LOT’s AT STAKE

Mumbai, Feb. 23: The merger of Centurion Bank of Punjab (CBoP) with HDFC Bank is proceeding at a brisk pace. While the boards of both the banks today gave their in-principle approvals to the merger, they will meet again on February 25 to consider the swap ratio and later on February 28 to vet the draft scheme of amalgamation.

“The two boards have resolved to pursue the merger, subject to satisfactory due diligence, a fair share-swap ratio and all the requisite statutory, regulatory and corporate approvals, including those from the Reserve Bank of India, the stock exchanges, and the respective boards and shareholders of both the banks,” a press statement issued after the meetings said.

Sources at both the banks did not give a timeline as to when the entire merger process would be completed. Both the banks have already appointed valuers to suggest a swap ratio. Market observers, who expect an all-stock deal, are speculating a swap ratio in the range of one share of HDFC Bank for 15-20 shares of CBoP.

Banking analysts are of the opinion that the merger will benefit HDFC Bank. A source close to one of the banks said CBoP would complement HDFC Bank’s existing geographic reach. HDFC Bank has a strong presence in western and southern India and CBoP has a good reach in the north.

“Even culturally, both the organisations will be a good fit,” he added. However, officials from both the banks refused to comment on the matter.

“While CBoP trades at the higher end of the valuation range, we believe the proposed merger, if it were to happen, could provide a fillip to HDFC Bank’s earnings over the medium term if it is, hopefully, able to leverage CBoP’s deposit base and distribution more effectively,” Rajeev Varma, research analyst at Merrill Lynch, had said in a research report.

CBoP is among the smaller private sector banks and is also one of the fastest growing financial institutions. “Although CBoP ($5 billion in assets) is one-fourth of HDFC Bank in balancesheet size, its branch network at 394 is more than half of HDFC Bank. Its technology platform and skill set are also somewhat similar,’’ Varma added.

Bankers say that one of the key benefits to HDFC Bank from the merger will be CBoP’s branch network. With banks having to approach the central bank for opening new branches, the deal will provide it around 400 branches in one go. These can be then effectively leveraged to distribute its third-party products.