HDFC Bank to close overlapping branches - Views on News from Equitymaster

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HDFC Bank to close overlapping branches

Feb 26, 2000

HDFC Bank is likely to close a couple of its branches following its merger with Times Bank. Currently the combined branch network of Times Bank and HDFC Bank stands at 107 branches. HDFC Bank, promoted by Housing Development Finance Corporation Ltd., provides a range of banking services including working capital finance, trade services, corporate finance and merchant banking. The bank also offers banking services via the Internet.

Before the merger in certain cities with high business potential both Times Bank and HDFC Bank had branches, however now with merger it does not make sense for them to operate all these branches as they would like to make optimum utilisation of their branch network. Hence they have decided to close down some of the overlapping branches.

They plan to initially close five to six branches. Times Bank would be surrendering its license to the Reserve Bank of India and over the next two months all branches of Times Bank would have a new identity under the HDFC Bank name.

As part of its aggressive growth strategy HDFC Bank has acquired Times Bank at a ratio of 1:5.75. This is because of HDFC Bank's higher profitability and larger asset base. After this merger HDFC Bank has gained by adding 38 more branches to its network and 48 ATMs across 22 cities. As there were very few overlaps in their branches, HDFC Bank would benefit from this higher branch network.

The negative factor in this merger is Times Bank's higher NPLs. As of March'99 Times Bank's net NPL was 3.01% and HDFC Bank's net NPLs was only 0.73%. Also another concern was Times Bank's deposit rates which are higher than HDFC Bank's deposit rates, however these will eventually be brought down in line with HDFC Bank.

HDFC Bank's deposits have grown by a CAGR of 64% in the last two years and its loans have grown by 72% over the same period. HDFC is ahead of many banks due to its aggressive expansion plans, its strong and established parent, its low cost and lean operations and the fact that it is way ahead in technology as compared to some other private sector banks and all the public sector banks. Also due to its low NPL ratio its asset quality is good compared to other banks.

Market View:
HDFC Bank has been rated a 'BUY' mainly on account of its excellent management, strong promoters, efforts taken by them to control the non performing assets (NPAs), aggressive expansion plans and its internet ventures.

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