expended) for the quarter ended June 30, 2008 increased by
74.9% to Rs.1,723.5 crores, driven by average asset growth of 68.0% and
a core net interest margin of just over 4.1%.
Fees and commission was the main contributor to other income for the
quarter and increased by 37.3% to Rs.511.2 crores. The other two major
components of other income were foreign exchange/derivatives revenues
of Rs.157.4 crores (corresponding quarter ended June 30, 2007 Rs 146.5
crores) and (loss) on revaluation/sale of investments of Rs. (77.6) crores,
as against profit of Rs.52.6 crores for the quarter ended June 30, 2007.
Other income (non-interest revenue) for the quarter ended June 30, 2008
was Rs.593.4 crores as against Rs.572.5 crores for the quarter ended June
30, 2007. Operating expenses for the quarter ended June 30, 2008 were
at 30.6% of total income and 55.7% of net revenues. Provisions and
contingencies for the quarter were Rs.344.5 crores (against Rs.307.1
crores for the corresponding quarter ended June 30, 2007), comprising
primarily of specific provisions for non-performing assets and general
provisions for standard assets of Rs.324.4 crores against Rs. 299.7 crores
for the quarter ended June 30, 2007. After providing Rs.218.7 crores for
taxation, the Bank earned a Net Profit of Rs.464.4 crores, an increase of
44.6% over the quarter ended June 30, 2007.
Balance Sheet: As of June 30, 2008
Total balance sheet size increased by 59.5% from Rs.105,695.3 crores as
of June 30, 2007 to Rs.168,598.7 crores as of June 30, 2008. Total deposits
were Rs.130,918 crores, an increase of 60.4% from June 30, 2007. With
savings account deposits of Rs.31,853 crores and current account deposits
at Rs.26,866 crores, the CASA mix for the merged entity was around
44.9% of total deposits as at June 30, 2008. Net advances as at June 30,
2008 were Rs.96,797 crores, an increase of 79.8% over June 30, 2007. The
Banks total customer assets (including advances, corporate debentures,
investments in securitised paper, etc. net of loans securitized and
participated out) were Rs.99,554 crores as of June 30, 2008.