sfm final assignment

SVKMs NMIMS University

School of Business Management

MBA (Second Year) Trimester IV, Session 2014-2015

Assignment for the Course Strategic Financial Management

Report on

Identify Four Acquisition

Targets in Banking Sector

Report submitted by:

Yogeshkumar Mundada A031

Gareema Saboo A043

Aditya Marphatia A057

Ayush Bagla B004

2

Contents Introduction ............................................................................................................................................. 3

History of Banking Sector in India ........................................................................................................ 3

Potential Acquirers ................................................................................................................................. 3

Most Likely Targets ................................................................................................................................ 4

Exhibits .................................................................................................................................................... 7

Teaching Note ........................................................................................................................................ 25

References:............................................................................................................................................. 29

3

Introduction

On the morning of 16th August, 2014, Mr. Ram sat in his office reflecting on a meeting he had

had with an investment banker earlier in the week. He was appointed as the Chairman of a

Special Committee to look at the possible acquisitions and consolidations that could take place in

the banking industry in India. He had listed down various probable acquirers and targets, and

was pondering about the final decision that he should take.

History of Banking Sector in India

Established in 1935, the Reserve Bank of India is the Central Banking Authority of India. By the

time India achieved independence, there were around 1200 small banks. The Banking

Companies Act (1949) was the first step towards streamlining the activities of commercial bank.

Many steps were taken to reform the Indian Banking Sector. In 1955, the Imperial Bank of India

was nationalized and named the State Bank of India to act as the principal agent of RBI and

handle banking transactions all over the country. Major process of nationalizing the banks was

carried out, and by 1980 nearly 80% of the banking segment in India was under governments ownership.

During the period of liberalization, the Banking Regulation Act was amended in 1993, giving

licences to new private sector banks. These new banks included Global Trust Bank, UTI, ICICI

and HDFC bank. Coupled with the rapid growth in Indian economy, the banking sector was then

revolutionized and it grew rapidly, with strong contribution from all sectors government, private and foreign banks.

Banks in India are turning their focus to servicing clients and improving their technology

infrastructure, which can help them provide a better customer experience and give them a

competitive edge. Geographical outreach, especially in tier 2 and tier 3 cities, is a focus area.

Degrading asset quality is another problem, and thus maintaining an acceptable NPA level is also

a major goal to focus on.

Potential Acquirers

Kotak Mahindra Bank Limited

Kotak Mahindra Bank Ltd is a bank and financial services company established in India in 1985.

It is the only Non-Banking Financial Corporation (NBFC) to have converted to a bank when the

Reserve Bank Of India granted new licences at the start of the millennium. As of 2014 it has

over 605 branches, 1,103 ATMs and a consolidated balance sheet of US$ 3 billion. It is one of

the most profitable banks in India with a cost to income ratio of 49.7%. Its Net Interest Margin

(NIM) is 4.9%, a Gross NPA Ratio of 2% and boasts of a customer base of over 300,000. See

Exhibit 2 for a financial overview of Kotak Mahindra Bank Ltd.

Despite its strong performance and high profitability Kotak is not able to make an impact on the

banking business in the sector. It is seeing high returns but is unable to expand as quickly as

compared to some of its bigger rivals such as the State Bank Of India, ICICI Bank and HDFC

Bank. It is able to eke out tremendous margins from the sector by deploying high performance

technology but lacks the scale, reach and presence to address a much wider consumer base. At a

4

time when most Indian banks are looking to expand in the rural market due to high growth and

financial inclusion schemes by the government, Kotak is faced with stiff competition from the

above trio that dominate the market.

Yes Bank Limited

Yes Bank Ltd is an Indian bank founded in 2004. Through rapid expansion and aided by growth

in the economy it has a market capitalisation of Rs. 23,000 crore, 560 branches and 1,139 ATMs.

It has a Gross NPA ratio of 0.31%, Net Interest Margin of 2.9% and balance sheet size of US$

1.8 billion. Its operating profit grew by 25.5% in the financial year ending 31, March 2014. It has

a strong retail-banking arm and is looking to expand into the rural areas in search of higher

growth.

Like Kotak Mahindra Bank, it too faces tremendous competition from the big trio of State Bank

Of India, ICICI Bank and HDFC Bank. Being similar in size and performance to KMBL, it is

unable to match the scale and reach achieved by the above trio. Yet it is able to match them in

profitability and commands a much lower Gross NPA ratio. This is a massive advantage for them

as they have been able to maintain their NPA through the economic downturn of 2008-2012.

Offering a higher interest rate and flexible banking services has enabled them to garner a loyal

customer base in urban India. Their goal is to be able to transfer this might to the rural market

and has expressed interest in making an acquisition in this space in order to enter the market. See

Exhibit 1 for a financial overview of Yes Bank Ltd.

