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Merger mania kicks off in the banking sector - Views on News from Equitymaster
 
 
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  • Dec 16, 1999

    Merger mania kicks off in the banking sector

    Close on the heels of the acquisition of TimesBank by HDFC Bank Limited, reports have come in that ICICI Bank is in talks with Centurion Bank for a possible merger. The merger, if it goes through, would create India's largest new private sector bank with an asset base of Rs 100 bn.

    ICICI Bank has been promoted by ICICI, a leading domestic financial institution.

    For the ICICI group, which has been aggressively pushing forward with its aim of converting itself into a universal bank, the merger opportunity bodes well. Centurion bank will bring with it a large retail-banking network that would be used to push through the group's services. This would bring in large cost savings for the ICICI group. Centurion Bank on the other hand will become a part of a larger and more technologically skilled outfit.

    The mantra, as in the HDFC Bank and TimesBank deal, is expected to be size. This reasoning is logical, as size will bring economies of scale to operation. Moreover, opportunities for bundling of services and distributing them through the retail-banking network will increase the profitability of operations.

    One of the drawbacks of this alliance could be that both these banks have relatively higher levels of non-performing assets (ICICI Bank-2.88% and Centurion Bank-3.73%). Although the level is much below the national average, the fact is that neither of these banks competes favourably with HDFC Bank, the industry leader (NPAs-1.01%). In order to make the merged entity a leader in the industry, the NPAs would have to be controlled. Even on the technology front lots more needs to be done in order to take on the industry leaders.

    One key determinant of success will be how well the two networks are integrated and the opportunities to cut costs leveraged upon.

     

     

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