HDFC’s merger with HDFC Bank is the third in a series which started in 2020.
Here is the story of the first merger.
In the next piece, I will tell the story of the second merger which was actually a merger with four banks!
‘The dramatis personae involved in Times Bank’s merger with HDFC Bank in 2000 tell us different stories.
Deepak Parekh’s Story
“Ashok Jain [then Chairman of Bennett, Coleman and Co. Ltd., the promoter of Times Bank] was known to me. We used to play bridge regularly at [former Petroleum Minister] Murli Deora’s house on Breach Candy and later Peddar Road in Mumbai. Jain would come every Saturday and Sunday if he was in Bombay. He always felt that his group didn’t know how to run financial companies and told me to take his bank.
I was ready to pay cash and take it but he would never sell it for cash. He wanted shares. We kept talking about this occasionally on the bridge table. When he fell ill and was admitted at AIIMS [All India Institute of Medical Sciences] in Delhi, I got a message that he wanted to see me. I took a flight and went there. Samir [Jain], Vineet [Jain] and Amit [Judge] were standing beside his bed. [Samir and Vineet are Jain’s sons and Amit is his son-in-law.]
He said that he had told all three to get out of the bank and sell it to me, but only for shares. I heard him; subsequently, I spoke to Aditya about it. Both of us felt the time was right for such a deal…”
Amit Judge’s Story
“Chase Capital, headed by my friend Anil Ahuja, owned about 15% of HDFC Bank at that time. Anil called me one day and said he wanted to discuss something. He was on the HDFC Bank board. I didn’t know Aditya at all but knew his wife Smiley through Satsang. [Satsang is a philanthropic organization founded by Shree Shree Thakur Anukulchandra. It has hundreds of centres in the form of mandirs and viharas spread all over India and Bangladesh.]
Anil suggested a merger. He did not actually use the word merger but said something on those lines. The next day, I hosted a lunch at my house on Malabar Hill [in Mumbai]. By that time, Nimesh Kampani had done all the numbers because we were sort of getting into an equity agreement with the Old Mutual Group of South Africa and Nimesh was our investment banker. I had with me all the numbers.
We discussed the merger over lunch. Aditya knew his numbers and proposed a ratio. I calculated my own ratio. There was a small difference. I remember after we finished lunch and were washing our hands, Aditya said, ‘Look, what should we do?’ I said, ‘Let’s go half–half.’ He said, ‘Fine.’ I told him it would be difficult to do a formal due diligence because everybody would come to know. Aditya said, ‘I trust you.’
On a Sunday, we drew up the agreement, just a two-pager. The next week we merged.”
Anil Ahuja’s Story
“One day Amit and I were playing golf at the US Club in Colaba, just the two of us. While playing, we did discuss the bank and the opportunity for Times Bank to merge with HDFC Bank. One person who figured out something was happening while two of us were playing was Rana Kapoor [Promoter and former MD and CEO of Yes Bank Ltd.]. He, in fact, actually commented: ‘You guys are cooking something.’
It was a complicated process. I remember having meetings with Nani Javeri, [the CEO of Times Bank], and there was a lot of discussion on how the board would react to such a merger. Obviously, the key issue was valuation.
The defining meeting was held at Amit’s house on Malabar Hill. We went to wash our hands after our meal and that’s when Amit and Aditya said this was something that they should definitely try and do.
I still remember there was a final phone call that I made—I was speaking to Deepak Parekh on one side and Amit Judge on the other, and trying to get them to agree to the merger ratio because there was a range of valuations that were floating around. No merchant banker was involved in the deal.”
RBI Deputy Governor S. P. Talwar’s Story
“After Times Bank was set up, the RBI observed that there were certain regulatory issues pertaining to its promoters. We were not very comfortable with them. It was informally discussed with the chairman of the bank who volunteered to step down from the board of directors. In course of time, the bank was persuaded to voluntarily merge with some other bank.”