Most Likely Targets

Lakshmi Vilas Bank

Lakshmi Vilas Bank was founded in 1926 in Karur with Shri V.S.N. Ramalinga Chettiar as the

leader. The bank was incorporated on November 3, 1926 and obtained its banking license from

RBI on 19,June 1958; and on 11 August, 1958 it became a scheduled commercial bank signifying capability to operate as a full-fledged commercial bank.

Lakshmi Vilas Bank saw considerable expansion of its branch network during the period 1961-

65, when the bank acquired nine other banks. From 1974, the bank started expanding the branch

network beyond Tamil Nadu to benefit from opportunities in the pan-Indian market. Thus,

branches were established in the neighbouring states of Andhra Pradesh, Karnataka and Kerala,

important financial centres such as Mumbai, New Delhi and Kolkata as well as in other

significant business centres in Maharashtra, Gujarat and Madhya Pradesh. Meanwhile, the bank

attained the status of Authorized Dealer in foreign exchange in 1976 enabling it to provide full

range of services to customers engaged in international trade and to overseas travellers.

Implementation of Core Banking Solution (CBS) was started in October 2006, and all of the

banks branches were migrated to CBS by March 2008.

Currently, its operations are spread over a network of 362 branches (with 8 extension counters)

in 15 states and the Union Territory of Puducherry, supervised by 8 Regional Offices. It has 20

B Category Branches and 635+ ATMs. It is active across the entire spectrum of customer segments - retail, mid-market and corporate. Through its branches, it offers a host of para-

5

banking products in association with Life and General Insurance companies, mutual funds, stock

broking houses, money remittance companies, etc.

The banks asset size as on March 31, 2014 was to the tune of Rs.20,000 crores, with gross income of Rs.2,202 crores for the year ended March 31, 2014. It maintained deposits of over

Rs.18,500 crores as on March 31, 2014. The operating profit for the same year was to the extent

of Rs.309 crores; its growth rate at 23% during the year being one of the highest among peer

banks. See Exhibit 3 for a financial overview of Lakshmi Vilas Bank Ltd.

Karnataka Bank Limited

Karnataka Bank Ltd was founded in 1924 by leading members of the South Kanara Region. It is

one of the oldest regional banks and is now owned by various institutional funds and trusts. It is

headquartered at Mangalore, Karnataka, India and has a strong presence in the states of

Karnataka, Tamil Nadu, Maharashtra, Telengana and Seemandhra in addition to the metropolitan

regions of Mumbai, New Delhi, Chennai and Kolkata. It has the strongest presence in South

India with 467 branches, 44% of which are in rural & semi-urban areas. In addition to which it

has 60 specialised financial inclusion centres and its IT systems are ISO 27001:2005 secured and

certified. It has consistently displayed a strong performance with a Net Interest Margin of 2.4%,

Gross NPA Ratio of 2.92% in the financial year ending 31 March 2014. See Exhibit 4 for a

financial overview of Karnataka Bank Ltd.

The bank is currently in the midst of a massive Business Process Re-engineering plan that would

enable much higher growth and superior quality of assets & liabilities, which would result in

them being able to provide better quality services and products. Its strategy has been to open

branches in rural areas and get these consumers to higher services as their incomes grow. In light

of the union governments financial inclusion schemes, it has opened up more branches in these areas. It offers products such as interest & collateral free loans of up to Rs. 10 lakhs and credit

cards with a limit of Rs. 25,000 to rural consumers. It is a member of the Karnataka Farmers Council and its customer base mainly consists of farmers. In order to simplify banking

procedures it introduced a missed call banking solution for balance enquiry and a mini account

statement. In addition to the above it has a strong balance sheet, strong performance history and

has won numerous awards in the segment it competes in and has a strong outlook for the coming

years as the rural banking market grows.

City Union Bank Limited

City Union Bank Ltd was incorporated as a limited company in 1904 with the name of

Kumbakonam Bank Ltd. In 1965, two other local banks, namely The City Forward Bank Ltd and

The Union Bank Ltd were amalgamated with Kumbakonam Bank under a scheme of

amalgamation. Consequently, the name of the Bank was changed to The Kumbakonam City

Union Bank Ltd.

City Union Bank Ltd is one of the scheduled Indian commercial banks in private sector with

major presence in urban, semi-urban and rural centres in South India. The Bank operates in four

segments, namely Treasury, Retail banking, Corporate Banking and Other banking operations.

Their major offerings include CUB Smart deposits and tax saver gold deposit account among

others.

6

In tune with the national image attached to the Bank, its name was changed to City Union Bank

Ltd in 1987. Looking at the bank's financial strength, managerial competence and consistent

progress in all spheres of business, the RBI in 1990 granted it an Authorised Dealers License to

deal in Foreign Exchange business.

