Promoted in 1995 by Housing Development Finance Corporation (HDFC), India's leading housing finance company, HDFC Bank is one of India's premier banks providing a wide range of financial products and services to its over 11 million customers across hundreds of Indian cities using multiple distribution channels including a pan-India network of branches, ATMs, phone banking, net banking and mobile banking. Within a relatively short span of time, the bank has emerged as a leading player in retail banking, wholesale banking, and treasury operations, its three principal business segments.
The bank's competitive strength clearly lies in the use of technology and the ability to deliver world-class service with rapid response time. Over the last 13 years, the bank has successfully gained market share in its target customer franchises while maintaining healthy profitability and asset quality.
As on March 31, 2008, the Bank had a network of 761 branches and 1,977 ATMs in 327 cities. For the year ended March 31, 2008, the bank reported a net profit of INR 15.90 billion (Rs.1590.2crore), up 39.3%, over the corresponding year ended March 31, 2007. As of March 31, 2008 total deposits were INR 1,007.69 billion, (Rs.100,769 crore) up 47.5% over the corresponding year ended March 31, 2007. Total balance sheet size too grew by 46.0% to INR 1,331.77 billion (133177 crore).
About Centurion Bank Of Punjab
Centurion Bank of Punjab is one of the leading new generation private sector banks in India. The bank serves individual consumers, small and medium businesses and large corporations with a full range of financial products and services for investing, lending and advice on financial planning. The bank offers its customers an array of wealth management products such as mutual funds, life and general insurance and has established a leadership 'position'. The bank is also a strong player in foreign exchange services, personal loans, mortgages and agricultural loans. Additionally the bank offers a full suite of NRI banking products to overseas Indians.
On 29th August 2007, Centurion Bank of Punjab merged with Lord Krishna Bank (LKB), post obtaining all requisite statutory and regulatory approvals. This merger has further strengthened the geographical reach of the Bank in major towns and cities across the country, especially in the State of Kerala, in addition to its existing dominance in the northern part of the country.
Centurion Bank of Punjab now operates on a strong nationwide franchise of 404 branches and 452 ATMs in 190 locations across the country, supported by employee base of over 7,500 employees. In addition to being listed on the major Indian stock exchanges, the Bank's shares are also listed on the Luxembourg Stock Exchange.
Impact of merger.
HDFC Bank Board on 25th February 2008 approved the acquisition of Centurion Bank of Punjab (CBoP) for Rs 9,510 crore in one of the largest merger in the financial sector in India. CBoP shareholders will get one share of HDFC Bank for every 29 shares held by them.
This will be HDFC Bank's second acquisition after Times Bank. HDFC Bank will jump to the 7th position among commercial banks from 10th after the merger. However, the merged entity would become second largest private sector bank.
The merger will strengthen HDFC Bank's distribution network in the northern and the southern regions. CBoP has close to 170 branches in the north and around 140 branches in the south. CBoP has a concentrated presence in the in the Indian states of Punjab and Kerala. The combined entity will have a network of 1148 branches. HDFC will also acquire a strong SME (small and medium enterprises) portfolio from CBoP. There is not much of overlapping of HDFC Bank and CBoP customers.
The entire process of the merger would take about four months for completion. The merged entity will be known as HDFC Bank. Rana Talwar's Sabre Capital would hold less than 1 per cent stake in the merged entity from 3.48 in CBoP, while Bank Muscat's holding will decline to less than 4 per cent from over 14 per cent in CBoP. HDFC shareholding falls to will fall from 23.28 per cent to around 19 per cent in the merged entity.
Mr Rana Talwar, Chairman of Centurion Bank, has been offered a seat on the Board as non-executive director and Mr Shailendra Bhandari, Managing Director, Centurion Bank, has been invited to join as the Executive Director on the board post merger.
According to HDFC Bank Managing Director and Chief Executive Officer Aditya Puri, Integration will be smooth as there is no overlap. In an interview, he mentioned that at 40% growth rate there will be no lay-offs. The integration of the second rung officials should be smooth as there is hardly any overlap.
