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Finance > M & A/JV > Times Bank & HDFC Bank Merger


INDIAN BANKING INDUSTRY ENTERS M&A ERA

Consolidation in the banking industry worldwide is an ongoing process. Banks, in their quest for lower costs and higher margin, are always on the look out for synergy with their own kind. We read about the birth of a new larger, more diversified or more focussed bank on a regular basis. However, in India, action on this topic has been missing. This topic has only been discussed and debated ever since it was first elaborated in the Narasimham committee report in 1991. The only instance of its kind was mandated by the powers that be and it had nothing to do with the need of the two merging entities. Consequently, the experiment of merging two public sector banks - Punjab national bank and new bank of India -- way back in 1993 has not been a success but was a disaster.

The proposed amalgamation between Timesbank and HDFC bank will be the first merger of its kind, wherein the two profitable private sector banks have agreed to merge on a negotiated basis. Under the proposed scheme of amalgamation, subject to the shareholder and requisite regulatory approvals, shareholders of Timesbank would receive one share of HDFC bank for every 5.75 shares of Timesbank. HDFC bank and Timesbank will seek the approval of their shareholders at extraordinary general meetings on January 1 and 7 respectively. Following this, they will seek approval from the reserve bank of India. The merger is effective December 1, 1999.

The present merger makes sense from a business and as well as strategic point of view. The logic behind the merger has, most importantly, been one of size. Based on the balance-sheet sizes of the two banks as of September 30 1999, post-merger, HDFC bank will have total deposits of around Rs 6,900 crore and a combined balance-sheet size of over Rs 9,000 crore, making it the largest private bank.

The merger shall bring in both synergies of operations and volumes. HDFC bank stands to gain in terms of savings on technology, faster growth, an expanded consumer base, increased market-share and reduced costs. The network of the merged entity will stand increased to 107 branches, ahead of centurion bank. HDFC bank is present in 26 cities while Timesbank is present in 23. With the merger, HDFC bank will gain a presence in seven centers where it does not have branches. Total retail banking and demat accounts would also increase to over 6,50,000. The merger would enable HDFC bank to leverage the use of its alternative delivery channels (phone banking, Internet banking, etc) and provide cross-sell opportunities across a wider product range and to a larger customer base.

HDFC, which already has a considerable presence in the market for housing finance, the merger consolidates its position as a serious player in the financial sector. Times group, the merger is an opportunity to exit an unrelated business and focus on its core operations of media and entertainment industry.

With a combined market cap that will now be second to only State bank of India, HDFC bank has entered the top league. It may give a tough competition to Indian banks led by SBI and foreign banks led by Citi bank. This merger will lead to the M&A scene in the Indian banking industry warming up.

 

Pre Merger

Post Merger

Post Preferential/ ESOP

HDFC Group

28.78

25.74

27.98

Indian Private Equity Fund

10

8.95

8.43

Indocean Financial Holdings

4.99

4.46

5.96

Bennett, Coleman & Co and Group Cos

NIL

7.78

6.86

Public

56.235

53.07

3.94

 

%

%

%





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