23 M&A IN BANKING NEW

8/9/2019 23 M&A IN BANKING NEW

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M&A IN BANKINGM&A IN BANKING

SUDHEENDRAN.MSUDHEENDRAN.M

SCMSSCMS -- COCHINCOCHIN


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OBJECTIVES OF M & AOBJECTIVES OF M & A

Economies of ScaleEconomies of Scale

Achieve significant growth in their operationsAchieve significant growth in their operations

Minimize their expenses to a considerableMinimize their expenses to a considerableextent.extent.

Merger eliminates competitors from theMerger eliminates competitors from thebanking industry.banking industry.

Enhance customer BaseEnhance customer Base

SIZE DOES MATTERSIZE DOES MATTER


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M & AM & A

Horizontal M&AHorizontal M&A same line of businesssame line of businessInorganic GrowthInorganic Growth

CrossCross- -border M & A in the bankingborder M & A in the bankingsector for better market sharesector for better market shareEfficiency, Profitability and SynergyEfficiency, Profitability and Synergy

Improved shareholder valueImproved shareholder valueForced (Distressed) M&A may results inForced (Distressed) M&A may results inmonopoly or job cutsmonopoly or job cuts


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Factors f or M & A Factors f or M & A

De regul ation in th e f inancia l m ark etDe regul ation in th e f inancia l m ark et

Mark et lib era lizationMark et lib era lization

E cono m ic ref orm sE cono m ic ref orm s

Weak Balanc e Shee t Weak Balanc e Shee t


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Key M&A De a ls : Some C as e Stud ies Key M&A De a ls : Some C as e Stud ies

HD F C Bank A cq u ires CBoP (M a y '08)HD F C Bank A cq u ires CBoP (M a y '08)Intent Intent HD F C Bank : Add sca le, ge ograph y an d m ana geme nt HD F C Bank : Add sca le, ge ograph y an d m ana geme nt ban dw id th .ban dw id th .

Pot entia l of busin ess s ynergy an d cul tura l f itPot entia l of busin ess s ynergy an d cul tura l f it

CBoP : HD F C bank w ould ex ploit its unde ru ti lizedCBoP : HD F C bank w ould ex ploit its unde ru ti lizedbranch net w ork that ha d th e requ isit e ex pertis e in retai lbranch net w ork that ha d th e requ isit e ex pertis e in retai lliabi liti es, transaction bankin g an d thir d part yliabi liti es, transaction bankin g an d thir d part yd istrib u tion .d istrib u tion .

T he co m bin ed e ntit y w ould im prov e pro du ctivit y le v els of T he co m bin ed e ntit y w ould im prov e pro du ctivit y le v els of CBoP branch es b y le v era gin g HD F C B ank ' s bran d na me.CBoP branch es b y le v era gin g HD F C B ank ' s bran d na me.


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B enefits B enefits T he de a l cr eat ed an entit y w ith an ass et siz e of R s T he de a l cr eat ed an entit y w ith an ass et siz e of R s 1,09,718 cror e (7 th lar ge st in Ind ia ), provi d in g m assiv e1,09,718 cror e (7 th lar ge st in Ind ia ), provi d in g m assiv esca le econo m ies an d im prov ed d istrib u tion w ith 1,148sca le econo m ies an d im prov ed d istrib u tion w ith 1,148branch es an d 2,358 ATM s (th e lar ge st in term s of branch es an d 2,358 ATM s (th e lar ge st in term s of branch es in th e privat e sector ). CB oP ' s stron g SMEbranch es in th e privat e sector ). CB oP ' s stron g SMErelationships co m pleme nt ed HD F C Bank ' s bias relationships co m pleme nt ed HD F C Bank ' s bias to w ar ds hi ghto w ar ds hi gh --rat ed corporat e e ntiti es.rat ed corporat e e ntiti es.

T here we re signi f icant cross T here we re signi f icant cross --sellin g opport uniti es in sellin g opport uniti es in th e shortth e short --term. CB oP m ana geme nt ha d rele vant term. CB oP m ana geme nt ha d rele vant ex perienc e w ith lar ge r banks (as e vide nt in th eex perienc e w ith lar ge r banks (as e vide nt in th eCent urion Bank an d B oP int eg ration ear lier) m ana g in gCent urion Bank an d B oP int eg ration ear lier) m ana g in gbusin ess of th e siz e co mme ns urat e w ith HD F C B ank .busin ess of th e siz e co mme ns urat e w ith HD F C B ank .