The boards of the two banks will meet again on February 28 to consider the draft scheme of amalgamation, which will be subject to regulatory approvals. HDFC Bank will consider making a preferential offer to its parent Housing Development Finance Corp Ltd (HDFC). The move would allow HDFC to maintain the same level of shareholding in the bank.
S&P Ratings on HDFC unaffected by proposed merger with Centurion
Standard & Poor's Ratings Services on 25th February 2008 said, that its ratings and outlook on India's HDFC Bank Ltd. (BBB-/Stable/A-3) will not be immediately affected by the announcement of the bank's proposed merger with India's privately owned Centurion Bank of Punjab Ltd. (Centurion).
Despite Centurion being about one-fifth of HDFC Bank in terms of balance sheet size, the latter's business profile is likely to be strengthened by the merger as Centurion has a good financial profile.
According to Standard & Poor's, merger is expected to strengthen HDFC Bank's distribution network--and hence the bank's market position--especially in the Indian states of Punjab and Kerala. This deal will add 394 branches and 452 ATMs to HDFC Bank's existing 754 branches and 1,906 ATMs.
Likely capital infusion by a preferential offer of shares to its promoter, HDFC Ltd., will further bolster HDFC Bank's capitalization.
Nevertheless, Standard & Poor's will continue to closely monitor the progress of the merger and integration plan. If the deal is likely to materially weaken HDFC Bank's credit profile, the ratings or outlook on the bank could be negatively affected.
Fitch Ratings on HDFC Bank affirmed with a Stable Outlook
Fitch Ratings on 26th February 2008 has affirmed HDFC Bank Ltd (HBL) following its announcement to pursue a merger with Centurion Bank of Punjab Ltd (CBP) through a share swap. At the same time, CBP's Long-term, Individual and Support ratings have been placed on Rating Watch Positive.
The following ratings of HBL have been affirmed with a Stable Outlook: National Long-term at 'AAA(ind)', National Short-term at 'F1+(ind)', Individual at 'C', Support at '3', INR24 billion lower tier 2 subordinated debt at 'AAA(ind)', fixed deposit programme at 'AAA(ind)' and INR50bn certificates of deposit programme at 'F1+(ind)'.
Fitch expects HBL to maintain its post-merger financials and competitiveness amongst the best banks in India. The merger benefits HBL through the addition of CBP's branch network, which would add momentum to its increasing market share (currently seventh-largest bank in India in terms of assets). While CBP's assets are about a fifth that of HBL's, the merger would increase the latter's branch network by 50%. The merger is subject to shareholder and regulatory approvals. CBL's ratings are expected to be upgraded to that of HBL and then withdrawn as part of the amalgamation.
CBP's profitability is weaker than that of HBL and would slightly dilute the merged entity's figures. HBL should however be able to gradually leverage on the increased branch network with its superior franchise and stronger product delivery capabilities to improve its existing liability profile and business volumes of CBP and thereby its profitability.
Similarly, HBL should also be able to absorb CBP's unprovided NPLs (INR2.5bn, equivalent to 17% of HBL's annualised net income in 9MFY08). Post-merger, HBL would however continue to have a relatively higher proportion of unsecured consumer loans, while its two wheeler loan portfolio would slightly increase. The asset quality in these segments came under some pressure for the banking system in 2007 when increasing interest rates undermined the borrower's repayment capacity. HBL's risk management has so far enabled it to maintain credit losses in line with expectations at the point of origination.
HBL is the second-largest private bank in India with a nationwide presence. Strong operations in both retail and corporate banking businesses together with multiple delivery channels across India have supported HBL's loan growth and its superior earnings profile. The gross NPL ratio has remained better than that of most Indian banks and reflects the bank's strong risk management system. Regular equity infusions have helped maintain the Tier 1 ratio above 8% (end-December 2007: 10.5%) through periods of rapid growth.