At the beginning of the millennium, the Bank set up an integrated Treasury Department to ensure

better fund management. They also set up a Credit Risk Management Department and Loan

Review Department to evaluate and mitigate risks associated with operations of the bank. They

further strengthened credit rating systems by introducing entry level rating, pricing of loans

based on rating of the borrowers.

The bank signed an MoU in 2003 with Life Insurance Corporation of India and National

Insurance Co Ltd for selling insurance products. They also obtained licence from Insurance

Regulatory Authority of India (IRDA) to act as Corporate Agents in the composite insurance

business. They also entered into a franchise agreement for Money Transfer Service Scheme of

Western Union Financial Services Inc, USA. See Exhibit 5 for a financial overview of City

Union Bank Ltd.

South Indian Bank

South Indian Bank came into being during the Swadeshi Movement in India. It is a private sector

bank headquartered at Thrissur city in Kerela, India. It has 805 branches/offices spread across

more than 26 states and union territories in India. It has 1013 ATMs and 3 bulk note acceptors/

cash deposit machines all over India. On the Financial Inclusion front, Bank has opened 3 Ultra

Small Branches and operates 57 KIOSKs in the state of Kerala and Tamil Nadu for the benefit of

common people. Pullu village in Thrissur District was adopted by the Bank and several steps

have been taken to transform the village as a "Model Village" in India. It was the first private

sector bank to open a NRI branch in November 1992 and an Industrial Finance branch in March

1993. It was also the first bank in Kerela to develop in-house, fully integrated branch automation

software and implement core banking solution.

The bank has been able to put up a very good performance in the financial year 2013-14. The

total business grew at 10.05 % from Rs. 76,077.83 Crore to Rs. 83,270.95 Crore. Total deposits

grew from Rs. 44,262.30 Crore to Rs. 47,491.09 Crore and total Advances grew from Rs.

31,815.53 Crore to Rs. 36,229.85 Crore. It registered a Gross Profit of Rs. 884.34 Crore as

against Rs. 848.59 Crore last year and the bank recorded its highest ever net profit of Rs. 507.50

Crore. Its gross NPA has come down to 1.19% and net NPA to 0.78%, which is lower than many

of our competitors. See Exhibit _ for a financial overview of South Indian Bank Ltd.

Mr. Ram has to give a decision by this week. He is still confused. Which deal should he

propose?

7

Exhibits

Exhibit 1 : Yes Bank

Exhibit 1a : Balance Sheet

(Rs in Crs)

Year Mar 14 Mar 13 Mar 12 Mar 11 Mar 10

SOURCES OF FUNDS :

Capital 360.63 358.62 352.99 347.15 339.67

Reserves Total 6,761.11 5,449.05 4,323.65 3,446.93 2,749.88

Equity Share Warrants 0 0 0 0 0

Equity Application Money 0 0 0 0 0

Deposits 74,192.02 66,955.59 49,151.70 45,938.93 26,798.56

Borrowings 21,314.29 20,922.15 14,156.49 6,690.91 4,749.08

Other Liabilities & Provisions 6,387.75 5,418.72 5,640.85 2,583.07 1,745.32

Others 0 0 0 0 0

TOTAL LIABILITIES 109,015.80 99,104.13 73,625.68 59,006.99 36,382.51

APPLICATION OF FUNDS :

Cash & Balances with RBI 4,541.57 3,338.76 2,332.54 3,076.01 1,995.31

Balances with Banks & money at Call 1,350.10 727 1,253.00 419.96 677.94

Investments 40,950.36 42,976.04 27,757.35 18,828.84 10,209.94

Advances 55,632.96 46,999.57 37,988.64 34,363.64 22,193.12

Fixed Assets 293.47 229.55 177.1 132.43 115.47

Other Assets 6,247.33 4,833.21 4,117.05 2,186.11 1,190.73

Miscellaneous Expenditure not written off 0 0 0 0 0

Others 0 0 0 0 0

TOTAL ASSETS 109,015.79 99,104.13 73,625.68 59,006.99 36,382.51

Contingent Liability 200,992.98 247,778.79 164,125.51 136,207.72 105,778.93

Bills for collection 997.06 677.4 402.05 170.14 153.43

8

Exhibit 1b : Profit & Loss Statement

Exhibit 1c : Key Financial Ratios

(Rs in Crs)

Year Mar 14(12) Mar 13(12) Mar 12(12) Mar 11(12) Mar 10(12)

INCOME :

