Size issue leads HDFC Bank to merge with TimesBank
As the dust settles on the HDFC Bank and TimesBank merger, one thing is increasingly becoming apparent – size is the key to profits. Size in terms of cities covered, number of depositors, number of people opting for value added services. Once the merger has been closed one might not have to wait for the second to get off the ground.
The merged entity, with a combined networth of Rs 7.7 bn, will have 107 branches (the highest amongst private sector banks) with a presence in 33 cities while the total number of retail and demat accounts will increase to over 650,000 numbers. The balance sheet size of the merged entity will stand at a solid Rs 90 bn with the deposits alone contributing Rs 69 bn.
What underscores the talk about size is the statement by company officials that there was going to be no retrenchment of work force.
HDFC Bank has much to gain from this merger. It will acquire 38 branches, 48 ATMs, a retail base of 170,000 depositors and 25,000 demat customers. This will help satiate, albeit only partially, HDFC's desire to grow.
TimesBank, which looked vulnerable for quite sometime, will now fold into the arms of a much larger bank. The vulnerability was mainly due its non-aggressive attitude and its relatively smaller size that created uncertainity regarding its future goals.
The merged entity will benefit from the economies that arise on servicing a larger number of customers using more or less similar amount of infrastructure (as existing branches are rationalised). Also, the enhanced reach will enable it to consolidate on its image of the largest private sector bank. These factors will enable the bank to continue registering the blistering rate of growth that it has witnessed over the years.
The stock 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).
HDFC Bank declared the results for the third quarter of financial year ending March 2017 (3QFY17). The bank has reported 18% YoY and 15% YoY growth in net interest income and net profits respectively in 3QFY17.
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