Ever since HDFC Bank and Times Bank have announced their merger, almost all the private sector banks have been hitting the upper end of the circuit filter. This is on expectation of a further consolidation in the sector. Significantly, the wave of consolidation is already sweeping across the global banking and financial services industry. Mega mergers in banks abroad are not new - Citibank with Travelers Group, Bank of America with NationsBank and Chemical with Chase.
Back home, analysts say that in an increasingly competitive market, size brings with it economies of scale which, in turn, leads to reduction in delivery costs to customers. Hence, only those private banks that have high quality people, competitive edge in technology and
niche area of operations will survive. Most private sector banks realise this and are looking at restructuring and consolidation. They are
also using technology more effectively. But older private sector banks, which have got their banking licences two decades ago, might be left
out due to absence of stronger balance sheets. The old private banks do not need to follow the RBI guideline of a minimum equity capital of
Rs 100 crore.
Investors can definitely make money from a merger story. But even if there are no rampant mergers, some of the private sector banks offer good value at current prices. Here The Smart Investor takes a look at the private sector banks which appear to be good fundamental picks.
HDFC Bank
HDFC Bank is one of the new generation banks backed by an excellent management team. In less than five years, the bank has carved a niche for itself in a wide range of banking businesses and is emerging as a strong player in the sector. The bank focuses on four broad areas - wholesale banking, retail banking, capital banking activities and treasury functions. Realising the potential change in banking habits, it is using technology as an efficiency tool to effectively offer a wide range of products and services. Going forward, such a strategy will not only help the bank to expand its retail base, but also provide a price-insensitive boost to its funding business. The recent acquisition of Times Bank by HDFC Bank is a clear reflection of its strategy.
The amalgamation of HDFC Bank and Times Bank will create the largest new private sector bank in the country with assets aggregating around Rs 7,500 crore. For every 5.75 shares held in Times Bank, the investor will get one share of HDFC Bank. HDFC Bank plans to issue 19.8 million fresh shares to the parent HDFC and two funds of Chase Capital on a preferential basis to retain their holding in the bank at the original level. Post-merger, the equity capital of HDFC Bank will increase to Rs 243.3 crore. It would further increase to Rs 253.3 crore after an employee stock option plan.
The network of the merged entity will increase to 107 branches. HDFC Bank has presence in 26 cities and Times Bank in 23. Hence, HDFC Bank will gain presence in seven centres where it currently does not have any branches. Following the merger, the total number of demat account base will increase to over 6.5 lakh accounts.
HDFC Bank will continue to command a premium relative to the sector, which is well-deserved given the management vision and strengths. The stock is presently trading at Rs 158.70. Investors should continue to hold and should accumulate at Rs 125 levels.
ICICI Bank
Like most other private-sector banks, ICICI Bank also enjoys a technology edge and was amongst first few banks to launch Internet banking. Moreover, all its branches are fully computerised, enabling it to offer products that are superior to those of large public sector
banks. This has enabled the bank to offer state-of-the art products to retail depositors and better quality of service to its corporate customers.
The bank is building a focused branch network on purely commercial consideration. Significantly, this network is more effective than large network developed by public sector banks. Hence, as the bank grows in size in the next three-five years, it should be able take large exposures and snatch a significant market share from the public sector banks.
ICICI Bank has been promoted by ICICI, one of India's largest term lending institutions. The parent has built a strong retail brand in the last few years. ICICI Bank has been working closely with its parent in marketing the products to ICICI's client base. As a result, ICICI Bank's penetration of ICICI client base is expected increase in the coming years, resulting in rapid credit growth and a higher share of larger clients. It also helps in raising retail deposits.
For the year ended March 1999, the bank registered an 84 per cent rise in gross income to Rs 633.08 crore. Its net profit grew by 26.16 per cent to Rs 63.36 crore. Meanwhile, the bank registered a 131 per cent rise in deposits to Rs 6,0