Interest Earned 9,981.35 8,294.00 6,307.36 4,041.75 2,369.71

Other Income 1,721.58 1,257.43 857.12 623.27 575.53

Total 11,702.93 9,551.43 7,164.48 4,665.02 2,945.24

II. Expenditure

Interest expended 7,265.09 6,075.21 4,691.72 2,794.82 1,581.76

Payments to/Provisions for Employees 784.4 655.54 475.15 362.33 256.89

Operating Expenses & Administrative Expenses 393.57 297.78 204.29 155.19 115.99

Depreciation 63.17 51.71 40.82 34.84 30.26

Other Expenses, Provisions & Contingencies 870.42 545.47 302.48 225.66 233.85

Provision for Tax 778.41 667.76 503.63 411.29 267.74

Fringe Benefit tax 0 0 0 0 0

Deferred Tax -69.91 -42.71 -30.61 -46.25 -18.99

Total 10,085.15 8,250.75 6,187.48 3,937.88 2,467.50

III. Profit & Loss

Reported Net Profit 1,617.78 1,300.68 977 727.14 477.74

Extraordinary Items -0.09 -0.51 -0.93 -0.27 -0.37

Adjusted Net Profit 1,617.87 1,301.19 977.93 727.41 478.11

Prior Year Adjustments 0 0 0 0 0

Profit brought forward 2,338.37 1,658.39 1,115.06 672.95 405.78

IV. Appropriations

Transfer to Statutory Reserve 404.45 325.17 244.25 181.78 119.44

Transfer to Other Reserves 4.58 44.58 25.35 2.01 31.52

Trans. to Government /Proposed Dividend 339.67 250.96 164.07 101.24 59.61

Balance carried forward to Balance Sheet 3,207.46 2,338.37 1,658.39 1,115.06 672.95

Equity Dividend % 80 60 40 25 15

Earnings Per Share-Unit Curr 43.45 35.29 27.03 20.53 13.81

Earnings Per Share(Adj)-Unit Curr

Book Value-Unit Curr 197.48 161.94 132.49 109.29 90.96

9

Exhibit 1d : Banking Ratios

Exhibit 1e : Valuation Ratios (TTM)

Mar-14 Mar-13 Mar-12 Mar-11 Mar-10

Credit-Deposit(%) 72.71 73.2 76.09 77.75 80.52

Investment / Deposit (%) 59.46 60.92 48.99 39.92 40.33

Cash / Deposit (%) 5.58 4.88 5.69 6.97 7.62

Interest Expended / Interest Earned (%) 72.79 73.25 74.38 69.15 66.75

Other Income / Total Income (%) 14.71 13.16 11.96 13.36 19.54

Operating Expenses / Total Income (%) 14.95 13.97 13.02 14.57 16.98

Interest Income / Total Funds (%) 9.59 9.6 9.51 8.47 7.99

Interest Expended / Total Funds (%) 6.98 7.03 7.07 5.86 5.34

Net Interest Income / Total Funds (%) 2.61 2.57 2.44 2.61 2.66

Non Interest Income / Total Funds (%) 1.65 1.46 1.29 1.31 1.94

Operating Expenses / Total Funds (%) 1.68 1.55 1.41 1.43 1.69

Profit before Provisions / Total Funds

(%) 2.58 2.48 2.32 2.5 2.91

Net Profit / Total funds (%) 1.55 1.51 1.47 1.52 1.61

RONW (%) 25.02 24.81 23.07 21.13 20.27


Gross Non-Performing Assets (Rs. Cr) 174.93 94.32 83.86 80.52 60.2

Net Non Performing Assets (Rs. Cr) 26.07 6.99 17.46 9.15 12.99

% of Net Non-Performing Assets to Net

Advance 0.05 0.01 0.05 0.03 0.06

Capital Adequacy Ratio (%) 0 0 0 16.5 20.6

Tier I Capital (%) 0 0 0 9.65 12.9

Tier II Capital (%) 0 0 0 6.85 7.7

Interest Income % Average Working

Fund 9.92 10.04 10.14 8.76 8.89

Non Interest Income % Average Working

Fund 1.71 1.52 1.38 1.35 2.16

Operating Profit % Average Working

Fund 2.67 2.59 2.48 2.58 3.24

Return on Assets (%) 1.61 1.57 1.57 1.58 1.79

Business Per Employee (Rs. Cr) 15.58 17.74 17.48 22.2 16.24

Profit Per Employee (Rs. Cr) 0.2 0.21 0.2 0.21 0.17

Jun-14

Price Earning (P/E) 13.57

Price to Book Value ( P/BV) 2.24

Price/Cash EPS (P/CEPS) 13.57

EV/EBIDTA 11.41

Market Cap/Sales 2.19

10

Exhibit 2 : Kotak Mahindra Bank


(Rs in Crs)


SOURCES OF FUNDS :

