Impact of M&A in the Banking

Sector.
(Pre & Post Merger Effects of
HDFC Bank with Centurion Bank of
Punjab).

By- Karuna Jain

PRN- 42
Introduction
In the globalized economy, Merger and Acquisitions (M&As) acts as an important tool for the growth and
expansion of the economy . . A large number of public sector bank, private sector bank and other banks
are engaged in mergers and acquisitions activities in India. Mergers and acquisitions are aimed at
improving profits and productivity of a company. The Main motive behind Mergers and acquisitions in the
banking sector is to harvest the benefit of economies of scales. Simultaneously, the objective is also to
reduce expenses of the firm. The cut-throat competition in international market compelled the Indian
firms to opt for mergers and acquisitions strategies. The banking system is the fuel injection system which
boosts economic efficiency, the mobilising savings and allocating them to high return investment. Globally,
bank mergers have increased for improving the structure and efficiency of the banking industry. In India
small and big, strong and weak, rural and urban, public and private, banks co-exist. Some banks earn high
returns but are operating inefficiently and some banks are competing fiercely for a small segment of the
market. Restructuring and consolidation is one of the major route through which the Indian banking
system could bring in competitiveness. Mergers and Acquisitions (M & A) are defined as
consolidation of companies. Difference between the two terms, Mergers is the
combination of two companies to form one, wherein Acquisitions is one company
taken over by the other. M & A is one of the important aspects of corporate finance
world. The idea behind M & A is generally given is that the two separate companies
together create more value compared to being on an individual stand. With the main
objective of wealth maximization, companies keeps on evaluating different
opportunities through the route of merger or acquisition. In this, always synergy
value is created by the joining or merger of two companies. The synergy value can
be analysed either through the Revenues (higher revenues), Expenses (lowering of
expenses) or the cost of capital (lowering of overall cost of capital).
Its obvious that, both sides of an M & A deal will have different ideas about the worth
of a target company
 With this background, the present study is made to study the impact of merger of Centurion Bank of
Punjab on the financial performance of HDFC bank
 Objective

Specific
To study the
Specific
Impact of M
& A (pre and
To find out the post M&A )
Specific impact of bank of the
mergers on the banking
To examine the shares and sector
Specific factors affecting shareholders
performance of
To understand company, before
the need for merger, and after
Specific bank mergers merger
To study causes and
effect of bank
General mergers to Indian
To understand the economy
concept of Mergers
and Acquisition .
Mergers& Acquisition.

Merger
Acquisition.

•Mergers are a way for companies to expand their

reach, expand into new segments, or gain market An acquisition is defined as a corporate transaction
share.  where one company purchases a portion or all of
•A merger is the voluntary fusion of two companies another company’s shares or assets. Acquisitions are
on broadly equal terms into one new legal entity. typically made in order to take control of, and build
Although a merger is typically thought of as an on, the target company’s strengths and capture 
equal split in which each side maintains 50% of the synergies. There are several types of business
new company, that’s not always the case. In some combinations: acquisitions (both companies
mergers, one of the original entities gets a larger survive), mergers (one company survives), and 
percentage of ownership of the new company.  amalgamations (neither company survives).
Types of Mergers
Conglomerate mergers:-
  A merger between companies
which do not have any common
business areas and no common
relationship of any kind. Example:-L&T
and Voltas Ltd
Vertical merger:-
  A Vertical Merger represents a merger   Reverse merger is a merger of an
of firms engaged at different stages of
production or distribution of the same
product or service. In this case two or
more companies dealing in the same
product but at different stages may join
to carry out the whole process itself.
Example-The merger of ICICI LTD
with ICICI Bank.
Horizontal mergers:-
 When two or more concerns dealing in
same product or services join together, it
is known as a horizontal merge. The
main purpose of this merger is to obtain
economy of scale in product by
eliminating duplication of facilities,
reducing of competition, reduction of
cost and increase in share price and
market segments. Example:-Lipton India
&Brooke bond, Bank of Mathura with
ICICI Bank.
Reverse merger:-
ordinary merger achieved the same
general industry but in the same line of
business. In case of reverse merger a
healthy company merges into a
financially weak company is dissolved.
Example:-Godrej Soaps Ltd. with
Gujarat Godrej Innovative Chemicals
Ltd
Reason for M&A

