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INDUSTRY ANALYSIS
PRIVATE
BANKING INDUSTRY
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INDUSTRY ANALYSIS Banking in India originated in the last decades of the
18th century
The first banks were THE GENERAL BANK OF INDIA,which started in 1786
The oldest bank in existence in India is the STATEBANK OF INDIA, which originated as the BANK OFCALCUTTA in June 1806
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Industry Analysis Cont The first fully Indian owned bank was the ALLAHABAD
BANK, established in 1865
The banking industry has grown at a compounded annual
rate of over 51 per cent since April 2001
Industry life cycle Growing stage
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88 Scheduled
commercial banks
27 Public sector
banks
31 Private banks 38 Foreign banks
Banking
OVERVIEW OF THE INDUSTRY
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MARKET STRUCTURE
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GROWTH RATE Private Bank 50%
Public sector bank 15%
Private and Public Bank 35%
Foreign 20%
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INDUSTRY OVERVIEW :PRIVATE BANKING
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BACKGROUND The first private bank in India to be set up in Private
Sector Banks in India was IndusInd Bank
The first Private Bank in India to receive an inprinciple approval from the Reserve Bank of India wasHDFC
ING Vysya, yet another Private Bank of India was
incorporated in the year 1930
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SOME PRIVATE BANKS Dhanalakshmi Bank
HDFC Bank
ICICI Bank IndusInd Bank
ING Vysya Bank
http://finance.indiamart.com/investment_in_india/dhanalakshmi_bank.htmlhttp://finance.indiamart.com/investment_in_india/hdfc_bank.htmlhttp://finance.indiamart.com/investment_in_india/icici_bank.htmlhttp://finance.indiamart.com/investment_in_india/indusind_bank.htmlhttp://finance.indiamart.com/investment_in_india/ing_vysya_bank.htmlhttp://finance.indiamart.com/investment_in_india/ing_vysya_bank.htmlhttp://finance.indiamart.com/investment_in_india/indusind_bank.htmlhttp://finance.indiamart.com/investment_in_india/icici_bank.htmlhttp://finance.indiamart.com/investment_in_india/hdfc_bank.htmlhttp://finance.indiamart.com/investment_in_india/dhanalakshmi_bank.html7/29/2019 BE Long Assignment Banking Industry 10-23-38!62!70 73 79
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Some Major Players
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SIZE Still at a nascent stage but growing very rapidly
The public sector banks hold over 75% of total assets of thebanking industry, with the private and foreign banksholding 18.2% and 6.5% respectively.
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Today, we find ourselves at a stage where the
banking environment is underpinned by:
Sufficient operational flexibility for banks, whichensures decision making on a commercial basis
Increased competition for banks on both assets as wellas liabilities side
Emergence of other non-bank financial intermediaries
Technology-aided proliferation of different serviceplatforms
Integration of a risk management culture within thestrategy framework with availability of various riskmanagement instruments
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GROWTH DRIVERS
1
CONSTANT INNOVATION AND DEVELOPMENTOF EFFECTIVE BUSINESS MODEL
2
RELAXATION IN GOVERNMENT LAWS WHICHHELP TO STRENGTHEN SECTOR
3 REDUCTION IN INTERMEDIATION COST
4 MOVE INTO NEW CUSTOMER SEGMENTS ANDGEOGRAPHIES
5 INCREASE IN THE DEMAND FOR LOANS
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1 INCREASING LITERACY RATES ACROSS THE COUNTRY
2 OUR COUNTRY WILL UNDERGO DEMOGRAPHIC REVOLUTION AS
BIRTH RATES DECLINE AND RISE IN WORKING POPULATION
3 RIS E IN CONSTRUCTION AND MANUFACTURING SECTORS
4 INCREASE IN INDUSTRIAL CAPACITY
5 MIDDLE CLASS SIZE
UPCOMING GROWTH
DRIVERS
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CHANGING TRENDS The private banking industry is adapting to take advantage of
the changes by setting up satellite offices near the new centers
of wealth creation.
Fee-only private banking is challenging the old commission-
based private banking model
The phrase "private banking" is beginning to smell like old
caviar.
Value-add is the rule of the day.
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RETAIL BANKING Retail banking is becoming an increasingly
complex concept to define. While
pure retail banking is generally conceived to be
the provision of mass market
banking services to private individuals, it has beenexpanded over the years to
include in many cases services provided to small-and medium sized businesses.
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GROWTH DRIVERS IN RETAIL
BANKING
Shift in the pattern of GDP from hitherto agriculture andmanufacturing sectors to services sector with increase percapital
Growing concept of nuclear families than the joint familiesnecessitating need for housing units as well as other items ofconsumer durables
Increased demand for dwelling units due to gradual shift of
population from rural/semi-urban centre to urban/metrocentre for employment.