Capital 385.16 373.3 370.34 368.44 348.14

Reserves Total 11,889.93 9,073.65 7,575.60 6,428.04 4,136.97


Equity Application Money 8.53 17.53 34.82 36.91 54.8

Deposits 59,072.33 51,028.77 38,536.52 29,260.97 23,886.47

Borrowings 12,895.58 20,410.62 16,595.52 11,723.95 6,140.51

Other Liabilities & Provisions 3,333.82 2,789.81 2,553.99 3,032.36 2,869.42

Others 0 0 0 0 0




Balances with Banks & money at Call 3,031.66 1,481.26 618.06 363.26 214.59

Investments 25,484.55 28,873.43 21,566.81 17,121.44 12,512.66

Advances 53,027.63 48,468.98 39,079.23 29,329.31 20,775.05

Fixed Assets 1,106.94 464.42 449.97 425.61 427.65

Other Assets 1,986.33 2,197.69 1,936.23 1,503.33 1,420.69


Others 0 0 0 0 0

TOTAL ASSETS 87,585.34 83,693.68 65,666.79 50,850.67 37,436.31


Bills for collection 3,015.60 1,913.48 1,576.66 1,053.47 649.32

11



(Rs in Crs)


INCOME :

Interest Earned 8,767.12 8,042.49 6,180.24 4,189.75 3,255.62

Other Income 1,399.71 1,160.66 977.35 780.53 628.24

Total 10,166.83 9,203.15 7,157.59 4,970.28 3,883.86

II. Expenditure


Payments to/Provisions for Employees 1,172.16 1,075.14 902.36 783.83 583.48

Operating Expenses & Administrative Expenses 1,027.73 872.69 715.58 599.27 465.63

Depreciation 165.18 132.53 116.76 98.27 90




Deferred Tax 28.11 -21.58 21.69 8.59 -31.41

Total 8,664.31 7,842.44 6,072.54 4,152.10 3,322.75

III. Profit & Loss

Reported Net Profit 1,502.52 1,360.72 1,085.05 818.18 561.11

Extraordinary Items 0.77 0.77 0.38 0.01 -1.92

Adjusted Net Profit 1,501.75 1,359.95 1,084.67 818.17 563.03


Profit brought forward 3,016.60 2,162.79 1,494.52 965.91 648.94

IV. Appropriations




Balance carried forward to Balance Sheet 4,005.29 3,016.60 2,162.79 1,494.52 965.91

Equity Dividend % 16 14 12 10 8.5




12




Credit-Deposit(%) 92.18 97.75 100.9 94.27 94.61


Cash / Deposit (%) 4.68 4.72 6.08 7.89 7.79










(%) 3.01 2.89 2.84 3 3.92


RONW (%) 13.82 15.6 14.65 14.39 13.29


Gross Non-Performing Assets (Rs. Cr) 1,059.44 758.11 614.19 603.49 767.34



Advance 1.08 0.64 0.61 0.72 1.73

Capital Adequacy Ratio (%) 0 0 16.51 18.73 18.05

Tier I Capital (%) 0 0 14.84 16.91 15.17

Tier II Capital (%) 0 0 1.67 1.82 2.88


Fund 10.51 10.69 10.41 9.31 9.96


Fund 1.68 1.54 1.65 1.37 1.92


Fund 3.09 2.87 2.79 2.86 3.97

Return on Assets (%) 1.8 1.81 1.83 1.77 1.72



Jun-14




EV/EBIDTA 18.2


13

Exhibit 3 : Lakshmi Vilas Bank


(Rs in Crs)


SOURCES OF FUNDS :

Capital 97.54 97.53 97.53 97.51 48.78

Reserves Total 916.8 860.84 794.91 641.49 404.94



Deposits 15,618.98 14,114.14 11,149.51 9,075.38 7,360.90

Borrowings 480 580 725.11 333.93 142.6

Other Liabilities & Provisions 553.36 510.36 534.13 350.63 350.42

Others 0 0 0 0 0



Cash & Balances with RBI 728.15 810.02 943.6 750.83 591.96

Balances with Banks & money at Call 143.8 36.72 82.96 82.96 289.45

Investments 4,324.55 4,395.12 3,518.85 2,983.22 1,863.06

Advances 11,702.80 10,188.68 8,094.42 6,277.50 5,236.21

Fixed Assets 189.82 189.21 179.13 65.67 53.98

Other Assets 577.56 543.12 482.23 338.76 272.98


Others 0 0 0 0 0

TOTAL ASSETS 17,666.68 16,162.87 13,301.19 10,498.94 8,307.64



14


(Rs in Crs)


INCOME :

