The Hindu Business Line : Benefits not clear at this juncture

The merger of Centurion Bank with HDFC Bank marks another step in the slow and steady consolidation that is happening in the banking space. Recent bank mergers in the country have usually been triggered because one of the institutions was in trouble.

Whether it was Global Trust Bank earlier, or more recently United Western Bank or Sangli Bank, they had to be bailed out by stronger institutions. In all three cases, the regulator had to play mid-wife and see the deal through.

Only in the case of IDBI Bank, which took over the ailing United Western Bank, was the motive immediately visible. It lacked distribution muscle.

Whether Oriental Bank that took over Global Trust needed a presence in the south, or ICICI Bank that took over Sangli Bank, needed a rural portfolio (the official reasons given), remains a matter of debate. HDFC Bank’s senior management is on record that the deal would offer them scale and size. Why this was considered crucial when the bank is already growing at a frenetic pace organically is not clear at this juncture.

Similarly, the exact reason why Centurion Bank of Punjab would want to sell out and join hands with a larger player is unclear. On the face of it, the bank was doing well. It had comfortable capital adequacy, relatively low non- performing assets, a reasonably strong retail franchise and some brand recognition and fairly robust growth in profits. Besides, it had also put through three mergers (Bank Muscat’s India operations, Bank of Punjab, Lord Krishna Bank) on its own. So why did it decide to throw in the towel? For now, there are no answers.

Mergers involve integration of technology, systems, people and culture. With both banks belonging to the new generation bank group, there is an arguable amount of synergy in technology, people and systems.

At the same time, HDFC Bank would have to grapple with a number of issues, including how Centurion Bank’s own merger process with its three component groups is assimilated into the bank. When HDFC Bank put through a merger with Times Bank a couple of years ago, integrations issues did divert management attention for a period of 12-18 months. In this backdrop, the market reaction to HDFC Bank stock is understandable.

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