CBP incorporates three private banks that merged in 2006 and 2007 - the erstwhile Centurion Bank which turned around following the induction of new shareholders and management in 2003, the erstwhile Bank of Punjab that added a strong retail liability franchise in Punjab and the erstwhile Lord Krishna Bank that helped add the branch network in Kerala. CBP's loan portfolio consists mainly of two-wheeler, commercial vehicles, residential mortgage, unsecured personal and SME loans.
Impact of Mergers on the Cost Efficiency of Indian Commercial Banks
The present paper examines the cost efficiency of Indian commercial banks by using a non-parametric Data Envelopment Analysis Technique. The cost efficiency measures of banks are examined under both separate and common frontiers. This paper also empirically examines the impact of mergers on the cost efficiency of banks that have been merged during post liberalization period. The present study based on unbalanced panel data over the period 1990-91 to 2007-08. In this paperto test the efficiency differences between public and private both parametric andnon-parametric tests are employed. The findings of this study suggest that over the entire study period average cost efficiency of public sector banks found to be 73.4 and for private sector banks is 76.3 percent. The findings of this paper suggest that to some extent merger programme has been successful in Indian banking sector. The Government and Policy makers should not promote merger between strong and distressed banks as a way to promote the interest of the depositors of distressed banks, as it will have adverse effect upon the asset quality of the stronger banks.
1. Introduction
Banks as financial intermediaries play a significant role in economic growth, provide funds for investments, and keep the cost of capital low. During the last few decades, structure of banking sector has turned from a controlled system into liberalized one. The efficiency of banks, which reflects the ability of banks in transforming its resources to output by making its best allocation, is essential for the growth of an economy. However, due to the major role played by banks in the development of economy, the banking sector has been one of the major sectors that have received renewed interest from researchers and economists. The rapid advances in computer and communication technology have led to the development of new bank services and financial instruments (Shiang, Tai Liu, 2009). Therefore, the economies of world have experienced a revolutionary change in the environment of banking sector. The competition among banks at domestic and global level has increased and it has compelled the banking industry to improve their efficiency and productivity. Moreover, the government and policy makers
have adopted various policies and measures out of which consolidation of banks emerged as one of the most preferable strategy. There are diverse ways to consolidate the banking industry the most commonly adopted by banks is merger. Merger of two weaker banks or merger of one healthy bank with one weak bank can be treated as the faster and less costly way to improve profitability than spurring internal growth (Franz, H. Khan, 2007) .One of the major motive behind the mergers and acquisition in the banking industry is to achieve economies of scale and scope. This is because as the size increases the efficiency of the system also increases. Mergers also help in the diversifications of the products, which help to reduce the risk as well (
The issue of impact of mergers on the efficiency of banks has been well studied in the literature. Most of the literature related with the impact of mergers on the efficiency of banks is found in European Countries and US. In India, literature on bank merger is very scarce. Very few studies have been conducted with the motive to examine the impact of mergers on the performance of Indian Commercial banks. The present study makes notable contribution to the existing literature on banking efficiency in India. In most of the existing studies on the efficiency of Indian commercial banks used a balanced panel. The present study has been carried out with unbalanced panel data over the period 1990-2008.
The paper aims
1. To measure cost efficiency for individual commercial banks in India.
2. To study the impact of mergers on the cost efficiency of merged banks.
The remainder of the paper is organized as follows: Section 1 provides a briefoverview of Indian banking system. Next section deals with the review of empirical
Impact of Mergers on the Cost Efficiency of Indian Commercial Banks
studies related with the bank efficiency and the impact of mergers on the efficiency of banks. Section 3 describes the methodology used in the present study. Section 4 provides the data and the specification of input and output variables. The empirical findings are reported in Section 5. The final section discusses the concluding remarks.
