HDFC-CBoP MERGER

Boards of HDFC Bank and Centurion Bank of Punjab (CBoP) on Saturday agreed to merge to form a joint entity. The share-swap ratio for the merger will be decided by both the boards on Monday, after getting the valuation report. They will meet again on February 28 to finalise the details of the merger, a joint statement from the lenders said. "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," said a statement issued by both the banks. It is understood that configuration of board and other issues will be decided on February 28. However, a banking source said the swap ratio will be fixed in the vicinity of 25:1. That means, for every 25 shares of Re 1 each of CBoP, one share of HDFC bank will be given. Ernst & Young and Dalal & Shah have been appointed to determine the share swap ratio, HDFC Bank said in a statement. The merger will create a bank with 1,148 branches, surpassing second largest bank ICICI Bank with 955 branches. CBoP has 394 branches and HDFC Bank 754 branches as on Dec 31 2007, the statement said. The merger will increase the number of customers of HDFC Bank from existing level of 10 million to 12.5 million. Both HDFC Bank and Centurion Bank got the license in mid-nineties along with IDBI Bank, UTI Bank, Global Trust Bank, Times Bank and Bank of Punjab, when government liberalised its banking policy. Later Times Bank was merged with HDFC Bank in 2000. And, when Centurion Bank faced financial crisis in 2003, it was rescued by Sabre Capital of Rana Talwar, who earlier headed Standard Chartered Bank’s global operations. After restructuring the capital of Centurion Bank, Talwar successfully completed two merger deals to strengthen the bank. First Bank of Punjab was merged with the bank in 2005 and later Lord Krishna Bank in August 2007. At present, Bank Muscat owns 14.02% and Sabre Capital 3.74% in CBoP. Centurion Bank shares, which ended one percent down on Friday valuing the bank at Rs 10,500 crore, have risen 13% since Wednesday close. During same period, HDFC Bank's stocks lost 4%. Once the two banks iron out the merger process, they will approach the RBI for approval. However, it is understood that both the institutions have already taken informal permission from the central bank.