Merger can be proved really useful in fighting

05 market competition, as merger has the capability to

generate economies of scale. The large size is
always thought to be better in industrial world. 
Economy of
scale

Diversification is yet another major advantage especially in

04
conglomerate merger. One effective method of controlling risks Diversification
inherent in bank lending is to diversify operations across
different geographic regions and different types of customers.
Mergers can help diversify such risks.
 In the Banking Sector of any economy, the most crucial
Risk
03
concern is the Risk Management. Banks of every country are
supposed to make a proper risk analysis in order to balance management
the deposit and credit portfolios. Mergers can diversify these
risks to a significant extent.

New generation private sector banks which have New

02 developed innovative products/services with the help
of their technology may attract some old generation
products/services

banks for merger

Growth with external efforts:-

01
Expansion is a form of restructuring, which results Growth with
in an increase in the size of the company. Since the external
internal growth is a time taking process, they
started looking for target banks.
efforts:-
 Sector Profile :Indian Banking Sector
Recent Trends in the Banking sector
Overview
• It plays an important role in the banking system as it would not only
ensure smooth passage of interrelated transactions over the electric
• The banking industry is one of the key markers of the health of an
medium but will also facilitate complex financial product innovation
economy.
and product development. The application of IT and e-banking is
• Banks play a critical role in powering the overall economy of any
becoming the order of the day with the banking system heading towards
nation. A bank‘s ability and flexibility to borrow from other banks and
virtual banking.
lend to business has a major influence on the growth rate of the • There has been considerable innovation and diversification in the
economy.
business of major commercial banks. Some of them have engaged in the
• The Indian banking industry too has seen many changes since the
areas of consumer credit, credit cards, merchant banking, leasing,
commencement of financial sector reforms in 1992.
mutual funds etc. A few banks have already set up subsidiaries for
• The Indian banking system consists of 12 public sector banks, 22
merchant banking, leasing and mutual funds and many more are in the
private sector banks, 46 foreign banks, 56 regional rural banks, 1485
process of doing so. Some banks have commenced factoring business.
urban cooperative banks and 96,000 rural cooperative banks in • Massive branch expansion in the rural and underdeveloped areas,
addition to cooperative credit institutions As of September 2021,
mobilisation of savings and diversification of credit facilities to the
the total number of ATMs in India reached 213,145 out of which
either to neglected areas like small scale industrial sector, agricultural
47.5% are in rural and semi urban areas.
and other preferred

Competition in the Banking sector Growth in the Banking Sector

• The growth of financial sector in India at present is nearly 8.5% per year.
• Competition in banking is entirely different from other sectors of the
• Growth in bank loans to accelerate to 12%-13% in fiscal 2023 from 5% in
economy due to the special function of banks in the financial system.
fiscal 2022.
• The standard competition paradigm in favor of competition regarding
cost minimization and allocative efficiency is not entirely valid for • Contribution of the banking industry to GDP is roughly 7.7 percent of GDP.
banking because many market failures distort the nature of
• Banking sector intermediation as measured by total loan as a % of GDP is
competition and its outcomes.
• The uniqueness and fragility of banks, business models in banking, 30%.
competition paradigm in banking, and historical overview of
• Banking industry has provided jobs to the tune of 1.5 million
competition in banking is discussed
 About HDFC Bank

• HDFC Bank Ltd came into formation on August 30, 1994 by

Housing Development Finance Corporation Ltd. In March 1995
(HDFC) issued its IPO valued Rs 50 crore and was 55times
oversubscribed .
• It is India's foremost housing financing firm, which is located in
Mumbai .
• This Bank is a new generation private sector bank and is India's
one of the major banks, offering a huge variety of financial
products and services to about 11 million clients in over 300
locations .
• It operates through a network of branches, ATMs, phone banking,
net banking, and mobile banking.
• Within a lesser span of time, the bank has developed as a
prominent player in retail banking, wholesale banking, and
treasury operations, which are its three primary business sectors.
• Apart from that ,HDFC Bank has its existence in foreign
countries as well.
Company Overview:

HDFC Stock Insights

52 week low of Rs PE Ratio of HDFC

52 week high of Rs Bank is
1,278.30.
1,725.00 20.52.