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DrawbacksDrawbacks

The merged entity will not lend homeThe merged entity will not lend homeloans given the conflict of interest withloans given the conflict of interest withparent HDFC and may even sell downparent HDFC and may even sell downCBoP's homeCBoP's home- -loan book to it.loan book to it.

The retail portfolio of the merged entityThe retail portfolio of the merged entitywill have more by way of unsecuredwill have more by way of unsecured

and twoand two- -wheeler loans, which havewheeler loans, which havecome under pressure recently.come under pressure recently.


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ICICI B ank Ltd. A cq u ires Bank of ICICI B ank Ltd. A cq u ires Bank of Madu ra (M arch '01)Madu ra (M arch '01)

Intent Intent

ICICI Bank Ltd wanted to spread its network, withoutICICI Bank Ltd wanted to spread its network, withoutacquiring RBI's permission for branch expansion.acquiring RBI's permission for branch expansion.

BoM was a plausible target since its CMS wasBoM was a plausible target since its CMS wasamong the top five in terms of volumes.among the top five in terms of volumes.

Reorienting its asset profile to enable better spreadsReorienting its asset profile to enable better spreadsand create a more robust microand create a more robust micro- -credit system postcredit system postmerger.merger.

BoM wanted a (financially and technologically)BoM wanted a (financially and technologically)strong private sector bank to add shareholder value,strong private sector bank to add shareholder value,enhance career opportunities for its employees andenhance career opportunities for its employees andprovide first rate, modern banking services to itsprovide first rate, modern banking services to itscustomers.customers.


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B enefit sB enefit s

The branch network 97 to 378, including 97The branch network 97 to 378, including 97branches in the rural sector.branches in the rural sector.

NIM from 2.46% to 3.55 %.NIM from 2.46% to 3.55 %.

The Core fee income of ICICI almost doubledThe Core fee income of ICICI almost doubledfrom Rs 87 crores to Rs 171 crores.from Rs 87 crores to Rs 171 crores.

Additional 1.2 million customer accounts,Additional 1.2 million customer accounts,besides making an entry into the SME segment.besides making an entry into the SME segment.

Largest customer base enabling the ICICI groupLargest customer base enabling the ICICI groupto crossto cross- -sell different products and services.sell different products and services.


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DrawbacksDrawbacks

Since BoM had comparatively more NPAs than IBL,Since BoM had comparatively more NPAs than IBL,the Capital Adequacy Ratio of the merged entity wasthe Capital Adequacy Ratio of the merged entity waslower (from 19% to about 17%).lower (from 19% to about 17%).

2 banks also had a cultural misfit with BoM having a2 banks also had a cultural misfit with BoM having a

tradetrade- -union system and IBL workers being youngunion system and IBL workers being youngand upwardly mobile, unlike those for BoM.and upwardly mobile, unlike those for BoM.

There were technological issues as well as IBL usedThere were technological issues as well as IBL usedBanks 2000 software, which was very different fromBanks 2000 software, which was very different from

BoM's ISBS software.BoM's ISBS software.

With the manual interpretations and procedures andWith the manual interpretations and procedures andthe lack of awareness of the technology utilisation inthe lack of awareness of the technology utilisation inBoM, there were hindrances in the merged entity.BoM, there were hindrances in the merged entity.


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O rienta l Bank of Comme rce A cq u ires O rienta l Bank of Comme rce A cq u ires Globa l T rust Bank Ltd (Augu st '04)Globa l T rust Bank Ltd (Augu st '04)

Intent Intent

For OBC, there was an apparent synergyFor OBC, there was an apparent synergypost merger as the weakness of Global Trustpost merger as the weakness of Global Trust

Bank had beenBank had been bad assetsbad assets and the strengthand the strengthof OBC lay inof OBC lay in recovery.recovery.

OBC will get presence in South.OBC will get presence in South.

GTB had no choice as the merger wasGTB had no choice as the merger wasforced on it, by an RBI ruling, following itsforced on it, by an RBI ruling, following itsbankruptcy.bankruptcy.


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B enefit sB enefit s

OBC gained from the 104 branches and 276OBC gained from the 104 branches and 276ATMs of GTB, a workforce of 1400ATMs of GTB, a workforce of 1400employees and one million customers.employees and one million customers.

Both banks also had a common IT platform.Both banks also had a common IT platform.

The merger also filled up OBC's lacunaeThe merger also filled up OBC's lacunae - -computerisation and highcomputerisation and high- -end technology.end technology.

OBC's presence in southern states increasedOBC's presence in southern states increasedalong with the modern infrastructure of GTB.along with the modern infrastructure of GTB.