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GROWTH DRIVERS IN RETAIL
BANKING
Increased middle-income segment and their income levels.
Emergence of new sectors such as Information Technology,media, etc. In the economy that resulted in higher incomeopportunities and major impact on change in urbanconsumption pattern.
Awareness and sophistication in urban and semi-urbanhouseholds for urban convenience. Social security and statushave also contributed to higher demand for housing units, cars,etc.
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CRITICAL SUCCESS FACTORS Technology: Helps in introducing innovative
products, improve the quality of products, lower downthe costs ,lower transaction times, bring convenienceto the customers.
Service Quality: All the dimensions of the servicesoffered to the customer . Be it quality of customerrelationship service, ATM facilities, mobile bankingetc.
Best rates: For survival , banks have to offer rates areamong the lowest among competition.
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CRITICAL SUCCESS FACTORS Brand Image: Plays an important part in customers
choosing the bank or product. Good Brand imagegenerally implies reliability and better quality ofservices to many customers.
Size of the company: Total market share , total assets, total ATMS, total customer base. Bigger size meanshigher reach, penetration.
Marketing:A bank must market its services,convenience , financial advantages to attract newcustomers. Stagnation will lead to decline.
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CRITICAL SUCCESS FACTORS Location and convenience: Customers will prefer to
use a bank located at a easily accessible location .Onewhich has more branches, making transactions easy.
Product Innovation: Generally all the banks offeralmost same products, even a small differentiation orinnovation can make a huge difference.
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CRITICAL SUCCESS FACTORS Increase in NPAs(non performing assets)
Increased regulatory constraints
Periodic failure of weak banks threatens theconfidence in the sector.
Individual fraud by employees could shake confidencein the entire brand.
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RISK FACTORS & CHALLENGES Bank penetration limited to few areas and geographies
Retain and also retain new talent
Increase profits outside an elite customer base withsmaller transactions
Inability to differentiate with respect to other banks
Strong challenge from government banks
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RBI Reserve Bank of India ESTABLISHED in 1935
Central bank of India
Function performs :-
I. Banker to Government
II. Currency issuer
III. Development role
IV. Manager of exchange control
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REGULATORY FRAMEWORK
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REGULATORY FRAMEWORK
(Continued..) The RBI is the sole regulator for the industry while the
Ministry of Finance (MoF) is responsible for formingthe enabling legislative framework
Total aggregate foreign investment e.g. FDI, FII, etc -
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Banking Regulation Act, 1949
No single entity or group of related entities can haveshareholding or control, directly or indirectly, in any
bank in excess of 10% of the paid up capital of theprivate sector bank
Any higher level of acquisition will be with the priorapproval of RBI according to guidelines issued by RBIfor grant of acknowledgement acquisition of shares
REGULATORY FRAMEWORK
(CONTINUED..)
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FDI will mandatorily required to have a credit rating
Initial minimum paid-up capital Rs. 200 crore
Initial Capital required Rs. 300 crore within 3 yearsof commencement of business.
REGULATORY FRAMEWORK
(CONTINUED..)
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SBI18%
ICICI14%
HDFC12%PNB
10%
AXIS
10%
OTHERS
36%
MAJOR MARKET SHARE
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DATA ANALYSIS (In Million INR)
Bank Name Net sales2009
Net profit2009
Net sales2008
Net profit2008
SBI 177797 24790 180303 24784
ICICI 60896 11011 78361 12721
HDFC 40348 8185 44685 6217
PNB 55055 10113 52947 10058
AXIS 28837 6560 29848 5005
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CHALLENGES FACED BY BANKING INDUSTRYIN INDIA
Deregulation
New rules
Efficiency
Diffused customer loyalty
Misaligned mindset
Competency gap
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INNOVATIONS
CUSTOMERSERVICE
CREDIT
MANAGEMENT
ASSET LIABILITYMANAGEMENT
ATMSSMART CARDS
INTERNET
BANKING
RESOURCEMOBILISATION
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KEY FINDINGS
Market Structure PERFECT COMPETITION
Many sellers and Many buyers
Homogeneous product
Perfect knowledge of the market conditions
Free entry of firms
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COMPETITION ANALYSIS
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Porters Analysis-Bargaining
powers of suppliers-LOW
Non critical nature of suppliers
Few alternatives for the suppliers Suppliers are not unionized or have a strong group
Supplier bound by SLA's and other binding contracts
Forward integration a standard practice
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Porters Analysis-Threat of
competitors-HIGH
Large no of banks
Low switching costs for customers Highly undifferentiated services
Aggressive wooing of customers and HNIs by rivals
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Porters Analysis-Threat of
substitutes-MEDIUM
Other means of savings like gold, real estate, etc.
Deposits in post offices Instruments like KVP's and infrastructure bonds.
