Está en la página 1de 4

In November 1999, when Deepak Parekh and S M Data, Chairman of new private sector banks shook hands, they

created a history of sorts. It is the first ever mega merger of Indian banks. It signaled that Indian banking sector has finally joined the MBA bandwagon. There is no denying the fact that there have been mergers in the Indian banking sector before, but they were essentially attempts by the government to bailout the weak public sector banks that made the stronger partners feeble. Now, the paradigm shifts lies in the fact that while the earlier mergers took place at the behest of the government, the market forces drove the merger of HDFC BANK and Times Bank. Any talk of M&A in the Indian banking sector would have been pointless a few years ago. And any suggestion of merger of banks would be regarded as nothing short of blasphemy. The Indian banking sector is inhabited by twenty odd public sector banks, many of which have become grossly inefficient under thirty years of government patronage. Winds of change appeared with the onsets of financial sector reforms. Entry barriers were introduced in line with the global practices. Interest rates were deregulated giving banks more freedom as well as more competition. The artificial divide between the Development Financial Institutions and Banks has been removed. Technology came in to impact the banks in a big way. The removal of entry barriers saw the emergence of nine new private sector banks, some of them being the banking arms of the Fl‟s themselves. While reforms of interest rates and capital adequacy brought pressure in performance, new entrants brought competitions into the market place. Where there is competition and struggle for us primacy there would be M&A. Public sector banks being entities owned by the governments cannot be participants in the M&A game. Even if they were allowed to merge, mergers among the PSBs inter se would not produce any synergy, for the simple reasons that they are all alike. They invariably have presence in the same segment and suffer equally from ills like overstaffing etc. And any attempt to reap the benefits that might arise on account of rationalization of branches and staff could invite trouble from the mighty trade unions that fight tooth and nail. The rest of the pack comprises of old private sector banks and new private sector banks. While old private sector banks have been a shade different though not necessarily better than their public sector counterparts, the new entrants became very aggressive, innovation savvy and competitive. It is, therefore, natural and this segment was the first to see M&A. The new private sector banks emerged on the scene in 1995. Over the years they made considerable efforts to get a foothold in the niche segments of the banking industry. While the PSBs took a Lion‟s share, these new entrants carved a niche for themselves in special segments of banking on the strength of technology, innovation and professionalization. As has been the case elsewhere, size matters in the Indian banking, Sanjay Sakhuja, Partner (Corporate Finance) of Arthur Andersen says, “Size does matter. Technology has become a sine qua non in the banking industry. There is no way that individually banks can invest in best technological solutions. That calls for a certain size. The other issue is that of capital adequacy. There are number of banks in India which do not have adequate capital. Bankshae evolved in the past on the strength of regulatory environment. With tighter regulation no more the order

900 crore and the size of the balance sheet would be over Rs.of the day making the system more.1 percent after the proposed preferential offer to maintain the current level of holdings of different classes of investors. The Times of HDFC The merger deal was struck with a stock swap whereby the shareholders of Times Bank will get one share of HDFC Bank for every 5. HDFC Bank had the Visa network and Times Bank had Master Card network. will have about 7. it would be part of both the networks.00. With one stroke the merger helped HDFC Bank become the largest of the private sector banks in the Indian banking industry. Most importantly the branch network would increase from 68 to 107. Since setting up of branches a new is a costlier affair. The merger of the HDFC Bank needs to be viewed in the light. The bank has also prompted the customers to use phone banking in a big way. On account of the merger. 200 crore to Rs. 000 crore.” It is size that provides the strength to expand and compete for a higher market share. the merger is likely to come into effect by the first quarter in 2000. HDFC Bank‟s total deposits would be around Rs. The bank also gains from existing infrastructure. HDFC Bank‟s strategy for setting up of branches has been that of incurring lowest cost with about 6 8 persons per branch who look after both servicing and market functions of the bank. The merger of those two banks has another distinct advantage. It will also provide cross-selling opportunities to the increased customer population. Various products of HDFC Bank as well as the housing finance products to its patent HDFC can be offered to the new customers.000. which promoted the Times Bank. According to the bank some amount of rationalization of the portfolios of corporate loans may be required. 6.3 percent post-merger and would go up to 11.000 taking the figure to 6. Reportedly the branch network of both the banks do not overlap. competitive. Despite the growth of Internet banking.9. The Times Bank will merge with HDFC Bank and the emerging entity will continue to function as HDFC Bank. HDFC Bank saves on the costs associated with technology up gradation.50.75 shares held. The Bennett Coleman group. The equity capital of HDFC Bank will rise from Rs. Since Times banks has technology in place. With the RBI giving a green signal. The table „Convergence Advantage‟ shows that there is fair amount of convergence in the rate of business growth (in terms of deposits. Similarities in business segments and the prospects for synergies appear to be the major inducements for the HDFC-Times merger. The new private sector banks have nurtured employee culture in tune with competitive forces. acquiring a readymade branch network could not have been better. Thus there is unlikely to be any clash of cultures in the new entity. 233 crore. This is likely to help the integration process.5 percent stake in HDFC Bank. advances and income) and . consolidation is inevitable. Product complementarily was more pronounced in the case of ATM card networks. branch network in the brick and mortar form is vital for reaching out to the customer especially in the Indian context. The merger will increase the customer base of HDFC Bank by 2. The capital adequacy of HDFC Bank would be 10.

