The Hindu Business Line : HDFC Bank, Centurion boards approve 1:29 share swap ratio

Getting closer: Mr Deepak Parekh (left), Chairman, HDFC, and Mr Rana Talwar, Chairman, Centurion Bank of Punjab, at a press conference in Mumbai on Monday. —

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Mumbai, Feb. 25 Shareholders of Centurion Bank of Punjab would be eligible to exchange 29 shares into one share of HDFC Bank. This follows the board of directors of the two banks approving on Monday a share-swap ratio of 1:29.

HDFC Bank’s share closed at Rs 1,422.70, down by 3.5 per cent while Centurion Bank ended the day at Rs 48.25, lower by 14.45 per cent on the BSE on Monday.

Both the shares have adjusted to the exchange ratio on the bourses during the day, said a stock broker.

The entire process of the merger would take about four months for completion. The merged entity will be known as HDFC Bank. Mr Rana Talwar, Chairman of Centurion Bank, has been offered a seat on the Board as non-executive director and Mr Shailendra Bhandari, Managing Director, Centurion Bank, has been invited to join as the Executive Director on the board post merger.

“The near-term impact on HDFC’s financials would be moderately negative considering the relatively poor financials of Centurion Bank. It would take HDFC Bank a while to leverage the branch network of Centurion Bank to improve its financials. The Centurion Bank shareholders would definitely benefit from this merger, while for the HDFC shareholders it would create wealth for them in the medium-to-long term,” said Mr Vaibhav Agrawal, Senior Analyst-Banking, Angel Broking Ltd.

Mr Aditya Puri, Managing Director, HDFC Bank, said that the merger will create a larger entity and bring together the strengths of both banks in terms of technology, products, distribution, manpower and experience.

Talking about the impact of the merger on the bank’s margin, Mr Puri said that the merger would not have any negative impact on the margin or the growth rate of HDFC Bank in the medium or long term.

Margin impact

Analysts, however, feel that the merger could have a bearing on the bank’s margin in the short-term.

“There could be a slight decline in the margin of HDFC Bank in the short-term, however, in the medium- and long-term, HDFC Bank will be able to leverage the branch strength of Centurion Bank of Punjab,” said Mr Sanjeev Agarwal, Partner, Ernst & Young. The net non-performing assets as a percentage of net advances for HDFC Bank for the year 2006-07 stands at 0.43 per cent while that for Centurion Bank is at 1.26 per cent. Post merger, the NPA of HDFC Bank might decline further by 15-20 basis points to 0.6 per cent, said Mr Agarwal.

The draft scheme of amalgamation, the due diligence report and any other matters as required will be considered by the board of HDFC Bank at its meeting scheduled on February 28.