This article has been written by Aashika Goyal pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) and edited by Shashwat Kaushik.


Mergers and amalgamations in the Indian banking sector have seen various successful mergers with the primary motive of improving the banking and finance sector in India and penetrating the market with a rise in market competition. In order to ensure greater customer reach and trust among the public, many banks acquire weaker banks to lower their NPAs and provide higher interest on the deposits of the public so that they entrust their money with the banks in the country. There were many mergers that took place in the past but the author seeks to place emphasis on one of the largest mergers that took place in 2008 between HDFC Bank and Centurion Bank of Punjab, which made HDFC Bank the largest private bank in India.

About HDFC Bank

HDFC, i.e., Housing Development and Financing Corporation, was the first financial institution to get ‘in principle’ approval from the RBI as a part of the liberalisation policy in 1994. It got a banking licence in 1995 and was incorporated as ‘HDFC Bank Ltd. HDFC got oversubscribed 55 times at its first IPO and listed in both the BSE and NSE. The first friendly merger in the banking industry was done with Times Bank using the share swap method.

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HDFC was the first to launch the international debit card in association with Visa International. It is the first and largest private bank to be authorised by the RBI to collect direct taxes. HDFC Bank approved the acquisition of Centurion Bank of Punjab for $2.4 billion, becoming one of the largest mergers in the financial sector in India. Recently, HDFC Ltd. (a mortgage lender) merged with HDFC Bank with the aim of rebranding itself. HDFC Bank is listed on the New York Stock Exchange (NYSE) and the Luxembourg Stock Exchange.

About Centurion Bank of Punjab (CBoP)

It was incorporated in 1994 as a joint venture between 20th Century Finance Corporation Limited, its associates and the Keppel Group of Singapore. Centurion Bank ltd. got merged with Bank of Punjab to form Centurion Bank of Punjab in 2005. Prior to the merger, the Bank was awarded the Highest A1 rating by the Industrial Credit Rating Agency. The merger of CBoP with HDFC Bank took place in 2008.

Need for the scheme of amalgamation

Both banking institutions merged to gain synergies across economies. Acquiring Centurion Bank of Punjab enables it to strengthen the distribution network of HDFC Bank. The CBoP had various benchmarks for growth, including having talented employees and a valuable franchise. The main purpose of HDFC’s acquisition of the CBoP was to increase the scale of the business, expand its geography and take advantage of the strong employee base of the merging entity. The executives of HDFC Bank recognised the proposed merger as it would increase the bank’s market reach globally. 

Role of RBI in mergers, amalgamations, and acquisitions

There are various statutes applicable for ensuring mergers and amalgamations in the banking sector, which include the Companies Act 2013, the SEBI Act, the Banking Regulations Act, 1949, the Insolvency and Bankruptcy Code, 2016, the State Bank of India Act, 1955 and the Competition Act, 2002.

As per the Banking Regulation Act, 1949, a banking company can only be voluntarily wound up when the Reserve Bank certifies in writing that the company is able to pay in full all the debts to its creditors. As per Section 44A of the Act, a banking company will amalgamate with another banking company when all the terms of the scheme of amalgamation have been presented before the shareholders as a draft and must be approved by a majority of not less than two-thirds of the shareholders of each company. The dissenting shareholder can be liable to claim the value of its shares as determined by the Reserve Bank if the scheme has been sanctioned by the RBI.

Under the scheme sanctioned by the RBI, the properties and liabilities would be transferred to the banking company, which would acquire the businesses of the amalgamated companies. According to Section 44B of the Act, it mentions the restriction on compromise or arrangement between the banking companies and its creditors, where the compromise or arrangement shall be certified by the Reserve Bank in writing that the scheme is capable of being worked and is not detrimental to the interest of depositors.

The power to impose a moratorium on banking operations lies with the RBI as per Section 45 of the Banking Regulation Act, 1949. During the moratorium period, if the RBI is satisfied that it is necessary in the interest of the public, depositors, the banking system as a whole or the proper management of banking companies, it may prepare the scheme for the reconstruction or the amalgamation of the banking company.