Equity market exposure of investors
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Porters Analysis-Threat of new
entrants-LOW
Product differentiation can be very difficult
Licensing requirements can be very complex High fixed starting cost and complex regulations
High exit barriers
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Porters Analysis-Bargaining power
of customers-HIGH
Large no. of alternatives
Low switching costs Undifferentiated services
Well informed about competitors
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Porters Analysis-Summary
Threat ofcompetitors-
HIGH
Threat ofsubstitutes-MEDIUM
Threat ofnew
entrants-LOW
Bargainingpower of
Customers-HIGH
Bargainingpower of
suppliers-LOW
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ELASTICITY ANALYSIS
LENDING RATE SAVING RATE
CONSUMERS NOTATTRACTED
CONSUMERS ATTRACTED
CONSUMERS ATTRACTED
CONSUMERS NOTATTRACTED
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DEMAND AND SUPPLY ANALYSISREAL ESTATE
Recession(2008) Holding back money
CRR rate increases Affected wholebanking industry
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Strengths
-Valuable contributor to GDP over a periodof 15 years and of pivotal importance to theIslands economy.
-High standard regulatory environment
-Flexible work permit system and goodquality staff offering personal client service.
Weaknesses
Weak retail and mass affluent customerproposition.
Lack of legitimate access to markets,
especially the EU. Lack of competitive differential with otheroffshore centres.
Rigid legislation that inhibits developent
Opportunities
Unified trade body to leadfinance sector program change.
Active and aggressive targeting ofcorporate & private clients, and institutionsthat attract such clients, to shift focus frommass affluent to HNW business.
Morphing of Banking propositions tocreate a bigger market share for all.
Threats
ESD significantly impacts business levels,affecting the Savings Banks in particular.
Anti-offshore regulations in foreign targetmarkets restricting the development ofproducts and new markets.
Downsizing and reduction in bankingoperations in favour of rival jurisdictions.
Outsourcing to cheaper jurisdictions
SWOTAnalysis
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CONSUMER SATISFACTION
Consumer (The King ) Reaching at doorstepsProviding in a
customized manner
Differentiating quality(Education, Marriage,Status, Age, Income,
etc.)
Behavior Loyalty with the product
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Industry Direction Profit growth is expected to be mid-market high-net-
worth individuals (HNWI) in the developed wealthmanagement markets
Global private banks are actively developing activitiesin the three key markets of China, India and Russia
Growth in the offshore wealth management area isexpected to lag that of onshore business;
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Transformation of wealth
management
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Geographic participation New emerging wealth markets:
Particular attention has focused on the BRICeconomies Brazil, Russia, India and China in
particular the latter three economies, given theprojected economic growth over the coming decades
Indias economy could be larger than Japans by 2032
Goldman Sachs forecasts show that the combined BRICeconomies will be larger than the current G6 (US, Japan,UK, Germany, France and Italy) by 2039
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Client relationship deepening Focus to cultivate new business on client relationships
Focusing aggressively on intergenerational wealthtransfers, especially for mid-range
Expand the advisory role to encompassintergenerational wealth transfer products andservices
Wealth managers to understand the needs andexpectations of clients
ew propos ons : es y e
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ew propos ons : es y eservices
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Key is to develop common skills in
building relationships
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Product Line and Value Proposition
for ICICI Digitally signed statement Corporate benefit tracking Mobile Alerts and Requests
Demat General Insurance Life Insurance
Card Protection Plans
Insurance
Micro Banking Tractor Loans
Agri Traders and ProcessorsAgri Corporate
Agri and Rural
Debit Credit
Corporate Pre-paidCards Net banking and Mobile Banking Investments LoansAccounts and Deposits
Loans
Others
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Product Line and Value Proposition for
ICICI Meal Card Gift Card
LIC Co branded Annuity CardCards
Debt and Equity Solutions Private Equity, M& A
Depository, Trusteeship and Advisory Services Capital market funding
E-Broking
CapitalMarket
Working Capital Finance Term Loans and Structured Finance
Trade Services and Trade Finance SME Standard Products
Supply Chain Management
Overseas Financing and Transaction Power Trac
Credit
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Product Line and Value Proposition for
ICICIWealth Advisory ServicesMutual FundsTax Planning
Insurance, General & Health InsuranceBonds, Equities & Derivatives
Mudra Gold and Silver Bar
Investmentsand Insurance
ForexPlus card
ForexPlus Chip cardRemittancesCash to MasterTravellers Cheque and trade Services
Forex Services
Debit and Credit CardsPrepaid CardsForexPlus CardGiftPlus Card
FoodPlus CardMoneyPlus CardForexPlus Chip Card
Cards
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MERGERS ANDACQUISITIONS
Important Deals in Banking
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Important Deals in Banking
Date ofmerger
Acquirer bank Target bankAssets of targetbank as % ofacquiring banks
assets
Number
ofbranchesof target
bank
August 2010 ICICI Bank Bank of Rajasthan 0.05 463
February 2008 HDFC BankCenturion Bank ofPunjab 20 394
August 2007Centurion Bank ofPunjab
Lord Krishna Bank 11 110
March 2007 Indian Overseas Bank Bharat Overseas Bank 6 102
October 2006 IDBI United Western Bank 8 230
October 2005 Centurion Bank Bank of Punjab 106 136
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ICICI Bank of Rajasthan ICICI Bank increase its branch network by 25 per cent
to about 2,500 across the country
Greater visibility to ICICI Bank in western andnorthern parts of the country.