Earning per share of Price/Sales ratio of

Price to Book ratio of
HDFC Bank is HDFC Bank is
HDFC Bank is 3.11.
68.62. 6.00.
Our Journey
 Mission , Vision & Values of HDFC Bank:
01
MISSION
We wish to provide our customers and workers
with a world of possibilities by creating
successful business procedures based on
quality, responsiveness, and resourcefulness.
02 03
VISION
To become the most trusted and recommended
VALUES
financial services company in India.
We are devoted to sowing the SEED of our
principles and nurturing it on a daily basis in
order to make our vision a reality. We can
'maintain the history of trust' we acquired from
our parent business HDFC Ltd because of our
ethical approach and high levels of honesty.
 Product Portfolio

LOAN PRODUCTS DEPOSIT PRODUCTS OTHER

LOAN PRODUCTS
PRODUCTS/SERVICES

R E N T A L B A N K IN G
CONTD…

Auto Loan

Personal Loans Savings Accounts Depository Accounts

Home Loans Current Accounts Self Help Group Mutual Fund Sales
Loans
Rental Business Fixed / Recurring Private Banking
Barking Deposits Joint Liability
Insurance Sales
Group Loans
Credit Cards Corporate Salary (Life, General)
Accounts Kisan Gold Card
E Loans against Gold Non-resident Indian
Escrow Accounts (NRI) Services
Education Loans
Bill Payment
vehicle finance Services
W H O L E S A L E BGA N K IN
COMMERCIAL TRANSACTIONAL INVESTMENT KEY SEGMENTS
BANKING BANKING BANKING

Working Capital Cash Manaqement Large Corporate

Debi Capital
Term Leans H Custodial Services Markets Emerging
Corporates
Bill/Invoice Clearing Bank Equity Capital
discounting Services Markets Financial
Institutions
Forex & Correspondent Project Finance
Derivatives Banking Government / PSUs
M&A and Advisory
Wholesale Tax Collections Agriculture
Deposits

PRODUCTS/SEGMENT OTHER FUNCTIONS

S
TREASU RY

Foreign Exchange
Asset Liability
Debt Securities Management

Derivatives Statutory Reserve

Management
Equities
 HDFC swot analysis

Strength Weakness

1. Higher profitability 1. High dependence on individual loans.

2.Efficient and effective service with high 2. Marginal international presence

customer satisfaction

SWOT
Analysis
1. Fast growing insurance business in the country.
1. Very high competition prevailing in the
industry 2. Unique partnership to create job opportunities

2. Higher than expected increase in funding cost

Threats Opportunity
Centurion Bank of Punjab
Centurion Bank was formed on June 30, 1994, and got its
About certificate of commencement of operations on July 20, 1994.
Centurion Bank of Punjab was one of India's most successful
new generation private sector banks. The bank offers a broad
variety of financial products and services

After acquiring the necessary

Amalgamation legislative and regulatory
permissions, Lord Krishna Bank (LKB)
amalgamated with Centurion Bank of
Punjab on August 29, 2007

Centurion Bank of Punjab claimed a

Financials 7.57% growth in net profits to Rs
280.10 million for the quarter that
ended in March, 2007 from a profit of
Rs 260.40 million for the quarter
ended in March, 2006.

