Centurion Bank of Punjab and HDFC Bank directors approve merger talks
23 February 2008
New Delhi: The board of directors of Centurion Bank of Punjab and HDFC Bank, who met separately today have accorded an in-principle approval to pursue merger talks.
According to HDFC bank sources, the proposed merger has been lead by Housing and Development Finance Corporation (HDFC) chairman Deepak Parekh who masterminded the HDFC Bank's acquisition of Times Bank in November 1999, and Centurion Bank of Punjab chairman Rana Talwar, and Ambit CEO Ashok Wadhwa.
HDFC Bank is one of the largest private sector lenders in the country, with 746 branches. Centurion Bank of Punjab is smaller, with 394 branches.
The merged entity would rank third in terms of size of a banking entity in the country, just behind State Bank of India (SBI) and ICICI Bank.
This will be the second major merger for Centurion Bank of Punjab, which had previously merged Lord Krishna Bank with itself in August 2007. Ther bank was formed thfough the merger of centurion Bank and Bank of Punjab in June 2005.
In case the merger takes place, it would result in a combined entity that would be the third largest in the country, with an estimated market capitalisation of around Rs63,000 crore, if one was to go by current market values. HDFC bank is the third-most valued bank in India, at over Rs52,000 crore. Centurion Bank of Punjab is presently ranks tenth in India, with a market capitalisation of around Rs10,500 crore.
The deal is suggested to be an all-stock deal, with a swap ratio that would reportedly net a Centurion Bank of Punjab shareholder one share of HDFC Bank for every 20 shares. The exact ratio would be announced later.
HDFC Bank, with Centurion's branches as part of its network, will surpass ICICI Bank's count of branches, and will have a significant presence in the northern and southern regions of the country, by around doubling its presence. Centurion Bank of Punjab has a 170-branch network in the north, and another 140-odd branches in the south. HDFC has around 250 branches in the north, and around 150 in the south.
Centurion Bank of Punjab has a stronger portfolio of small and medium enterprises, compared to a largely retail customer base of HDFC Bank. Reports indicate that were the merger to go through, it would be a win-win situation for both, in terms of asset size, as well as a larger banking footprint, in an increasingly competitive market. Capital adequacy for HDFC Bank stands at 13.8 per cent, and for Centurion Bank of Punjab at 11.5 per cent, which according to analysts is a good thing for creating a strong banking entity.