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Drawback s Drawback s T he me rge r resul ted in a lo w CAR f or OBC, T he me rge r resul ted in a lo w CAR f or OBC, w hich w as de tri me nta l to so l v enc y. w hich w as de tri me nta l to so l v enc y.

T he bank a lso ha d a lo we r busin ess gro w th T he bank a lso ha d a lo we r busin ess gro w th (5% vis(5% vis--aa-- vis 15% of pee rs ). vis 15% of pee rs ).

A capita l ade quac y ratio of less than 11 per A capita l ade quac y ratio of less than 11 per

cent co uld also constrain d ivide ndcent co uld also constrain d ivide ndde claration , g iv en th e app licab le RBIde claration , g iv en th e app licab le RBIregul ations .regul ations .


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F u ture of M & A in Ind ian Bankin gF u ture of M & A in Ind ian Bankin g

PSBsPSBsPrivate BanksPrivate Banks

Foreign BanksForeign Banks


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Me rge rs an d A cq u isitions Me rge rs an d A cq u isitions S inc eSinc e

1969196919691969--Bank of Bihar Me rged w ith Stat e B ank Bank of Bihar Me rged w ith Stat e B ank of Ind iaof Ind ia

19701970--N ationa l Bank of Lahor eN ationa l Bank of Lahor e--Stat e B ank of Stat e B ank of Ind iaInd ia19711971--E ast ern Bank E ast ern Bank -- Chart ered B ank Chart ered B ank

19741974-- K rishanara m B a lde o Bank Lim itedK rishanara m B a lde o Bank Lim ited--Stat e B ank of Ind iaStat e B ank of Ind ia19761976-- Belg aum B ank Belg aum B ank -- Union Bank Union Bank


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1969196919841984--19851985-- Lakshi Comme rcia l Bank Lakshi Comme rcia l Bank --Canara Bank Canara Bank

19841984--19851985-- Bank of CochinBank of Cochin --Stat e B ank of Stat e B ank of Ind iaInd ia19851985--M iraj Stat e B ank M iraj Stat e B ank -- Union Bank Union Bank

19861986-- H in du stan Comme rcia l Bank H in du stan Comme rcia l Bank --P unjab P unjab N ationa l Bank N ationa l Bank 19881988-- T ra de rs Bank Lim ited T ra de rs Bank Lim ited--Bank of Baro daBank of Baro da


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1969196919891989--9090 U nit ed I ndu stria l Bank Unit ed I ndu stria l Bank -- Bank of Bank of Allahaba d Allahaba d

19891989--9090-- Bank of T am ilna duBank of T am ilna du I nd ian Ind ian O v erseas Bank O v erseas Bank

19891989--9090-- Bank of T hanjav ur Bank of T hanjav ur I nd ian Bank Ind ian Bank

19891989--9090--Par ur Centra l Bank Par ur Centra l Bank --Bank of Ind iaBank of Ind ia19901990--9191--P urbancha l Bank P urbancha l Bank --Ce ntra l Bank of Centra l Bank of

Ind iaInd ia


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Me rge rs an d A cq u isitions Me rge rs an d A cq u isitions S inc eSinc e19691969

19931993--9494-- New B ank of Ind ia New B ank of Ind ia B ank of Bank of P unjabP unjab

19931993--9494 B ank of K ara dBank of K ara d--Bank of Ind iaBank of Ind ia19951995--9696-- K asinath Seth Bank K asinath Seth Bank S tat e B ank Stat e B ank

of Ind iaof Ind ia19961996-- SCICISCICI-- ICICIICICI19961996-- ITC Cl assic Financ e L im itedITC Cl assic Financ e L im ited-- ICICIICICI19971997-- Bari Doab Bank Lim itedBari Doab Bank Lim ited--O rienta l Bank O rienta l Bank

Of C omme rceOf C omme rce


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19971997--P unjab CoP unjab Co-- op erativ e B ank Lim itedop erativ e B ank Lim ited--O rienta l Bank of Comme rc eO rienta l Bank of Comme rc e

19981998-- A na gra m Financ e A na gra m Financ e ICICIICICI19991999-- 2020thth Ce nt ur y Financ e C orporationCe nt ur y Financ e C orporation --

Ce nt urion Bank Ce nt urion Bank

19991999-- Bar eilly Corporation Bank Bar eilly Corporation Bank -- Bank of Bank of Baro daBaro da19991999--Sikki m B ank Lim itedSikki m B ank Lim ited--Union Bank Union Bank