Merger During the merger period , CBoP operated

in 394 branches while HDFC Bank has 746
with HDFC branches. For HDFC Bank, which has a
23.28% stake of Housing Finance
Development Corporation (HDFC)
 Research Methodology
Hypothesis:
For the empirical part of the study, hypothesis is framed
to prove
whether there is a difference in the performance of the banks
in terms of Net Profit Ratio,
Return On Net Worth, Return On Asset, Earnings Per Share,
Debt Equity Ratio, Loan to
Deposit Ratio and Net Interest Margin and NIM of HDFC Bank
before and after merger.
H0: There is no significant difference between
NPR,ROA,EPS,DER,LDR,&NIM OF HDFC bank after its merger
with Centurion Bank of Punjab
H1: There is significant difference between
NPR,ROA,EPS,DER,LDR,&NIM OF HDFC bank after its merger
with Centurion Bank of Punjab
Sample :
Current studies
considered HDFC
Bank with Centurion
Bank of Punjab as
its sample
Type of research:
In this Research Project
Exploratory Research design is used
Parameters of the Study–
Period of the Study: Present study is on the pre and post financial
The study mainly focus on the pre and post performance
financial of merger and acquisitions in Indian banks to evaluate
performance of the banks , so the present study the financial performance various
considered four years before and four years accounting ratios are used. The standard financial ratios
after the merger of the banks by keeping the considered for the study are namely
year of merger as the base – Net Profit Ratio, Return on Net Worth, Return on
Asset, Earnings Per Share, Debt Equity
Ratio, Loan to Deposit Ratio and Net Interest Margin
Statistical Tools
Financial ratios are calculated from the collected
financial data’s
through annual reports of the banks and statistic
measures like – Mean, Standard Deviation,
Parried sample ‘t’ test are applied to identify the
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significant difference between the
profitability, liquidity and solvency position
before and after merger
Source of Data
The merger between HDFC and Centurian Bank of
Punjab is the subject of the SIP report. For the sam
I have decided to use Secondary data source as the
data source. Secondary data analysis, in my opinion
enhances our knowledge of current data in the
required field by providing us with facts and
Sample Design
information that would otherwise be unavailable o
An exploration study is a
unknown to the general audience. Another reason
quantitative method used to
is because the data I need is available through
determine the impact of a
various reports , journals , websites, newspaper
given event on a company's
articles , official company site etc
worth
Research Design

This study is intended to analyze the overall performance of Indian

sector banks that develop through merges and amalgamations, as
well as to conduct quantitative and statistical studies in an attempt
to comprehend the financial performance over time, post mergers
and amalgamations. The Researcher attempts to examine the
financial profiles of the Target and Bidding Banks following the initial
merger, as well as to use various accurate financial techniques to
assess the impact of the merger on the operational and financial
performance of Indian sector banks. In our scenario, we chose to
merge Bank with Critical role in the growth Bank of Punjab. During
and after the merger, the Researcher collected financial data from
the target and bidder banks. The information is presented in the
form of comparison statements and ratio analysis. Prior to the
merger, the aggregate financial ratios of both the target and bidder
banks were examined, whereas after the merger, the aggregate
financial ratios of the bidder banks alone were utilised. The required
statistical methods are utilised to assess the impact of the merger on
the financial and operational performance of Indian private sector
banks. For the estimation, the year of merger is taken into account in
the post-merger era.
Findings
 Bank mergers are one of the strategies for
strengthening the Indian Economy by
enhancing the banking sector.
  With the help of mergers and acquisitions in
the banking sector, the banks can achieve
significant growth in their operations and
minimize their expenses to a considerable
extent.
 The factors which effect the M & A
performance may not be same for all
companies.
* In case of HDFC bank for three parameters
(RONW, DER, LDR) null hypothesis have been
rejected, stating that there is difference.
* As for return on net worth post period has
declined which means that the company has
either less net profit or more equity and net
worth in the capital.
* Debt Equity Ratio of the bank had declined
which is not a bad signal.
* However the loan to deposit ratio has
increased which means the bank is able to
lend more than what it has in the form of
deposit.
* It can be concluded that more loan to deposit
ratio is a bad signal. In case of all other
parameters null hypothesis had been rejected.
 Interpretation