Interest Earned 1,760.55 1,519.26 1,064.83 909.32 657.61

Other Income 197.07 157.92 137.02 103.56 109.7

Total 1,957.62 1,677.18 1,201.85 1,012.88 767.31

II. Expenditure

Interest expended 1,368.55 1,148.03 699.84 660.19 504.07



Depreciation 25.44 23.57 20.22 17.3 12.72


Provision for Tax 58.43 30.53 15.5 0 25.11


Deferred Tax -12.23 -11.53 7.5 0.55 6.09

Total 1,866.05 1,570.16 1,100.71 982.21 717.01

III. Profit & Loss

Reported Net Profit 91.57 107.02 101.14 30.67 50.3

Extraordinary Items 0.01 -0.04 0.07 0.08 1.61

Adjusted Net Profit 91.56 107.06 101.07 30.59 48.69


Profit brought forward 0.09 0.25 0.16 0.29 0.3

IV. Appropriations

Transfer to Statutory Reserve 29 28 26 10 15.25



Balance carried forward to Balance Sheet 0.09 0.09 0.25 0.16 0.29





15





Credit-Deposit(%) 73.63 72.37 71.06 70.05 70.07


Cash / Deposit (%) 5.17 6.94 8.38 8.17 7.53








Operating Expenses / Total Funds (%) 2.01 2 1.92 1.98 2.08


(%) 1.49 1.61 2.31 1.77 1.47


RONW (%) 10.09 12.66 13.04 5.14 11.54





Advance 2.43 1.74 0.9 4.11 1.24

Capital Adequacy Ratio (%) 10.43 12.08 12.09 14.21 10.09

Tier I Capital (%) 7.75 8.17 9.88 11.52 8.63

Tier II Capital (%) 2.68 3.91 2.21 2.69 1.46


Fund 10.41 10.28 9.63 9.66 9.29


Fund 1.16 1.07 1.24 1.1 1.51


Fund 1.48 1.59 2.48 1.77 1.54

Return on Assets (%) 0.54 0.73 0.91 0.33 0.71



Jun-14




EV/EBIDTA 10.23


16

Exhibit 4 : Karnataka Bank



(Rs in Crs)


SOURCES OF FUNDS :

Capital 188.42 188.35 188.29 188.2 133.99

Reserves Total 2,863.78 2,668.73 2,409.92 2,240.89 1,698.76



Deposits 40,582.83 36,056.22 31,608.33 27,336.45 23,730.65

Borrowings 1,915.19 1,579.76 1,147.07 1,086.33 691.64

Other Liabilities & Provisions 1,618.57 1,108.36 1,023.87 879.2 813.17

Others 0 0 0 0 0




Balances with Banks & money at Call 184.67 235.84 160.82 46.25 62.45

Investments 15,226.78 13,432.48 12,841.23 11,506.34 9,992.05

Advances 28,345.49 25,207.68 20,720.70 17,348.07 14,435.68

Fixed Assets 197.48 166.96 152.23 145.53 148.08

Other Assets 1,061.64 840.5 797.75 745.07 686.85


Others 0 0 0 0 0

TOTAL ASSETS 47,168.79 41,601.42 36,377.48 31,731.07 27,068.21


Bills for collection 2,838.63 1,768.04 2,194.84 962.9 1,032.24

17


(Rs in Crs)


INCOME :

Interest Earned 4,188.83 3,764.29 3,101.00 2,370.85 1,975.97

Other Income 505.58 397.64 346.27 291.75 378.71

Total 4,694.41 4,161.93 3,447.27 2,662.60 2,354.68

II. Expenditure




Depreciation 25.53 24.03 21.91 22.99 22.23




Deferred Tax 0 0 0 0 0

Total 4,383.38 3,813.85 3,201.20 2,457.99 2,187.56

III. Profit & Loss


Extraordinary Items 1.32 -1.27 2.52 0.63 0.18




IV. Appropriations

Transfer to Statutory Reserve 147 160 110 100 88








18




Credit-Deposit(%) 69.88 67.88 64.58 62.24 59.56


Cash / Deposit (%) 5.05 5.06 6.18 7.21 7.05



Operating Expenses / Total Income (%) 18.63 16 16.48 20.62 16.4







(%) 1.55 1.63 1.5 1.21 1.04


RONW (%) 10.53 12.76 9.79 9.6 9.83





Advance 1.91 1.51 2.11 1.62 1.31

Capital Adequacy Ratio (%) 0 0 11.95 12.91 11.85

Tier I Capital (%) 0 0 0 10.91 9.56

Tier II Capital (%) 0 0 0 2 2.29


Fund 9.54 9.63 9.29 8.3 8.18


Fund 1.15 1.02 1 1.02 1.25


Fund 1.56 1.63 1.52 1.24 1.04

Return on Assets (%) 0.71 0.89 0.73 0.72 0.67



Jun-14




EV/EBIDTA 11.82


19

Exhibit 5 : City Union Bank



(Rs in Crs)


SOURCES OF FUNDS :

Capital 54.27 47.44 40.82 40.5 39.96

Reserves Total 1,970.66 1,593.22 1,202.28 966.12 785.68



Deposits 22,016.89 20,304.76 16,340.76 12,914.29 10,284.59

Borrowings 304.98 476.74 348.7 186.15 40.06

Other Liabilities & Provisions 647.02 554.92 418.1 484.46 409.15

Others 0 0 0 0 0



Cash & Balances with RBI 1,040.11 1,016.34 814.67 1,052.24 868.53

Balances with Banks & money at Call 1,139.50 754.15 321.44 234.08 231.67

Investments 5,953.56 5,266.80 4,586.19 3,616.23 3,210.43

Advances 16,096.84 15,246.06 12,137.46 9,255.46 6,833.46

Fixed Assets 182.95 141.28 97.74 68.53 63.04

Other Assets 580.86 552.46 393.16 364.98 352.31


Others 0 0 0 0 0

TOTAL ASSETS 24,993.82 22,977.09 18,350.66 14,591.52 11,559.44



20


(Rs in Crs)