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20002000-- T ime s Bank T ime s Bank --HD FC B ank HD FC B ank 20012001--Bank of Madu ra Bank of Madu ra ICICI B ank ICICI B ank 20022002--Be naras Stat e Bank Lim itedBenaras Stat e Bank Lim ited B ank of Bank of

Baro daBaro da20022002--ICICIICICI-- ICICI B ank ICICI B ank 20032003-- Nedu ngad i Bank Nedu ngad i Bank P unjab N ationa lP unjab N ationa l

Bank Bank 20042004-- Sou th Gu jarath Loca l A rea Bank Sou th Gu jarath Loca l A rea Bank -- Bank of Bank of

Baro daBaro da


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20042004-- Globa l T rust Bank Globa l T rust Bank T he O rienta l Bank T he O rienta l Bank Of C omme rceOf C omme rce

20052005-- Bank of Punjab Bank of Punjab Ce nt urion Bank of Ce nt urion Bank of PunjabPunjab20052005-- Ce nt urion Bank Ce nt urion Bank -- Ce nt urion Bank of Ce nt urion Bank of

PunjabPunjab20062006-- Gan esh Bank of Ku rundw adGan esh Bank of Ku rundw ad-- Fede ra lFede ra l

Bank Bank


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19691969--Bank of Bihar Merged with State Bank Bank of Bihar Merged with State Bank of of IndiaIndia

19701970--National Bank of LahoreNational Bank of Lahore- -State Bank of State Bank of IndiaIndia19711971--Eastern Bank Eastern Bank-- Chartered Bank Chartered Bank

19741974-- Krishanaram Baldeo Bank LimitedKrishanaram Baldeo Bank Limited- -State Bank of IndiaState Bank of India19761976-- Belgaum Bank Belgaum Bank-- Union Bank Union Bank


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19841984--19851985-- Lakshi Commercial Bank Lakshi Commercial Bank--Canara Bank Canara Bank

19841984--19851985-- Bank of CochinBank of Cochin--State Bank of State Bank of IndiaIndia19851985--Miraj State Bank Miraj State Bank-- Union Bank Union Bank

19861986-- Hindustan Commercial Bank Hindustan Commercial Bank- -PunjabPunjabNational Bank National Bank 19881988-- Traders Bank Limited Traders Bank Limited- -Bank of BarodaBank of Baroda


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19891989--9090 United Industrial Bank United Industrial Bank- - Bank of Bank of Allahabad Allahabad

19891989--9090-- Bank of TamilnaduBank of Tamilnadu IndianIndianOverseas Bank Overseas Bank

19891989--9090-- Bank of ThanjavurBank of Thanjavur Indian Bank Indian Bank

19891989--9090--Parur Central Bank Parur Central Bank--Bank of IndiaBank of India19901990--9191--Purbanchal Bank Purbanchal Bank--Central Bank of Central Bank of

IndiaIndia


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19931993--9494-- New Bank of IndiaNew Bank of India Bank of Bank of PunjabPunjab

19931993--9494 Bank of KaradBank of Karad--Bank of IndiaBank of India19951995--9696-- Kasinath Seth Bank Kasinath Seth Bank State Bank State Bank

of Indiaof India19961996-- SCICISCICI-- ICICIICICI

19961996-- ITC Classic Finance LimitedITC Classic Finance Limited-- ICICIICICI19971997-- Bari Doab Bank LimitedBari Doab Bank Limited--Oriental Bank Oriental Bank

Of CommerceOf Commerce


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19971997--Punjab CoPunjab Co-- operative Bank Limitedoperative Bank Limited--Oriental Bank of CommerceOriental Bank of Commerce

19981998-- Anagram Finance Anagram Finance ICICIICICI19991999-- 2020thth Century Finance CorporationCentury Finance Corporation- -

Centurion Bank Centurion Bank

19991999-- Bareilly Corporation Bank Bareilly Corporation Bank-- Bank of Bank of BarodaBaroda19991999--Sikkim Bank LimitedSikkim Bank Limited--Union Bank Union Bank


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20002000-- Times Bank Times Bank--HDFC Bank HDFC Bank 20012001--Bank of MaduraBank of Madura ICICI Bank ICICI Bank 20022002--Benaras State Bank LimitedBenaras State Bank Limited Bank of Bank of

BarodaBaroda20022002--ICICIICICI-- ICICI Bank ICICI Bank 20032003-- Nedungadi Bank Nedungadi Bank Punjab NationalPunjab National Bank Bank 20042004-- South Gujarath Local Area Bank South Gujarath Local Area Bank- - Bank of Bank of