Profitability Ratio of EPS Trend

HDFC Bank 

Net profit Margin of HDFC bank before merger EPS indicates how much money a company makes for
is 15.85 which is decreased after merger up each share of its stock and is a widely used metric for
estimating corporate value. A higher EPS indicates greater
to14.2So, this merger makes the slightly
value because investors will pay more for a company's
negative effect on the profitability of HDFC shares if they think the company has higher profits
bank through Net Profit Margin. Return on Long relative to its share price.The above graph represents the
Term Fund of HDFC bank before merger trend analysis of HDFC bank for 10 years. The above graph
represents the trend analysis of HDFC bank for 10 years.
is 67.2% which is increased after merger up to
67.37%. So, it makes the slightly positive X- Axis represents number of years and Y- axis represents
EPS values.
effect on the profitability of HDFC bank
through Return on Long Term Fund. Return on In the above graph blue line represents EPS values and
red line represents EPS trend
Net Worth of HDFC bank before merger is
23.04 which is decreased after merger up to line. Even the slope of EPS is also upward left to right
15.12. So, because of decrease in Return indicating that the values are increasing every year.

on Net Worth it makes the negative effect on t
he profitability of HDFC bank. Return on Assets
 of HDFC bank before merger is 138.13% which
is increased after merger up to 362.4%. So,
Return on Assets makes the highly positive
effect on the profitability of HDFC bank
Interpretation

Cash Flow
Cash Flow Statement is very important as it measures the cash inflows or cash
outflows during the given period of time. Such details of the cash position of the
company can not only help the company or the financial analyst to plan for the
short term or long term but also in analyzing the optimum level of cash and
working capital needed in the company. Cash flow from operating activities
(CFO) indicates the amount of money a company brings in from its ongoing,
regular business activities, such as manufacturing and selling goods or providing
a service to customers. In this case we see our CFO is Positive (and increasing)
which means cash flow from operating activities indicates that the core
business activities of the company are thriving. It provides as additional
measure/indicator of profitability potential of a company, in addition to the
traditional ones like net income or EBITDA . Apart from that we see a
downtrend of cash from investing activities .The negative cash flow from
investing means the company is investing in its future growth. Another scenario
can be , if a company has a negative cash flow from investing activities because
it's made poor asset-purchasing decisions, then the negative cash flow from
investing activities might be a warning sign. We also witness that cash from
financing activities is negative . Negative CFF numbers can mean the company is
servicing debt, but can also mean the company is retiring debt or making
dividend payments and stock repurchases, which investors might be glad to see
Interpretation

From the above table we can say that net profit ratio, return on
asset, earning per share and net interest margin of HDFC bank
before and after merger has not changed as the difference is not
statistically significant. Hence, null – hypothesis is accepted.
Whereas the calculated value of t is greater than the critical value
of t in case of return on net worth, debt equity ratio and loan to
deposit ratio. So the null – hypothesis is rejected and alternative
hypothesis is accepted. When we take the bank as a whole null –
hypothesis is accepted as majority of the parameters favors null –
hypothesis at five percentage level of significance, thus it can be
said that HDFC bank is not benefited from the merger.
Suggestions.
03
If the EPS of any bank
decreases after the
04
So we have to keep in mind
to safe guard and protect the
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the shareholders expectation
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shareholders
Private willhasgradually
equity from the bank before
Private equity has and
successfully attracted successfully attracted
sell their shares in the open
the best and brightest
after merger
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 Conclusion
Mergers and acquisitions (M & As) have been a
very essential market entry strategy as well as
expansion strategy. A merger or Acquisition is the
combination of two companies where one
company is completely absorbed by another
company. Mergers in banking sector are a form of
horizontal merger because the merging entities are
involved in the same kind of activity.
The banking sector in particular is one of the few
industries that evoke a high interest as a result of
the deregulation and liberalisation in the industry
which lead to a wave of merger and acquisitions
throughout the industry locally and globally
This study shows the effect of merger on financial
growth of banks through a case study of merger of
HDFC Bank and Centurion Bank of Punjab. For this
a comparison between pre and post merger
performance examined in terms of financial ratios.
The present study has effectively evaluated the
objectives of the study on the basis of secondary
data collected from various sources.
Given facts also show that the performance
of bank in terms of service quality has been
improved after merger and it has also
become cost efficient for bank itself. The
bank has got improved net work area for
operations, more convenient for customers
of both the banks
Financial performance of HDFC Bank has become
better . The analysis of before and after merger of
Centurion Bank of Punjab with HDFC bank indicates
that after merger, Gross Profit Margin, Net Profit
Margin, Return on Capital Employed, Return on
Equity and Debit-Equity Ratio shows an increasing
trend, but Operating Profit Margin shows mixed
trend
The results also show that there is a significant difference in
Gross Profit Margin, Net Profit Margin, Operating Profit
Margin, Return on Equity and Debt-Equity Ratio between
before and after merger.
This shows that the bank is efficient after merger. Thus , . It
can be concluded that the financial performance of bank has
increased after merger.
 Lexicon Management Institute of Leadership and Excellence