2. The Brief Overview of Indian Banking Sector
In India, the Reserve Bank of India acts as a central bank of the country. Banking system has a wide mix, comprising of scheduled and non-scheduled banks, cooperative sector banks, post office saving banks, foreign and exchange banks. Table 1 provides a brief detail of the structure of Indian commercial banks as on the end March 2008. As on March 2008, the number of commercial banks is 79 comprise of 28 PSBs, 23 private sector banks and 28 foreign banks. It is evident from the table that public sector banks dominate the commercial banks in India. It has been observed that the market share of public sector banks in terms of investment, advances and assets is near about 70 percent. The Public sector banks are the biggest players in the Indian banking system and they account for 70 percent of the branches of commercial banks in India. As on March 2008, private sector banks
accounts for nearly 21.7 percent while foreign banks constitutes 8.41 percent share in total assets of commercial banks. During last few decades, the environment under which Indian banking sector has operated witnessed a remarkable changes. India embarked on a strategy of economic reforms in the wake of a serious balance of payment crisis in 1991(Mohan, Rakesh 2005). In Indian banking sector, the policy makers adopted a cautious approach for introducing reform measures on the recommendation of
Narishmam Committee I (1991), Narishmam Committee II (1997) and Verma
Committee (1999). The main objective of the banking sector reforms was to
improve the efficiency of banks and to promote a diversified and competitive
financial system. One of the outcomes of such reforms was the consolidation of the banking industry through mergers and acquisitions. Technological progress and financial deregulation have played an important role in accelerating the process of merger and acquisition in Indian banking industry. Due to technological progress, the scale at which financial services and products are produced has expanded which provide an opportunity for the banks to increase their size and scale of production. At that, time mergers of banking institutions emerged as an important strategy for growing the size of banks. Size of the bank plays a significant role to enter the global financial market.
Merger of Banks in India - ( Definition )
Merger can be defined as a mean of unification of two players into single entity. Merger is a process of combining two business entities under the common ownership. According to Oxford Dictionary the expression, "Merger means combining two commercial companies into one." Bank merger is an event when previously distinct banks are consolidated into one institution (Pilloff and Santomerro, 1999). A merger occurs when an independent bank loses its charter and becomes a part of an existing bank with one headquarter and a unified branch network (Dario Farcarelli 2002). Mergers occurs by adding the active (bidder ) banks assets and liabilities to the target (Passive) bank's balance sheet and acquiring the bidder 's bank name through a series of legal and administrative measures . Mergers and acquisitions in Indian banking sector have initiated through t he recommendations of Narasimham committee II. The committee recommended that merger between strong banks/ financial institutions would make for greater economic and commercial sense and would be a case where the whole is greater than the sum of its parts and have a "force multiplier effect". (Narasimham committee II, chapter, para 5.13 -5.15). Table 2 provides a list of banks that have been merged in India since post-liberalization in the country.
5.3 Impact of Mergers on Cost Efficiency
In order to study the impact of mergers on the cost efficiency of participated banks
the performances of banks have been compared for three year before and after
merger. Both parametric and non-parametric tests are performed to examine the
differences in the efficiency of banks between the two periods that is before and
after merger programme.
Table 7 depicts the CE estimates along with its decomposition into TE and AE. It is
apparent from the table that 6 out of 11 bank analyzed have experienced efficiency
gains from merger.
The results of parametric and non-parametric tests are presented in Table 8. The
empirical findings indicated that there exists a huge difference in efficiency
between two periods. Table clearly depicts that Oriental Bank of Commerce
enjoyed cost efficiency gains both times. The cost efficiency of Oriental Bank of
commerce when it acquired the Punjab Co-operative bank seem to be more
compared to its pre merger efficiency (0.967<1) although it is not statistically
significant at any conventional levels. Once again, this bank acquired the Global
Trust Bank and again it experienced efficiency gains from merger.
Hdfc Bank - Presentation Transcript
BANKING
ITS HISTORY
BANKING IN INDIA
MAJOR PLAYERS
HDFC BANK
PROFILE
BRANCH NETWORK
BOARD OF DIRECTORS
MISSON
BUSINESS STRATEGY
PRODUCT & SERVICES
Continue…….