Terms and conditions of the scheme 

The Scheme of Amalgamation of CBoP and HDFC Bank provides for the following terms that will govern the whole transaction:

  • As per the arrangement, all the assets, estates, licences, permits, leases,approvals, rights, claims, benefits, etc. of CBoP will get transferred and vested to the HDFC Bank as per the provisions of the Banking Act. Along With this, all the trade arrangements and contractual obligations whatsoever of the CBoP shall be honoured by the HDFC Bank.
  • All the post-dated cheques or other cheques that are outstanding and remain uncashed after the merger of the banks and any securities over movable or immovable property of CBoP will stand vested and be deemed to be in favour of HDFC Bank.
  • All the liabilities, dues, and obligations of CBoP shall be deemed to be the liabilities, duties, obligations and undertakings of the HDFC Bank without obtaining any consent from a third party.
  • In order to make the scheme of amalgamation effective, certain conditions precedent need to be fulfilled, which include obtaining approvals under statutory or regulatory laws, making application for receiving sanction from RBI under Section 44A of Banking Regulation Act and all other applicable provisions of the Banking Act; and receiving the consent of a majority in numbers (two-thirds in value) of members of both banks at their respective board meetings.
  • As per this scheme, HDFC Bank will be entitled to or deemed to be a party to any contracts, deeds, agreements, or compromises of any nature to which CBoP is a party. The Transferee bank, i.e., HDFC Bank, will also be a party to the contacts, deeds, etc. of which the Transferor bank (CBoP) was a part.
  • The scheme provides that all the employees, benefits, and policies in favour of employees of CBoP will be deemed to be the employees of HDFC Bank and all other management and operations of CBoP shall be substituted for HDFC Bank.
  • It was proposed in the scheme to list the new shares of HDFC Bank on a recognised stock exchange for the purpose of trading.

Business conduct post merger

As per the scheme of amalgamation, all the activities of the business of CBoP will be deemed to have been held in the possession of HDFC Bank. It includes all profits, incomes, expenditures, or losses arising from the business of CBoP, which will be treated as profits, incomes, expenditures, or losses of HDFC Bank.

For the purpose of implementing or executing the terms of this scheme or scrutinising the existing arrangements, both parties were to constitute the Integration Committee, which has various sub-committees and they must agree unanimously to implement any decision with respect to this scheme.

Every shareholder of CBoP will receive 1 share of HDFC Bank with a face value of Rs.10/- each for every 29 shares of CBoP with a face value of Rs. 1/- of CBoP. There would be no layoff as all the employees would be deemed to be employees of HDFC Bank. Post-merger, the top management of the merged entity will consist of Mr. Rana Talwar, Chairman of Centurion Bank, as a non-executive director and Mr. Shailendra Bhandari, Managing Director of Centurion Bank, as the Executive Director on the Board.

Post-merger impact on financial position of HDFC Bank

The RBI sanctioned the scheme of amalgamation, resulting in all the branches of Centurion Bank of Punjab functioning as branches of HDFC Bank. The financial position of HDFC Bank, post merger showed a positive impact in terms of net profit and earnings per share. The credit deposit ratio, return on assets, return on equity and cost – income ratio showed an upward trend; however, the net interest margin showed a downward trend.

The earnings per share after the merger had started to increase gradually. It can be clearly indicated that acquiring the CBoP has significantly impacted the financial position of HDFC Bank. It can be inferred from the fact that, prior to the merger, EPS value had been declining in past years. HDFC Bank, post merger, became one of the largest private sector banks, having a strong consumer and employee base and a strong banking channel globally.


The banking industry has been experiencing many mergers and acquisitions to provide better services and acquire great market share in this sector. HDFC became the largest private bank in India after the merger with CBoP. The Indian financial institution has seen various mergers and acquisitions for better functioning and to achieve synergies in the economy. For every merger or acquisition of banks, it is necessary to get sanction and approval from the RBI under the Banking Regulation Act. The executives must consider various factors and need to enter into any such arrangement after conducting due diligence on another party. A merger between two banking institutions is known as a Horizontal merger since both companies are engaged in the same line of business in similar industries.



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