Merger Reconstructed
It seems that Times Bank did sound out HDFC Bank and there were preliminary discussions ahead of its IPO but they did not lead anywhere. HDFC Bank had, in fact, done due diligence when Old Mutual was talking to Times Bank for a possible equity stake.
When the issue resurfaced again, HDFC Bank’s Chief Risk Manager, Paresh, led a small team for another round of due diligence, quietly and informally. Usually, deals are made with an understanding that they will be subject to due diligence. But, in this case, due diligence—however informal—was done before the deal was closed.
So far, the RBI had brokered all bank mergers in India, mainly to protect the interests of depositors. In the case of HDFC Bank and Times Bank, the RBI did not play the matchmaker. So, nobody knew how the RBI would react to such a friendly merger.
Paresh’s team had Kaizad, GS, Samir and Luis.
Five of them would travel together in a car and get off somewhere near the headquarters of Bombay Municipal Corporation (now known as the Brihanmumbai Municipal Corporation or the Municipal Corporation of Greater Mumbai), and then walk down to the Times Bank office at the Times of India building, opposite Victoria Terminus on D. N. Road. After getting off the car, they would walk down separately, pretending not to know each other.
Anyway, it was hardly a couple of minutes’ walk and no one would be dressed like a banker, in striped shirts and grey suits. Even the driver didn’t know where they were heading.
They were coordinating with Arun Arora, then CEO of Times Music and The Economic Times, and President and Executive Director of India’s largest media conglomerate with interests in newspapers, magazines, radio, television, internet, music, multimedia and home entertainment.
Sitting in a conference room close to Arun’s cabin, they would ask for all sorts of details, and Times Bank’s Executive Director, Pradip Pain, would bring the documents in sealed envelopes. There were apprehensions about the quality of assets as Times Bank had a slightly different business model, heavy on retail and SMEs.
“What are You Doing Here?”
Paresh once ran into a lady who had till recently been working with HDFC Bank before shifting to Times Bank. “Oh! Hello! What are you doing here?” she asked when Paresh was about to enter the building. He mumbled something and almost ran to come back after half an hour. Nobody got a whiff of the merger till the day both the banks gave notices to the stock exchanges saying they were meeting to consider a potential merger—26 November 1999.
The positive factor was Times Bank’s insistence on a share swap deal. “We were very clear that if there were things we didn’t know that the seller didn’t want us to know, he wouldn’t have asked for a share swap. He would have gone for cash. They were interested in continuing to be part of the bank, but didn’t want to manage the bank as owners,” Paresh told me.
On 25 November, a day before both the banks gave notices to the exchanges for the board meeting on the proposed merger, Times Bank’s share price closed at R18.30 apiece and that of HDFC Bank at R90 apiece. Both banks’ shares had a face value of R10 each. Since there was a price discovery in the market, both banks felt it should be fair to go by that. That’s how the swap ratio was worked out—23 shares of Times Bank for five shares of HDFC Bank—with a very small control premium.
“Is Paresh Okay?”
Those seven days when they were checking the books, tension and stress were palpable on Paresh’s face. He was not eating or talking to anybody. His wife, Sangeeta, felt something was terribly wrong with Paresh. She called up Aditya and asked, “Is there something troubling Paresh at work?” Aditya, in his usual way, told her to relax.
The books were checked at three places—the Times of India building, a lawyer’s office and an empty HDFC Bank flat on Napean Sea Road. “We spent almost two weeks in the small flat, calling for all relevant files from the bank. Had we sat in their office for long, people would have figured out,” Samir told me.
Relatively new in the organization, Sashi found the secrecy of it all quite amazing. On a Sunday, at a colleague’s wedding, he got a call from his boss Vinod asking him to rush to a lawyer’s place. For the next three days, no one in the bank knew where he was.
Sashi, Vinod and Company Secretary and Head of Legal Affairs, Sanjay Dongre, along with Paresh and Samir, did the desktop due diligence at the office of Wadia Ghandy & Co., at Fort, opposite the University of Mumbai. They were trying to figure out how the balance sheet would look after the merger.