BarodaBaroda


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20042004-- Global Trust Bank Global Trust Bank The Oriental Bank The Oriental Bank Of Of CommerceCommerce

20052005-- Bank of PunjabBank of Punjab Centurion Bank of Centurion Bank of PunjabPunjab20052005-- Centurion Bank Centurion Bank-- Centurion Bank of Centurion Bank of

PunjabPunjab20062006-- Ganesh Bank of KurundwadGanesh Bank of Kurundwad- - FederalFederal

Bank Bank


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19691969--Bank of Bihar Merged with State Bank Bank of Bihar Merged with State Bank of of IndiaIndia

19701970--National Bank of LahoreNational Bank of Lahore- -State Bank of State Bank of IndiaIndia19711971--Eastern Bank Eastern Bank-- Chartered Bank Chartered Bank

19741974-- Krishanaram Baldeo Bank LimitedKrishanaram Baldeo Bank Limited- -State Bank of IndiaState Bank of India19761976-- Belgaum Bank Belgaum Bank-- Union Bank Union Bank


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19841984--19851985-- Lakshi Commercial Bank Lakshi Commercial Bank--Canara Bank Canara Bank

19841984--19851985-- Bank of CochinBank of Cochin--State Bank of State Bank of IndiaIndia19851985--Miraj State Bank Miraj State Bank-- Union Bank Union Bank

19861986-- Hindustan Commercial Bank Hindustan Commercial Bank- -PunjabPunjabNational Bank National Bank 19881988-- Traders Bank Limited Traders Bank Limited- -Bank of BarodaBank of Baroda


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19891989--9090 United Industrial Bank United Industrial Bank- - Bank of Bank of Allahabad Allahabad

19891989--9090-- Bank of TamilnaduBank of Tamilnadu IndianIndianOverseas Bank Overseas Bank

19891989--9090-- Bank of ThanjavurBank of Thanjavur Indian Bank Indian Bank

19891989--9090--Parur Central Bank Parur Central Bank--Bank of IndiaBank of India19901990--9191--Purbanchal Bank Purbanchal Bank--Central Bank of Central Bank of

IndiaIndia


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19931993--9494-- New Bank of IndiaNew Bank of India Bank of Bank of PunjabPunjab

19931993--9494 Bank of KaradBank of Karad--Bank of IndiaBank of India19951995--9696-- Kasinath Seth Bank Kasinath Seth Bank State Bank State Bank

of Indiaof India19961996-- SCICISCICI-- ICICIICICI

19961996-- ITC Classic Finance LimitedITC Classic Finance Limited-- ICICIICICI19971997-- Bari Doab Bank LimitedBari Doab Bank Limited--Oriental Bank Oriental Bank

Of CommerceOf Commerce


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19971997--Punjab CoPunjab Co-- operative Bank Limitedoperative Bank Limited--Oriental Bank of CommerceOriental Bank of Commerce

19981998-- Anagram Finance Anagram Finance ICICIICICI19991999-- 2020thth Century Finance CorporationCentury Finance Corporation- -

Centurion Bank Centurion Bank

19991999-- Bareilly Corporation Bank Bareilly Corporation Bank-- Bank of Bank of BarodaBaroda19991999--Sikkim Bank LimitedSikkim Bank Limited--Union Bank Union Bank


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20002000-- Times Bank Times Bank--HDFC Bank HDFC Bank 20012001--Bank of MaduraBank of Madura ICICI Bank ICICI Bank 20022002--Benaras State Bank LimitedBenaras State Bank Limited Bank of Bank of

BarodaBaroda20022002--ICICIICICI-- ICICI Bank ICICI Bank 20032003-- Nedungadi Bank Nedungadi Bank Punjab NationalPunjab National Bank Bank

20042004-- South Gujarath Local Area Bank South Gujarath Local Area Bank- - Bank of Bank of BarodaBaroda


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20042004-- Globa l T rust Bank Globa l T rust Bank T he O rienta l Bank T he O rienta l Bank Of Of Comme rc eComme rc e

20052005-- Bank of Punjab Bank of Punjab Ce nt urion Bank of Cent urion Bank of P unjabP unjab20052005-- Ce nt urion Bank Cent urion Bank -- Ce nt urion Bank of Cent urion Bank of P unjabP unjab20062006-- Gan esh Bank of Kurundw adGan esh Bank of Kurundw ad-- F ede ra lF ede ra l

Bank Bank

20072007-- San gl i Bank Lim itedSan gl i Bank Lim ited ICICI B ank ICICI B ank Lim itedLim ited

23 M&A IN BANKING NEW

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