CONSOLIDATION IN THE INDIAN BANKING INDUSTRY- THE M & A WAY
CANARA BANK WITH
IDBI BANK
2
Table of contentSr. No
Content Slide no.
1. Indian banking sector at glance 32. Merger and acquisition- Need of an hour 53. Overview of Canara bank 64. Basis of selection of IDBI bank 95. Valuation of the combined entity 106. Synergy benefits 157. Conclusion 198. Bibliography 21
3
Indian Banking Sector At a Glance• Backbone of Indian economy• Banking sector Contribution to the GDP is 7.7%• 150 Participants in the sector • Global “Top 500 Banks List” includes only 17 Indian
banks• Huge differentiation in market capitalization of the banks• Indian banking sector is in the “growth stage” • It is expected to achieve an CAGR of around 18% by
2017• “Financial Inclusion” - a boost to the sector
4
Porters Five Force Model for Indian Banking Industry
5
Merger and Acquisition – Need of an Hour!
• To restructure the banks • To increase the scale of operation• To increases the competitiveness at a domestic and
international level• To increases the shareholder’s value via increased
efficiency• To attain faster growth rate• To reach untapped market• To overcome the problem of fragmentation • To attain financial leverage
6
Overview of Canara Bank• High growth rate
• Skilled workforce
• Reduced labour cost
• Strong distribution & sales network
• Significant overseas presence
• Extensive networks of branches & ATMs
• Leader in the south Indian markets
• Strong liquidity profile
7
Need to restructure Canara Bank
• Fear of stagnant growth
• Poor corporate banking
• Requires pan India presence
• Enhance brand value
• Universal banking
• Lacks competitiveness
8
Potential target banks
• Saraswat Co-operative Bank• Federal Reserve Bank• Union Bank of India• IDBI
9
IDBI (Advantage as a target bank)
• Strong corporate banking relationships
• First mover advantage of G-sec portal
• Strong brand name
• Diversified portfolio
• Higher productivity and efficiency
• Higher capital adequacy ratio( more than required)
10
Valuation of the combined entity:
11
2015 2016 2017 20180.00
500.00
1,000.00
1,500.00
2,000.00
2,500.00
3,000.00
Net Profit of Canara Bank
net profit
Year
Amou
nt in
cro
res
2015 2016 2017 20180
200
400
600
800
1000
Net Profit of IDBI Bank
Net Profit
Year
Amou
nt in
cro
res
1 2 30
500100015002000250030003500400045005000
Net Profit of combined en-tity
Net Profit
Year
Amou
nt in
cro
res
Comparison of the net profit:
12
2015 2016 2017 20180
200000
400000
600000
800000
Deposits of Canara Bank
Deposits
Year
Amou
nt in
Cro
re
2015 2016 2017 20180
50000100000150000200000250000300000
Advances of IDBI Bank
Payment
Year
Amt i
n Rs
.
1 2 30
200000400000600000800000
10000001200000
Deposits of combined entity
Deposits
Year
Amou
nt in
Rs.
1 2 30
200000
400000
600000
800000
Advances of combined entity
Advances
Year
Amt i
n ru
pees
Comparison of the deposits vis-à-vis advances
13
2015 2016 2017 20180123456
EPS of IDBI Bank
EPS
Year
In R
s.
2015 2016 2017 20180
102030405060
EPS of Canara Bank
EPS
Year
Amou
nt in
Rs.
2015 2016 2017 20180
20
40
60
80
100
120
140
EPS
EPS
Year
Amt i
n Rs
.
Comparison of the shareholders value
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Purchase consideration of IDBI:
EPS CANARA 56.87
EPS IDBI 5.45
Swap ratio= 5.45 : 56.87 (IDBI : CANARA)
No. of Canara shares given to IDBI = 15,37,11,429 sharesValue of IDBI = Rs.829,27,31,576
15
Financial Synergy of the Combined Entity• Economies of Scale
• Capital Adequacy Norms
• Reduction of Employee Benefit Cost
• Diversified Revenue Generation
• Faster growth rate of the combined entity
16
Non-Financial Synergy of the Combined entity• Increased Customer base
• Competitive in the domestic market
• Pan India presence
• Strong Brand Name
• Universal Banking
• Closer Relationship with the government
• Superior IT Infrastructure
17
Combined Entity’s Contribution To Economy
• Increase in revenues
• Decrease in costs
Increase in profits
• Increased dividend to Govt.
• Increased tax collection
More funds to Govt.
Reduce Fiscal Deficit
18
Challenges of Mergers & Acquisition• Cultural differences
• Legal Barriers
• Dispute over the key managerial position
• Dilemma of the current workforce
• More focus on strategic and financial synergies
Conclusion• It will give cut throat competition to BOB and PNB
• It would be ranked as the 3rd largest bank in PSB category
• Positive synergies would help Canara to compete with SBI
in long run
• Consolidation with IDBI Bank would give Canara edge in
achieving operating efficiency
• Huge cost reduction in technology
• Branch and ATM Network Coverage in pan India
• Shareholder’s wealth maximization
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Consolidation through M&A “Consolidation alone will give banks the muscle, size and scale to act like world class banks. We have to think global and seek new markets, new classes of borrowers.” -P.Chidambaram (former FinMin)
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BibliographyNSE website http://www.nseindia.com
IDBI Bank Website http://www.idbibank.com
Canara Bank Website http://www.canarabank.com
IBEF website http://www.ibef.com
Economic Times http://www.economictimes.com
RBI website http://www.rbi.org.in
Public Sector Banks |
Open Government Data
(OGD) Platform India
https://data.gov.in/keywords/
public-sector-banks.com
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Thank you!
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