Merged entity to get Rs 3,900 cr capital infusion from HDFC

Written by Banking Bureau | Mumbai, Feb 25 | Updated: Feb 26 2008, 06:50am hrs
In a major sweep, post merger of two private banks, HDFC Bank and Centurion Bank of Punjab, the sheer size of the new balance sheet of Rs 1,50,000 crore will take the entity to higher pedestal on the global front.

CBoP chairman Rana Talwar said, "This merger will act as a step for HDFC Bank to become a global brand since India lacks a global bank although the country presently has few banks with global qualities."

"To maintain the current 23.2% stake of HDFC in HDFC Bank, post the merger, we will have to infuse around Rs 3,900 crore capital, which will be issued in form of preferential allotment. However, the final decision on the excat stake level to be mantained in the new HDFC Bank by HDFC would be taken in due course of time. Thereafter, we will decide on the means to raise the funds required for mantaining our desired stake level in the bank," said Deepak Parekh, chairman, HDFC.

"Around 33% of our housing loan business currently comes from the HDFC Bank. The procedure would remain to continue even after this merger. As per IRDA regulations, a bank cannot sell more than one insurance company's product. We will therefore have to examine the CBoP's current commitment with Aviva Life Insurance Company. However, CBoP's association with ICICI Lombard General Insurance would continue post the merger, since we do not retail any general insurance product," he said. The new HDFC Bank is a precursor to the consolidation process that is expected to bolster the Indian financial services industry.

HDFC Bank managing director Aditya Puri said, "We selected CBoP as it is relaively very strong in SME and the Agro sector lendings. CBoP's manpower, product profile, distribution strength and the growth strategy suited us for an amalgamation. In the past, we also looked at various other banks for the takeover, including the ones already bought by CBoP in the past few years. The final decision to acquire CBoP was taken in the beginning of 2008."

"We are currently on a hiring spree and have no intention to either close down any of the existing CBoP branches or retrench the workforce. In a case where CBoP and HDFC branches are located in the vicinity of each other, our endeavour would be to club the two premises into a single entity in the nearby location," added Puri.

He added, "Also, the inclusion of Rana Talwar on the board of HDFC Bank, who has remained outside India for over 30 years to serve various foreign banks and the finance companies, will boost the proposed overseas expansion plan of HDFC Bank to establish presence in destinations like London, Hong Kong, Bahrain, Dubai, Africa and Canada."

"Our outstanding housing loan amount as on December 31, 2007 was Rs 2,800 crore. The new HDFC Bank board will take an appropriate decision regarding the CBoP home loan portfolio at the earliest possible," said CBoP managing director and the CEO, Shailesh Bhandari.

To get a formal approval of the shareholders, an extra ordinary general meeting of HDFC Bank is expected to be held on March 26, 2008 after the board of directors' proposed meet on February 28, 2008 to discuss the merger formalties that are expected to get accomplished latest by the end of July 2008.

Standard & Poor's Ratings Services said on Monday that its ratings and outlook on

India's HDFC Bank Ltd. (BBB-/Stable/A-3) would 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.

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.

Post merger, the stock market reacted negatively for both banks. While the shares of HDFC Bank were down by 3.54%, the CBoP fell by 14.45% to Rs Rs 1422.70 and Rs 48.25 respectively.