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HDFC Bank to buyout TimesBank - Views on News from Equitymaster
 
 
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  • Nov 26, 1999

    HDFC Bank to buyout TimesBank

    According to newspaper reports, HDFC Bank Limited is to buyout TimesBank, another private sector bank. The boards of the two banks are meeting in the next few days to take up the issue of 'amalgamation'.

    HDFC Bank, promoted by the 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.

    India currently has 34 private banks (non-foreign) of which 9 were permitted to offer services FY96 onwards. TimesBank and HDFC Bank both belong to the category of these new private sector banks.

    According to the 'Report on the Trend and Progress of Banking of India', HDFC Bank had a return on assets (RoA) of 1.89% and TimesBank 0.85% in FY99. On comparison with other private sector banks, it is revealed that HDFC Bank has the highest RoA amongst the new private sector Banks. TimesBank, on the other hand, turned in a mediocre performance.

    With the competition in the banking sector becoming intense, especially after the public sector banks turned aggressive, the profitability of the scheduled commercial banks (those public sector and private sector banks that are a part of the schedule) took a dip. Infact the RoA declined from 0.67% in FY97 to 0.49% in FY99. During the same period, the new private sector banks witnessed a sharper fall from 1.73% to 1.03%. The underperformance of the private sector banks has necessitated the need for consolidation in the sector.

    If the merger were to go through, HDFC Bank, which has offlate been extending its market reach very aggressively, will get another boost. The bank will also benefit from the new client base. TimesBank, on the other hand, will benefit from the high quality management it inherits from HDFC Bank. Overall, the merged entity would benefit from lower operating costs as economies of scale are realised. Moreover, with a larger capital base, the company would be in a position to pursue high growth opportunities, invest in latest technology and continue to extend its reach.

    The concern that could emanate from the merger is the relatively higher NPA burden that TimesBank carries on its book. This would create a burden on the balance sheet of the merged entity.

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

     

     

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