INCOME :

Interest Earned 2,545.93 2,188.75 1,696.77 1,218.41 956.61

Other Income 301.2 273.64 207.14 157.4 143.5

Total 2,847.13 2,462.39 1,903.91 1,375.81 1,100.11

II. Expenditure

Interest expended 1,786.54 1,564.74 1,197.02 798.38 678.47



Depreciation 37.72 24.68 13.55 16.83 13.58


Provision for Tax 55.12 80.16 54 67 42.5


Deferred Tax 11.38 0.84 0 0 0

Total 2,500.06 2,140.37 1,623.66 1,160.76 947.35

III. Profit & Loss


Extraordinary Items 0.33 0.21 0.12 0.18 0.41




IV. Appropriations

Transfer to Statutory Reserve 88 82 71 56 39








21




Credit-Deposit(%) 74.06 74.73 73.13 69.35 67.48


Cash / Deposit (%) 4.86 5 6.38 8.28 7.92








Operating Expenses / Total Funds (%) 2 1.81 1.7 1.66 1.59


(%) 2.42 2.53 2.59 2.76 2.46


RONW (%) 18.94 22.33 24.91 23.47 20.55





Advance 1.23 0.63 0.44 0.52 0.58

Capital Adequacy Ratio (%) 0 11.46 10.81 11.09 12.09

Tier I Capital (%) 0 10.88 10.06 10.3 11.15

Tier II Capital (%) 0 0.58 0.75 0.79 0.94


Fund 10.55 10.71 10.34 9.43 9.49


Fund 1.25 1.34 1.26 1.22 1.42


Fund 2.41 2.56 2.6 2.8 2.54

Return on Assets (%) 1.44 1.58 1.71 1.67 1.52



Jun-14




EV/EBIDTA 10.97


22

Exhibit 6 : South Indian Bank



(Rs in Crs)


SOURCES OF FUNDS :

Capital 134.39 133.85 113.37 113.01 113.01

Reserves Total 3,233.65 2,869.76 2,054.11 1,732.15 1,371.71


Equity Application Money 2.3 2.61 2.92 2.12 0.57

Deposits 47,491.09 44,262.30 36,500.53 29,721.07 23,011.52

Borrowings 2,730.78 1,284.55 588.19 290.35 330.96

Other Liabilities & Provisions 1,414.24 1,241.96 1,120.75 961.52 706.27

Others 0 0 0 0 0




Balances with Banks & money at Call 1,017.12 2,639.20 1,068.70 637.94 596.73

Investments 14,351.78 12,523.47 9,399.87 8,923.77 7,155.61

Advances 36,229.86 31,815.54 27,280.74 20,488.73 15,822.92

Fixed Assets 412.2 396.12 377.5 356.84 152.54

Other Assets 794.7 724.01 681.22 584.75 415.3


Others 0 0 0 0 0

TOTAL ASSETS 55,006.47 49,795.04 40,379.87 32,820.22 25,534.04



23


(Rs in Crs)


INCOME :

Interest Earned 5,015.06 4,434.29 3,583.43 2,446.02 1,935.72

Other Income 368.46 334.93 247.07 196.69 208.46

Total 5,383.52 4,769.22 3,830.50 2,642.71 2,144.18

II. Expenditure




Depreciation 44.61 39.89 31.2 22.81 16.76




Deferred Tax -20.97 -29.38 -26.59 6.44 -9.4

Total 4,876.03 4,266.94 3,428.84 2,350.15 1,910.42

III. Profit & Loss


Extraordinary Items 0.56 0.35 0.54 -0.63 -0.03




IV. Appropriations









24




Credit-Deposit(%) 74.16 73.17 72.14 68.86 67.32


Cash / Deposit (%) 4.25 4.05 5.13 6.1 5.81










(%) 1.69 1.89 1.79 1.81 1.79


RONW (%) 16.62 20.53 21.59 18.5 16.98


Gross Non-Performing Assets (Rs. Cr) 432.62 433.87 267.16 230.34 211



Advance 0.78 0.78 0.28 0.29 0.39

Capital Adequacy Ratio (%) 0 11.46 11.64 13.17 14.73

Tier I Capital (%) 0 9.94 9.6 10.6 11.89

Tier II Capital (%) 0 1.52 2.04 2.57 2.84


Fund 9.9 10.36 9.99 8.76 8.82


Fund 0.73 0.78 0.69 0.7 0.95


Fund 1.75 1.98 1.82 1.88 1.87

Return on Assets (%) 1 1.17 1.12 1.05 1.07



Jun-14




EV/EBIDTA 11.46


25

Teaching Note

Identifying Acquirer

With Plethora of banks operating in India, Primarily classified as :

