Home Economy Stage set for HDFC Bank-Centurion merger

Stage set for HDFC Bank-Centurion merger


Mumbai : The process for the merger of HDFC bank and Centurion Bank of Punjab (CboP) got underway here Saturday with the boards of directors of both banks giving their approval to the idea in principle.

The final modalities of the merger will be thrashed out at a joint meeting of both the banks’ boards Monday, HDFC Bank announced here.

Once merged, the proposed new entity will rank below ICICI Bank but above Axis Bank – formerly known as UTI Bank – in its size.

“The two boards of the banks will meet Monday to consider the swap ratios after receipt of the valuation reports,” the statement said.

According to HDFC Bank officials, Saturday’s meetings in Mumbai, New Delhi and Chandigarh were crucial to get a go-ahead on the proposed merger.

An HDFC Bank spokesperson told IANS that the banks’ boards would on Feb 28 deliberate on the draft scheme of amalgamation and whatever else was required for the merger.

“Now with both the banks’ boards agreeing to the merger, they will have to go to their respective boards and shareholders, apart from the Reserve Bank of India (RBI) and stock exchanges, for statutory, regulatory and corporate approvals,” the spokesman said.

The market had been abuzz with rumours of the merger for the past six months.

Last Wednesday, a marathon meeting between HDFC Bank’s managing director Aditya Puri and Centurion Bank chairman Rana Talwar, along with chief executive Shailendra Bhandari, confirmed the rumours.

The meeting boosted CBoP’s price by seven percent Friday morning, the last day of trading this week. But it declined later during intra-day fluctuations.

Unofficial estimates peg the value of CBoP’s assets in the range of Rs.1,200 billion.

Banking sources said both banks have agreed to merge as it fits into their growth prospects.

Earlier CBoP was merged with Lord Krishna Bank. The merger will help HDFC Bank penetrate rural areas as the merger with Lord Krishna Bank had given CBoP an access to a rural network.

At present HDFC Ltd owns 23.28 percent of equity capital in HDFC Bank. After the proposed merger, its holding in the combined entity will come down to 19.20 percent.

CBoP chairman Rana Talwar, who owns 2.45 percent in CBoP through Sabre Capital, will be reduced to a marginal shareholder in the combined company.

However, Bank of Muscat, which owns 14.02 percent in CboP, will get around 2.45 percent share in the combined entity. The total deposits of the new merged entity will be around Rs.1.35 trillion.

As on March 2007, HDFC Bank had deposits of Rs.994 billion and that of CBoP was Rs.148 billion. Analysts feel the merger may have an impact on the profitability of HDFC Bank.

The net non-performing assets of CBoP are higher at 1.26 percent, compared to 0.4 percent for HDFC Bank.

While HDFC Bank has 1,605 ATMs across India, CBoP has 450. HDFC Bank has 684 branches, while CBoP has 394 branches in over 400 urban and rural centres.