There weren’t any nasty surprises.
“We Weren’t as Bad as Projected”
Maheshwari, who was Vice President In-Charge, Credit and Risk Management at Times Bank in 1999, and went on to head Corporate Credit Risk Management at HDFC Bank, said the popular perception that Times Bank’s loan portfolio was not as good as that of HDFC Bank was true only to some extent. The NPA ratio of HDFC Bank was better simply because it used to set aside money to provide for 80–90% of bad assets, something that Times Bank did not do. But gross NPAs of both the banks were in the same range.
He also pointed out that Times Bank had long-dated government bonds in its investment portfolio, bought when interest rates peaked. By the time the merger was happening, interest rates started coming down and the bond value started appreciating. That was a huge plus for HDFC Bank.
The biggest gain was Times Bank’s 39 branches, about two-thirds of HDFC Bank’s own branch network then. It was adding about 20 branches a year at that time. In one stroke, the merger took the bank forward by two years. H. N. Sinor, then Managing Director of rival ICICI Bank (it was still a subsidiary of the project finance institution ICICI), had told me that they also looked at Times Bank and did not find it attractive, but they missed its branch network. This was very critical when the regulator was not liberal in giving branch licences.
“Marriage of Your Vision and My Provision”
When they were discussing the merger, Amit told Aditya, “You are a bank with a vision and I am a bank with a provision. My provision with your vision will get on well.” He used to look after the NBFC of the group, Times Guaranty Financials Ltd., before coming on the board of the bank. A commerce graduate from St Xavier’s College in Kolkata, Amit, a serial entrepreneur, is in the business of buying and selling companies.
There were professional managers for Times Guaranty but Amit was looking after it on behalf of the shareholders. He himself did not believe in the NBFC model though. “An unnecessary appendage into the financial system, something that should have never even existed,” says Amit.
He also found banking very boring. Times Bank was not going anywhere because there was not enough capital and competent employees. Amit, who many believed came to the board with a mandate to sell the bank, scrapped the plan to sell a 20% stake in the bank to the South African Group when they came very close to signing the deal. “Mere equity partnerships were not the answer… Mr [Ashok] Jain had enough money to put in. That wasn’t the issue. It was to get intellectual bandwidth as well as commercial capital and relationships. I put my foot down,” he told me.
Incidentally, Times Bank was not Bennett, Coleman and Co. Ltd.’s first foray into banking. The company’s first Indian owner, Ramakrishna Dalmia, had a controlling stake in PNB. He sold the publishing house to his son-in-law—and business partner—Sahu Shanti Prasad Jain in 1948.
It took a few years for normalcy to return. But Aditya was on the job from day one. The first meeting on integration took place at the Times Bank boardroom at Kamala Mills. The boardroom was very impressive, equipped with the latest gadgets. The HDFC Bank boardroom wouldn’t have accommodated so many people. It’s another story that the bank quickly got rid of this office as it was too expensive. HDFC Bank had its office in the same compound at half the rental.
Aditya gave a very positive spin to the whole thing. Till the merger, HDFC Bank was primarily a corporate bank and Times Bank was evolving more as a retail bank. He explained the synergies and the first people he took on board were from the retail segment. He told us how HDFC Bank looked at business and its strategy. I do remember telling him that we also have a lot to contribute and not all our strategies are wrong.
At the meeting, Aditya unveiled the business strategy for the combined bank. He was very focussed at the meeting on the business strategy of the merged entity and gave a positive assurance to the senior team of Times Bank on their roles. Aditya specially welcomed two senior women executives of Times Bank — Uma and Mandeep — and said that it added diversity since HDFC Bank did not have women in the top management.
Next: Merger with Centurion BoP
Extracts from HDFC Bank 2.0 (Jaico Publishing House)
Writes Banker’s Trust every Monday in Business Standard
Latest book Roller Coaster: An Affair with Banking
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