HDFC-CBoP Merger

8/7/2019 HDFC-CBoP Merger

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Merger Analysis

i





y HDFC Bank was incorporated in August 1994

y Among the first in new generation commercial banks

y Registered office in Mumbai, India

y Promoted by HDFC, the parent company

y IPO in India in 1995

y Listed in NSE, BSE, NYSE (ADR)



Management

Aditya puriManaging Director

y Mr. Harish Engineery Mr. Paresh Sukthankary Mr. Keki M. Mistry y Mr. C M Vasudev y Dr. Pandit Palandey

Mr. Ashim Samantay Mrs. Renu Karnad

Managing Director Directors





Managementy Riana Talwary Y K Modiy Kamlesh Vilkamsey y S V Venkiteswarany K K Abdul Razaky

Anju Kumary S K Jain

Managing Director Directors

Mr. SailendraBhandari



HDFC BANK-

y Merger with Times Bank in 1999.

Centurion Bank of Punjab Limited

y Merged with the Bank of Punjab(North India Based)and Lord Krishna Bank (Kochi Based)



KEY BUSINESS PARAM ETE RSHDFC BANK CBOP

y Branches (Nos) 754 394y ATM (Nos) 1906 452y Customer a/c 10 2y Debit card 5 1.1y Credit cards 3.2 0.2

(figures are in million)



y HDFC will enjoy an asset base of more than Rs. 150000cr.

y

HDFC moves to 7 th position from pre-merger positionof 10th .

y Largest ever merger in Indian Financial History.

y Merger of Strength.

HDFC-CBoP Merger



HDFC-CBoP Merger

Increase in HDFC s advances and deposits by 20 %

Expected increase in banks branch network from754 to 1148 branches.

The employees are highly talented and efficient

The CBOP bank has strong leadership in market

like Punjab,Kerala etc.



Why merger-CBOPy Premium valuation of CBOP

y Increase in CASA ratios of CBOP

y Technological benefits

y Ability to deliver world class service with rapid response time



Major issu e s involvedy Valuation of CBOP is critical as HDFC will have to pay 1/3 rd of values

getting from its own branches

y CBOP has workers union inherited from lord Krishna Bank where asHDFC has worked under union free environment

y CBOP- low cost of operations and low cost of productsHDFC- more universal and sophisticated

y More positives than negatives and merger was on right track

y A friendly merger



A win- win Situat ion y Both companies have strong points.y The deal will increase footprint and asset holding.

Network concentration in different parts

y CBOP has 170 branches in north and 140 in south region where

as HDFC has 250 in north and 150 in south

y The HDFC has net margin of 4.3 % and CBOP has 3.6 %y H DFC-Times Bank

y CBoP- Bank of Punjab and Lord Krishna Bank



y The CASA ratio stands at 50.9% for HDFC and 24.5% for cbop

y The capital adequacy for HDFC Bank stands at 13.8% as against 11.5%

for CBoP.y CBOP has good amount of foreign holding

y Advances: cbop has 15000 crores and hdfc has 71500 crores.

y Deposits: 20000 crores with cobp whereas 100000 crore with HDFC

y On financial parameters the merger would create strong banking entity



Af termat h o f Merger Network expansion

-Network expansion in terms of state wise branches-Dominance in areas of two-wheelers, mortgages, personal loans and

commercial vehicles.HDFC have emerged as biggest private banks in terms of branches

Positive aspects of merger

Negative aspects of merger



Major Bene f its Acc rued y R egion wise distribution reach:

Particulars CBOP HDFC

Metro 127 287

Non- metro 267 467

Metro

proportion

32% 38%

Non-metroproportion

68% 62%



y Complementary overlay y Higher productivity to help HDFC bank to bring down cost to income

ratio.y Strong and experienced management team would add to international

businessy Performance improvement and benefits to accrue over medium term

HDFC CBOP



Po st merger Sc enar io y Retail segment would continue to be main focusy Post merger the HDFC s stake was expected to fall by 18.7%y

Issue of 26.3 million share to maintain its 23.28% stakey HDFC was to infuse 39 bn to maintain ownershipy CBoP with weaker asset profile with net NPAs of 1.6% as

against 0.4% for HDFC Bank. Going forward, HDFC Bank

(combined entity) would aim to maintain its NPA profile atthese levels, which would require a charge of ~Rs2bn.y In addition, it is expected that HDFC Bank would provide

for another Rs1.5bn towards any potential NPAs.



Po st merger snap sh ot RS Mn Parameters HDFC CBOP Merged entity

Branch 754 394 1148

ATM 1906 452 2358

Deposits 993869 207100 1200969

CASA ratio% 51 25 46

Share capital 3541 1873 4301

Net Worth 113584 19633 225742

Total Assets 1,314,395 254039 1660959

PAT 11415 1214 12629





Bene f it s f or bot h b ank-

y HDF C Bank : Add scale, geography and managementbandwidth.

y

Potential of business synergy and cultural fity CBoP : HDF C bank would exploit its underutilized branch

network that had the requisite expertise in retail liabilities,transaction banking and third party distribution.

y The combined entity would improve productivity levels of CBoP branches by leveraging HDF C Bank's brand name.



Benefitsy The deal created an entity with an asset size of Rs 1,09,718

crore (7th largest in India), providing massive scaleeconomies and improved distribution with 1,148 branchesand 2,358 ATMs (the largest in terms of branches in theprivate sector). CBoP's strong SME relationships

complemented HDF C Bank's bias towards high-ratedcorporate entities.

y There were significant cross-selling opportunities in the

short-term. CBoP management had relevant experiencewith larger banks (as evident in the Centurion Bank andBoP integration earlier) managing business of the sizecommensurate with HDF C Bank.



y Drawbacks

y The merged entity will not lend home loans given the conflict

of interest with parentHDF

C and may even sell down CBoP'shome-loan book to it.

y The retail portfolio of the merged entity will have more by wayof unsecured and two-wheeler loans, which have come under pressure recently.

y D ifferent Technology plateforms.

y Banc assurance related issues as per the guidelines given byIR D A.



G ro w th in PAT y Post merger in FY 09 PAT rose from 15902 to 22450 rs mny EPS also increased from 44.9 rs to 52.8 rs.



ADVANTAGE

y Increased footprint and metro presence.y cost-income ratio has room for improvement.

y enhanced management bandwidth to enable entry in

to international business.

y both banks have senior managements of high calibre

who have worked with Citigroup at some point in theircareer.







THANK YOU

HDFC-CBoP Merger

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