RECENT MERGER AND ACQUISITION IN THE

INDIAN BANKING SECTOR

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the discussion.
 SUBMITTED
BY
ANITA NANDI
ROLL NO-04/MBA/31

UNDER THE GUIDANCE OF

PROF. AVIJAN DUTTA
CLARIFICATION OF CONCEPTS :-

 Merger is defined as combination of two or more

companies into a single company where one
survives and the other's loses their/its corporate
existence. The survivor acquires the assets as well
as liabilities of the merged company or companies.

 Acquisition is the purchase by one company of

controlling interest in the share capital of another
existing company. This means that even after the
takeover although there is change in the
management both the firms retain their separate
legal identity.
INTRODUCTION TO BANKING
MERGER

Merger and acquisition in Banking sector

 Banking scenario since 1991 has undergone

through a process of transformation and

consolidation.
 There has been paradigm shift in operational,

functional, environmental, technological spheres.

INTRODUCTION TO BANKING MERGER
Contd..
Impact of Reforms in Banking sector
 This trend of”global banking has been marked by twin
phenomena of consolidation and convergence.
 The trend towards consolidation has been driven by the
need to attain meaningful balance sheet size and market
share in the face of intensified competition.
 The trend towards convergence is driven by a move
across industry to provide most of the financial service
viz., banking, insurance, investment etc., to the
customers in one roof.
INTRODUCTION TO BANKING MERGER
Contd..

Size: An Arbiter of Performance :-

 Size matters how?

 Now, it has became imperative for banking

industry to get consolidated to withstand storms

and shocks from the global market forces.
 So banks are expanding their branch network,

increasing their technology investment and

enlarging their business operations.
MOTIVES AND ADVANTAGE OF
MERGER AND ACQUISITION:

 Economy of Scale
 Economy of Scope
 Growth or Diversification
 Avoid/Reducing Competition
 Rehabilitation of Sick Units
New Banking Paradigm
… An Evolving Landscape in Commercial Banking
Traditional Banking…
Competition
Banking is a “Local” Business
Local brand names thrive…
 …Protected by regulations
enacted in the “national interest”
 “Plain vanilla” products e.g.
credit, trust, etc.
From MonoLineOrg…
Organizational
 Financial institutions operate
Structure
vertically-segregated businesses
 Partly constrained by regulations
 Limitedalso by ability to collect,
analyze and act on reliable
information (e.g. on customers,
market, assets, etc.)
…into the New Age
…that’s becoming “Global”
 Emergence of truly global and
powerful regional institutions
 Managing the business as a “portfolio”
 Customers! Customers! Customers!
…to Multi-Dimensional
Institutions….
 Spanning markets, products and
geography
 Adopting one of two basic structures:
 Universal Bank e.g. Barclays,
Deutsche Bank
 Diversified Financial Holding
Company e.g. Citigroup, HSBC
Case Studies

This project is done on the basis of certain real life

case studies. I have taken 3 recent merger and
acquisition in the banking sector.
These are as follows:-
 1. Global Trust Bank and Oriental Bank of

Commerce
 2. Bank of Madura and ICICI Bank.

 3. Centurion Bank and Bank of Punjab.

Case study-1
GLOBAL TRUST BANK MERGE WITH ORIENTAL
BANK OF COMMERCE :-
About Oriental Bank of Commerce
 This Bank has highest productivity and lowest cost
to income ratio.
 Meet priority sector lending target of 40 %
 Operates through 1013 branches and 200 ATM
Network.
 Deposits Rs.35,674 Crore, as on March 31st 2004.
ABOUT ORIENTAL BANK OF
COMMERCE ( CONTD…) :-
 Total assets Rs.41,701 Crore
 Advances Rs.19,681 Crore
 Gross nonperforming assets (NPAs) Rs.1,211
Crore
 Operating profit Rs.1, 533 Crore
 Net profit Rs.686 Crore
ABOUT GLOBAL TRUST BANK :-

 Set up in 1994 as a private sector bank in Hyderabad.

 Promoters and associates hold 38.26 per cent of the
bank’s shares.
 Other major shareholders are Equity and Technical
Partners (International Finance Corporation and the
Asian Development Bank).
 The public holds 25 per cent shares.
 ATM facility to 100 centres.
 Deposits for the yr ended 2004 is 6920 crore.
ABOUT GLOBAL TRUST BANK :-
CONTD….