SIP Batch 2021-2023 (Trimester III)

:

PRN – 042 Name of the Student - Karuna. R. Jain . Type of Report : Research Based

Title of SIP: Impact of M&A in the Banking Sector (Merger of HDFC Bank & Centurion Bank of Punjab)
.
Objective of the Research Methodology Findings Learning
Project

Sample Size Source of Data Instrument

Used

General Objective: As my proposed Financial ratios are Bank mergers are one of The need for mergers in
study is based on calculated from the the strategies for the corporate world and
secondary data . The present study strengthening the Indian
collected financial how does it impact the
There is no sample relayed only on Economy by enhancing
1.  To understand the data through economy as a whole
secondary data. The the banking sector.
concept of Mergers size as such . But annual reports of
keeping in mind source is of mainly This study helped me get
and Acquisition . the banks and
from, annual reports  Banks may achieve
about the data statistical measures more insights about the
of the banks through strong growth in their
sources , my sample like – Mean, Banking industry at large.
Specific Objectives: their official business while reducing
size consists of pre Standard Deviation,
websites, newspaper their expenditures Also made me understand
merger Parried sample ‘t’
rs and journals of significantly with the aid the important factors
years(2005,2006,200 test are applied to
1. To investigate the banks previous of m&a transactions in
7) and post merger identify the which determine the
causes and effects of bank studies, studied on the banking sector.
years significant performance of the banks.
mergers on the Indian (2009,2010,2011,02 merger and  The factors which
difference between
economy. acquisition, books CBOP's strong SME
12) the profitability, effect the M & A
related to merger performance may not be partnerships
liquidity and
For some attributes, and acquisition. The supplemented HDFC
2.  To comprehend the solvency position same for all companies.
I have taken the said secondary data Bank's preference for
necessity of bank before and after
data till 2021 for has been used to  In case of HDFC bank
mergers merger. high-quality business
better analyze the data for three parameters
organisations.
understanding . which are related to (RONW, DER, LDR) null
3.  To examine the the objectives of the hypothesis have been The profit before and after
factors aff ecting research in the light rejected, stating that tax of HDFC bank shows
performance of of the real world there is difference. an upward trend which
company, situation.
before merger, and  As for return on net indicates that HDFC has
after merger worth post period has been generating profit
declined which means
that the company has A higher EPS indicates
4.  To find out the
eitherless net profit or greater value because
impact of bank
mergers on the shares more equity and net investors will pay more for
and worth in the capital. a company's shares if they
Shareholders think the company has
 Debt Equity Ratio of the
higher profits relative to
bank had declined which
5.  To study the Impact its share price.
is not a bad signal.
of M & A (pre
and post M&A )  However the loan to According to the data
of the banking sector . deposit ratio has analysis , pre period
increased which means performance is better
the bank is able to lend when compared to post
more thanwhat it has in period, , thus it can be said
the form of deposit. that HDFC bank has not
generated much benefit
 It can be concluded
from the merger.
that more loan to deposit
ratio is a bad signal. In By utilising HDFC Bank's
case of all other brand name, the merged
parameters null entities of HDFC-CBOP will
hypothesis had been boost the levels of
rejected. productivity of CBOP
branches.

This combination would

give a chance for HDFC
Bank to gain scale,
geographical (northern
and southern states), and
managerial bandwidth.
Furthermore, there is the
possibility of commercial
synergy and people skills
between the two
organisations.
THANK

You