HDFC Bank Agrees to India's Biggest Banking Takeover

HDFC Bank Ltd., India's third- biggest by market value, agreed to acquire Centurion Bank of Punjab Ltd. in the nation's biggest banking takeover as it seeks to extend its reach and become more competitive.

The boards of both banks will meet on Feb. 25 to set the share-swap ratio, and on Feb. 28 to consider the merger, the lenders said in a joint statement in Mumbai today. Centurion is worth $2.6 billion, one-fourth HDFC Bank's value.

HDFC Bank would add 2.5 million customers at 394 branches, extending its reach before the central bank reviews rules next year to permit Citigroup Inc. and other overseas banks to buy local rivals. Indian banks combined are worth less than half the value of the Industrial & Commercial Bank of China Ltd., the world's biggest, according to Bloomberg data.

HDFC Bank's strong financial position and the aggressive management team from Centurion Bank can be the right kind of competition to the fast-growing ICICI, P.R. Dilip, managing director at Impetus Wealth Management, said in Mumbai.

The merged entity will have 1,148 branches, surpassing the 955 of ICICI Bank Ltd., the second-largest lender, according to their Web sites. The transaction must be approved by the central bank and shareholders, the banks said today.

State Bank of India, ICICI and other local lenders are vying for a larger share in an economy estimated to expand 8.7 percent this financial year. The 200-year-old State Bank plans to combine its seven units with itself.

Centurion shares fell 1.1 percent yesterday to 56.4 rupees in Mumbai, after surging 14.4 percent on Feb. 21 amid newspaper reports about the merger. HDFC Bank fell 4.4 percent to 1,474.95, valuing the lender at 522 billion rupees ($13 billion).

Overseas Push

HDFC Bank may raise as much as $1 billion to fund expansion abroad and plans to open offices in Bahrain, Hong Kong and London in a year. State Bank of India, the nation's biggest by assets, is currently raising $4.2 billion selling shares to stakeholders to finance growth. ICICI Bank sold $5 billion of shares to local and overseas investors in June.

Both HDFC Bank and Centurion Bank got licenses in the mid- 1990s as part of the central bank's initiative to encourage so- called new-age banks that would operate efficiently with the latest technology to compete with global banks. HDFC Bank has 10 million customers, compared with Centurion's 2.5 million.

Reliance Power IPO

Centurion, rescued by 3.2 billion rupees of funds from buyout firm Sabre Capital Worldwide Inc. in 2003 after making losses because of bad loans, last week told investors it will meet earnings expectations for the fiscal year. This assurance was made after the Economic Times newspaper reported the bank lost money by investing in Reliance Power Ltd.'s share sale.

Reliance Power fell 17.2 percent in its debut on Feb.11.

Bank of Muscat owns 14.02 percent of Centurion, which is headed by former Standard Chartered Plc Chief Executive Rana Talwar. The bank last year acquired Lord Krishna Bank and had earlier absorbed Bank of Punjab Ltd.

Mergers among Indian banks have so far been limited to those ordered by the central bank to rescue weak lenders.

Global Trust Bank Ltd., a failed non-state-owned bank, was merged with government-owned Oriental Bank of Commerce in 2004. United Western Bank combined with the Industrial Development Bank of India in 2006.