Technology used in HDFC Bank
Capital structure
Growth trajectory
competetor
Achievements & milestones
Future plans
STP
SWOT analysis
BANKING
A bank is a financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money.
Banks are important players in financial markets and offer financial services such as investment funds.
In some countries such as GERMANY, banks are the primary owners of industrial corporations .
While in other countries such as the UNITED STATES banks are prohibited from owning non-financial companies.
HISTORY OF BANKING
The first banks were probably the religious temples of the ancient world.
It was probably established sometime during the third millennium B.C. Banks probably predated the invention of money.
There are extant records of loans from the 18th century BC in Babylon that were made by temple priests or monks to merchants.
BANKING IN INDIA
Banking in India originated in the last decades of the 18th century.
The first banks were THE GENERAL BANK OF INDIA, which started in 1786, and BANK OF HINDUSTAN, both of which are now defunct.
The oldest bank in existence in India is the STATE BANK OF INDIA, which originated in the BANK OF CALCUTTA in June 1806.
The first fully Indian owned bank was the ALLAHABAD BANK, established in 1865.
Major players in India
State Bank of India
HDFC Bank
ICICI Bank
HSBC Bank
IDBI Bank
City Bank
Axis Bank
Punjab national Bank
ING Vysya Bank
Union Bank of India
HDFC BANK
Housing Development Finance Corporation
Founded in 1977 by Hasmukh bhai Parakh
HDFC Bank was incorporated in August 1994
Among the first in new generation commercial banks
Registered office in Mumbai, India
Promoted by HDFC, the parent company
IPO in India in 1995
Listed in NSE, BSE, NYSE(ADR)
PROFILE OF HDFC BANK
Type Public
Founded 1994
Headquarters HDFC Bank Ltd., Mumbai, India
Industry Banking, Insurance, Capital Markets and allied industries
Products Loans, Credit Cards, Savings, Investment vehicles, Insurance etc.
Net revenue Rs.2,509.6 crores
Net income Rs. 4,634.3 crores
Website www.hdfcbank.com
NETWORK
761 branches
1977 ATM's in the country
327 cities in India
All branches are OLRT connected
16 branches in Middle east
6 in Africa
Representative offices in Hong Kong, NewYork, London & Singapore
BOARD OF DIRECTORS
Mr. Aditya Puri, Managing director Mr. Jagdish Kapoor , chairman of HDFC Bank. Mr. Harish Engineer, Executive directors Keki Mistry, Managing Director Mr. A Rajan, Country Head-Operations Mr. Rahul Bhagat, Vice president
Mission
World Class Indian Bank
Benchmarking against international standards.
Best practices in terms of product offerings, technology, service levels, risk management and audit & compliance.
To build sound customer franchises across distinct businesses.
Business Strategy
Increasing market share in India's expanding banking.
Delivering high quality customer service.
Delivering more products to more customers.
Maintaining current high standards for asset quality through disciplined credit risk management.
Develop innovative products and services that attract targeted customers and address inefficiencies in the Indian financial sector.
Product & services
Travellers Cheques
credit card
home loan
personal loan
Foreign Currency Cash
Foreign Currency Demand Drafts
Cheque Deposits
Remittances
Trade Services
Mutual funds
Insurance
CONTINUE…….
Travellers Cheques : Travellers Cheques are a safe and easy way to protect your money when you travel. You can encash them only when you need to, and only against your signature, unlike cash which can be stolen and misused by anybody, immediately .
Credit Card : Credit Card can be used for all your requirements, be it shopping, eating out, holidaying, fuelling up your vehicle, railway ticket reservations - just about any financial requirement, planned .
Home loan : Home loans for individual to purchase or construct houses.
Personal Loans : The procedure of personal loan is simple, documentation is minimal and approval is quick.
CONTINUE…….
Foreign Currency Cash : Foreign Currency Cash is a convenient way of meeting personal expenses along your journey, paying for taxis / internal travel, food expenses etc.