Nationalised / Public Sector Banks / SBI and Associates

Regional Rural Banks

Private Sector Banks

Foreign Banks operating in India

Foreign banks with business in India

Foreign banks with representative offices in India

The first and foremost task is to identify right acquirer. The following filters were applied in order to

simplify the search:

Publicly listed on BSE/NSE ---> 43

Market capitalisation of greater than INR 200bn ----> 9

Based on thorough qualitative and strategic analysis, Four out of these Nine companies were

shortlisted

These companies were then compared in the following manner

Based on these Parameters, Yes Bank is more likely to look for acquisition

Parameters ICICI Kotak Yes BoB

I Size ( For Acquiring) 10 7 5 8

II Promoter willingness 8 9 7 7

III Scope for Product Synergy 3 7 8 5

IV Cash for Acquistion 6 7 9 5

V Profitability 9 8 8 6

VI Revenue Growth 7 8 10 7

VII Need for Inorganic Growth 5 8 9 6

IX Total 48 54 56 44

26

How we arrived at our top four targets

The first and foremost task is to identify right acquirer. The following filters were applied in order to

simplify the search:

Publicly listed on BSE/NSE ---> 43

Market capitalization of Less than INR 200bn ----> 34

Market capitalization of Greater than INR 15bn ----> 29

There have been rare cases of private - pubic acquisition, only private players were selected --> 8

Based on thorough qualitative and strategic analysis, Four out of these Eight companies were

shortlisted

Reaching the Best target from top 4

After applying above filters, the top four targets were scrutinized thoroughly on the basis of the following

parameters

CUB's outperformance in Revenue Growth CUB's : Highest Net Profit Margin

Parameters Lakshmi Vilas Karnataka City Union South Indian

I Size ( Budget) 9 9 8 8

II Promoter willingness 7 9 8 7

III Product Mix 7 7 7 8

IV Geographic Synergy 10 7 10 7

V Profitability 5 6 10 7

VI Revenue Growth 8 6 9 9

VII Current Valuation 9 8 5 7

VIII Total 55 52 57 53

27.6%25.9%

18.8%

26.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

CUB SIB Kntk Lksvl

13.07%

9.42%

6.62%

4.67%

0%

2%

4%

6%

8%

10%

12%

14%

CUB SIB Kntk Lksvl

27

Geographical Synergy :

As we can see in the maps there is huge scope of geographical synergy from the proposed acquisition. As

CUB is present more or less in the region, where Yes Bank do not have significant presence, we can see it

will be of mutual benefit to both.

Yes Bank's Presence City Union Bank's Presence

Revenue Synergy:

City Union Bank is very well known bank in the southern part of the country. It is well known for its

products like Personal Banking offering wide range of products and services such as saving accounts,

deposit scheme, home loans, education loans, debit card etc. and NRI banking - offering products and

services such as deposits, remittance and other services such as providing PAN assistance and lockers

services

Whereas, Yes Bank is dominant in Northern and western part of the country. It provides plethora of

products such as Corporate and Institutional Banking offering a broad range of financial and risk

management solutions to clients such as large Indian corporates and groups, multinational companies,

central and state governments, government bodies and public sector enterprises etc. Business Banking

offering a range of products, services and resources to small and medium businesses. Corporate Finance

It offers corporate finance solutions to various clients such as local corporates, multinational companies,

financial institutions and public sector undertakings.

28

Retail Banking Under this, Yes bank offers wide range of products and services such as saving account,

current account, fixed deposit, retail loan, depository services and many more. Investment Banking Yes

Bank offers investment banking services in area of mergers and acquisitions, divestitures, private equity

syndication and IPO advisory.

As the product mix is also to some extent different, It also provides huge opportunity from Revenue

Synergies primarily from Cross Selling, entering into new product segment and building strong national

brand.

29

References:

http://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/banks-private-sector.html

http://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/banks-public-sector.html

http://www.dea.univr.it/documenti/Iniziativa/dall/dall421477.pdf

http://www.equitymaster.com/research-it/compare/compare_comp.asp?symbol=YES-

CTUN&value=YES-BANK-CITY-UNION-BANK

http://www.moneycontrol.com/india/stockpricequote/banksprivatesector/cityunionbank/CUB

http://www.business-standard.com/article/finance/yes-bank-eyes-acquisitions-for-business-

expansion-113013000201_1.html

Company Websites , Annual Reports and Company Fillings

sfm final assignment

Documents

banking sector report

indian banking sector

history of banking sector

banking segment

banking industry

banking companies

reserve bank of india

state bank of india