After a brief lull in the last few months, the consolidation buzz in the banking sector is back. This time, the main characters are two private sector banks.
According to CNBC TV18, HDFC Bank is in advanced talks to merge Centurion Bank of Punjab (CBoP) with itself.
“…the talks are at a critical stage,” the channel reported.
“The talks are at an advanced stage and the two banks are working hard to somehow see this deal go through,” the report said, but added that it won’t be surprising if the deal doesn’t go through.
However, both the banks denied that there was any deal being worked out. In a clarification to the stock exchange, HDFC Bank said that, “at present, there is no such proposal for the consideration of the Board of Directors of the bank.”
A CBoP spokesperson termed the report “speculative”.
“It is not the practice to comment on speculative reports,” the bank said in a statement to the Bombay Stock Exchange.
A quick calculation shows that if the deal goes through, it will make HDFC the seventh-largest bank in terms of assets, ahead of state-owned IDBI, Union Bank and Central Bank of India.
HDFC Bank’s total assets will go up to Rs 1,10,110 crore from the current Rs 91,319 crore. Its total branches will increase to more than 1,150, with 2,100 ATMs and more than 27,000 staff.
CBoP is no stranger to mergers. It has been in the thick of such action, having acquired Bank of Punjab and Kerala-based Lord Krishna Bank, the latter just in August 2007.
In fact, CBoP officials have always been bullish about the bank’s plans for more mergers. In an interview with DNA Money on February 7, Vivek Vig, the bank’s country head of retail banking, said CBoP is the only bank which has a stated policy for mergers.
“We have always said that we are open to both organic and inorganic growth. Even when we did both the mergers, we were not in talks only with them. You need to cook three for one to boil. These things take time,” Vig had said.
Rumours about CBoP are also not new. Earlier this month, there were reports that non-banking finance company Infrastructure Development Finance Company (IDFC) may merge with the bank to get a long-coveted banking licence.
However, can CBoP, which has been a hunter so far, resist being hunted? Some analysts don’t think so.
Analysts expect CBoP to be one of the takeover targets for larger banks when the Reserve Bank of India relaxes norms for foreign banks, in line with the WTO guidelines in 2009.
“The market is already talking about banks like CBoP, Yes Bank, Bank of Rajasthan and smaller banks like Dhanalaxmi and Laxmi Vilas Bank as potential takeover targets,” said an analyst with a foreign bank.
Analysts say CBoP has been one of those banks which haven’t been able to cash in, despite two mergers.
“CBoP is clearly struggling to build an asset franchise,” Macquarie Equities Research said in a note on February 14, just after talks about bank’s merger with IDFC surfaced.
“Despite having 400 branches, it has a balance sheet of only Rs 25,400 crore. HDFC Bank is five times CBoP’s size with less than double the branch network. As a result, CBoP’s cost-income ratio is at an industry high 66%. For most banks, this is at 40-50%,” the note said.
Macquarie said that CBoP hasn’t been growing as fast as it should be. “Quarter-on-quarter growth in third quarter was 36%, annualised. A bank with such a low asset/branch ratio should be growing at 45-50%,” Macquarie said.
CBoP’s highest shareholder is Bank Muscat, with 14.02%, followed by Kephinance Investment Mauritius Pte Ltd with 6.13% and HSBC Financial Service Middle East Ltd A/c with 4.71%.