HDFC Bank gains in terms of size and complementarily of network. Foreign banks have been radically altering their strategies. does the merger signal further consolidation in the banking industry driven by M&A? While there is no gain saying the fact that competitive forces will ensure that the consolidation would follow.” Sanjay Sakhuja opines that the merger was an excellent transaction. New private sector banks have been aggressive in the race to grab the market share. Among those who believe that the merger of Times Bank with HDFC Bank does not necessarily signal a wave of M&A about to take place I the Indian banking sector is VS Srinivasan. thus for HDFC Bank the timing of merger opportunity could not have been better. The state ownership of public sector banks is one major hurdle. plummeted in the recent past. From the times point of view too. better control of costs is also possible. The merger made the shareholders of HDFC bank and erstwhile shareholders of Times Bank very happy. But the merger of HDFC-Times begs to be different. “It is an excellent transaction both in terms of the speed with which it was conducted and the way in which it is put through. He explains. New private sector banks also began attempting reshaping of their strategies. Since Indian banking industry is still dominated by these banks unless the government loosens its strings any kind of M&A is not possible in the public sector segment. With HDFC having more metro branches (65 percent) and Times Bank more urban branches (43 percent) overlapping of branch network is also not very leading to enlarged potential market. “There is sizeable divergence in efficiency of operations (measured in terms of net profit as percent of working funds and Net NPAs as percent of working funds and Net NPAs as percent of Net Advances. Since both are low on staff costs. there are some bottlenecks to this process. the market caps of both the banks have swelled by about 150%. Some of the public sector banks also began attempting reshaping of their competitive strategies. I think this merger makes sense. Given that the merger of HDFC Bank and Times Bank has been the first of its kind in the Indian banking industry. Market appears to be bullish on bank mergers. In the whole world of banking sector it was HDFC Bank and ICICI Bank. Managing Director of Centurion Bank says. which maintained better valuations while price of rest of the banks in the industry.” Competition of late had been heating up. That is enough incentive for consideration of a merger. while those of target company gain. Says Bandi Ram Prasad. Ever since merger announcement. Chief Economist. Empirical research on mergers proved that the shareholders of the acquiring company tend to lose out post-merger. E-merging Wave Look at the way the market has cheered at the merger. With its record of higher operational efficiency HDFC Bank could contribute value addition to the business growth of the Times Bank. Indian Banks Association.diversification in non-interest income. “The major reason why there will not be a M&A wave is because a major consolidation has to take place in the public sector on which the government is still not clear in terms of .

The government. Moreover fat wage bills are in no position to go in for technological up gradations.the mechanisms for achieving such a consolidation. which is already suffering from the fiscal deficit trouble. there is reasons to believe that the government would be under pressure to reduce its stake in the public sector banks. is unlikely to dole out heavy capital infusions as generously as it did in the past. . it is likely that the government stake in these banks would go blow 51%. Therefore. The potential for M&A amongst old private sector banks does That as it may. For one of the increasing capital adequacy requirements would require bleeding state owned banks to raise equity capital from the market. this issue has not been addressed. Despite the recommendations of the Narshimham Committee.