 Net NPAs / Net Advances is 20%

 Gross NPA is Rs.1, 100Crore
 90-day provisioning norm NPA is Rs.1,
200Crore
 There are investments worth Rs.200Crore
(Rs.2, 000 million) which can go bad.
THE CAUSE OF THE CRISIS IN GTB:-
 But here among 1500 crore of total NPA priority
sector lending such as agriculture and small
industries together account for 22.5 per cent.
 The bulk of NPAs, viz. 77.5 per cent, is accounted
for by non-priority sector lending. GTB had an
exposure of about 52 per cent of its advances to the
stock market
 When the market collapsed in February-March 2001,
the value of securities came down drastically and the
bank could not recover from this
THE PROCESS OF TRANSFORMATION :-
 The Union government issued a three-month
suspension on Global Trust Bank, effective close of
business on Saturday July 24, 2004 in the interest
of public and depositors.
 Government on Monday, July 26 2004, came out
with a final solution for GTB.It was to be merged
with the Delhi-based Oriental Bank of Commerce
(OBC)
 The merged entity, which would have a total
business of around Rs.66, 000Crore, would have a
spread in the South.
THE OBC – GTB MERGER :-
 RBI announced the takeover by Oriental Bank of
Commerce on Monday morning itself anticipating
a big problem from its 8-lakh strong depositors.
 The RBI sop of `no swap ratio' is the icing in the
cake for OBC. The RBI scheme makes it clear that
the merger will not be through a share swap deal.
 THE OBC – GTB MERGER (CONTD) :-
 The entire amount of the paid-up capital and
reserves of GTB will be treated as provision for
bad and doubtful debts and depreciation in other
assets. If any surplus remains after
accommodating all appropriations, only then will
shareholders get the amount on a pro-rata basis.
 OBC will take over GTB's Rs.1,500 Crore bad
loans in exchange for which it gets 104 branches
of GTB and a million customers.
CASE STUDY-3
CENTURION BANK, BANK OF PUNJAB
EXAMINES MERGER OPTION :-
About Centurion Bank of Punjab:
 Centurion Bank of Punjab is a new generation
private sector bank.
 It holds leadership positions in retail two-wheeler
loans and commercial vehicle loans.
 Has a strong nationwide franchise of 240 branches
and extension counters and 388 ATMs.
ABOUT BANK OF PUNJAB :-
 Bank of Punjab opened its first branch at
Chandigarh, in April 1995
 the Bank of Punjab has a strong presence in the
north.
 The promoters of Bank of Punjab, have a 27.02
per cent stake and the public 48.7 per cent.
 Meanwhile, Bank of Punjab reported a net loss of
Rs 61 crore for the year ended March 31, 2005,
against a net profit of Rs 37 crore in the previous
year.
CENTURION BANK OF PUNJAB - M&A
ROAD FOR CONSOLIDATION :-
 Bank of Punjab (BoP) and Centurion Bank (CB) have
been merged to form Centurion Bank of Punjab
(CBP).
 There has been no cash transaction in the course of
the merger; it has been settled through the swap of
shares.
 KPMG India Private Limited and NM Raiji & Co. are
the independent valuers and Ambit Corporate Finance
is the sole investment banker to the transaction.
 Centurion Bank and Bank of Punjab have received
regulatory approval from the Reserve Bank of India
(RBI) for the merger of the two banks, effective
October 1, 2005.
BOP, CENTURION SWAP RATIO
FIXED AT 4:9 :-
 Swap ratio has been fixed at 4: 9, that is, for every
four shares of Rs 10 of Bank of Punjab, its
shareholders would receive nine shares of Rs 1 of
Centurion Bank.
 Altogether 23,62,50,000 shares would be issued
by Centurion bank.
 Centurion closed at Rs 15.20 on Monday, while
Bank of Punjab closed at Rs 33.40 on BSE.
PROFORMA COMBINED FIGURES AS OF
MARCH 2005 :-

Branches, 235
Extension counters
ATMs 382
Number of customers 2.2 million
CAR 16.1%
Net interest Margin (%) 4.8%
Net worth Rs696 crores
Total Assets Rs9,395 crores
Deposits Rs7,837 crores
Operating Profit Rs43 crores
GAINS FROM THE MERGER:-

 Combined entity the Punjab-centurion bank would

be the among the top 10 private sector banks in the
country.
 Centurion Bank is strong in South India,
Maharashtra and Goa,mostly in western region,
whereas Bank of Punjab is strong in Punjab,
Haryana and Delhi i.e, in North India.
 Centurion Bank has 82 per cent of its business
coming from retail, Bank of Punjab is strong in the
Small and Medium Enterprises (SMEs) segment
and agricultural sector.
GAINS FROM THE MERGER:-

 The book value of the bank would also go up to

around Rs 300 crore. The higher book value
should help the combine entity to mobilize funds
at lower rate.
 The merger of the two banks will result in the
creation of a new private sector bank in the
country with a nation-wide presence of 240
branches and extension counters, 386 ATMs,
about 2.2 million customers and strengths in the
retail, SME and agricultural segments.
CONCLUSION :-
 Size certainly matters, but not in isolation. The
ultimate yard stick for measuring the size should
be the “efficiency” with which the interests of
stake holders are served”
 Global Trust is the biggest bank failure so far, and
the first bank to sink in the private sector. The
repeated bank failures in the state have robbed
ordinary people of faith in the banking system as a
whole, for this reason merger is a good option.
THANK YOU…