Foreign Currency Demand Drafts : Demand Drafts are issued in seven currencies like United States Dollars (USD), Great Britain Pounds (GBP), EURO, Japanese Yen (JPY), Australian Dollars (AUD), Canadian dollars (CAD) and New Zealand Dollars (NZD).
Foreign Currency Cheque Deposits : We can directly deposit our foreign currency cheques in to our saving or current account.
Remittances : HDFC Bank offers the remittance facilities by which we can send and receive money to anyone. They are categorized depending on location and the urgency with which we want the money transferred.
CONTINUE…….
Trade Service : HDFC Bank have people with high level of expertise and experience in trade services to provide services to suit specific requirements and structure solutions for business needs.
HDFC Bank have 500 branches for trade services.
Mutual funds : Mutual funds are funds that pool the money of several investors to invest in equity or debt markets.
Insurance : HDFC Bank offers a world of choice in insurance. Like - children future plans, retirements plans, standard life, etc.
Technology - New is better !!!
Latest Technology
Plans to deploy connections, with built-in redundancy in the network
Tested CDMA and GSM solutions-specially for ATMs as they consume very small bandwidths
For corporate and retail banking the bank uses Flexcube and Finware of i-flex respectively .
For disaster recovery the data at the main center is replicated in real-time on-line at the Chennai site
Security
Security in banking, to a large extent, is built into the software or the application itself.
The data that are being transferred to the regional centres or from internet banking request, are encrypted
Capital Structure
The authorized capital of HDFC Bank is Rs550 crore (Rs5.5 billion).
The paid-up capital is Rs424.6 crore (Rs.4.2 billion).
The HDFC Group holds 19.4% of the bank's equity
Roughly 28% of the equity is held by Foreign Institutional Investors (FIIs) and the bank has about 570,000 shareholders
GROWTH TRAJECTORY !!!
Competition !!! - The way ahead vs
Achievements
HDFC Bank merged with TIMES BANK in 2000.
HDFC Bank wins the Asian Banker Best Retail Bank in India Award 2008 for outstanding performance.
HDFC Bank chosen as one of Asia Pacific's best 50 companies by Forbes magazine.
'Best Bank in the Private Sector 2008. '
HDFC Bank ties up with Qatar National Bank.
HDFC Bank merged with CENTURION BANK OF PUNJAB in 200 7 .
Milestones !!!!
HDFC follows the model of a sound corporate governance
The bank was amongst the first four companies, which subjected itself to a Corporate Governance and Value Creation (GVC) rating by CRISIL
A very sound and effective risk management system in place to create a less risk assets portfolio.
Uses Neural Technologies for risk management in its Credit Cards and other Retail Assets portfolios
Future plans
Launch 250 new branches.
HDFC Bank plans to raise Rs 4,200 crore in capital.
Relocate branches to un-banked rural Punjab.
HDFC Bank plans to set up NBFC.
Segmentation strategy
Demographics variables
Location
- Metros & divisional cities
Occupation
- Business person
- Salaried class (both govt. & private)
Age
- Senior citizens
- Minor
psychographic variables
Lifestyle
- People who believes in modern banking with higher set of service i. e. internet banking (incontact, mobile refill, travel currency card etc.)
Targeting strategy
Target market
Corporate banking market : this market target the industries & fulfill their financial needs.
Capital market : this segment is targeted on the long term needs of the individual as well as of industries.
Retail banking market : this segment is for retail investors & provide them short term financial credit for their personal, house hold needs.
Positioning strategy
HDFC Bank has positioned itself as a bank which gives higher standard of services through product innovation for the diverse need of individual & corporate clients. So they want to highlight following points in their positioning segment :
-Customer centric
-Service oriented
-Product innovation
SWOT analysis
Strengths
Support of various promoters
High level of services
Knowledge of Indian Market
Weaknesses
CONTINUE…….
Opportunities
- Growing Indian banking sector.
- People are becoming more service oriented
- In the global market.
Threats
From various competitors
-Foreign banks
-govt. banks
Future market trends.