With the merger, the balance sheet of ICICI Bankwould cross Rs four lakh crore
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ICICI Bank of Rajasthan Shares of ICICI Bank closed at Rs 963.95, down 0.74 %
Bank of Rajasthan shares slipped 0.03 per cent to Rs190.15
In May, boards of both the banks approved a share-swap deal that valued BOR at over Rs 3,000-crore
The share swap ratio was fixed at one ICICI Bank share
for every 4.72 shares of BOR
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HDFC-Centurial Bank of Punjab Figures after combination
The combined entity would have a nationwide networkof 1,148 branches, largest among private banks
Deposit base of around Rs. 1,200 billion and netadvances of around Rs. 850 billion
The balance sheet size of the combined entity would beover Rs. 1,500 billion
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HDFC-Centurial Bank of Punjab The share exchange ratio approved by the respective
Boards was based on the recommendations made by
M/s Dalal & Shah
Ernst & Young Private Ltd. who acted as
The board has approved the share swap ratio of oneshare of Rs 10 each of HDFC Bank for every 29 sharesof Re 1 each held in Centurion Bank of Punjab,
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Indian Overseas Bank-Bharat
Overseas Bank BhOB is owned by seven banks, including Indian
Overseas Bank (30%)
Indian Overseas Bank owned 30 per cent inBharat Overseas Bank
IOB took over BhOB in 2007with employees,
assets and deposits
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IDBI-United Western Bank In 2006, IDBI Bank acquired United Western Bank
in a rescue
The stock was available at a price-to-book multiple of
0.8 and a price-to-earnings multiple of about eighttimes its trailing 12 months earnings
UWB accepted an offer at 28 Rs per share
The merger would give IDBI immediate access to the230-branch network of UWB,
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IDBI-United Western Bank IDBI, with a balance-sheet size of Rs 81,700 crore, has a
network of 181 branches now
The merger would give IDBI immediate access to the
230-branch network of UWB, thereby widening itsdeposit franchise
The merger with UWB is likely to help IDBI diversifyits credit profile. Dominant in industrial financing,IDBI should get exposure to agriculture credit throughUWB
Benefit of an improved deposit mix for IDBI
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Centurion Bank-Bank of Punjab In July 2005 the approval was given to the Centurion
Bank and Bank of Punjab to merge the ratio being4:9
This means that for 4 shares of Bank of Punjab theshareholder would get 9 shares of the Centurion Bank
The merger was activated due to considerations ofcommon goal and area of operation.
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Possible future M&As In a bid to strengthen the development financing
character of IDBI, the UPA government has revived theproposal to merge two ailing institutions -- IIBI and
IFCI -- with it after segregating their bad assets. IFCI should not be a mere restructuring of balance
sheet, which is the easiest way to address a problem
Referring to the McKinsey report on IFCI, he said thebad and good assets have to be segregated before it ismerged.
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Possible future M&As BI Caps' assessment of IFCI was not accepted by the
institution's top brass
Sources said merger of IFCI with another FI like IDBIwill make more sense
Gupta admitted that IFCI was in financial trouble andthe government had backed it, considering therelevance of DFI in the country.
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Possible future M&As The Hongkong and Shanghai Banking Corporation
(HSBC) reported it had agreed on a deal that will see ittakeover the Royal Bank of Scotland (RBS) Group Plcs
retail and commercial businesses in India RBS retail and commercial businesses in the country
are estimated to have a net asset value of $1.8 billion,
The deal agreed upon requires that 90% of any creditlosses that are incurred on RBS unsecured lendingportfolios over the two years
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Impact of M&A ICICI Bank
Bank of Rajasthan
Strengthen ICICI Banks network in northern as well as
western India Sangli Bank & Bank of Madura
Strengthen ICICI Banks network in western India
Centurion Bank of Punjab
Lord Krishna Bank
In-depth coverage in Punjab, NCR & Kerala
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Impact of M&A HDFC Bank Centurion Bank of Punjab
HDFC to add scale, geography & experienced staff to its
franchise Merger will position the combined entity to significantly
exploit opportunities in market
Combined will be greater force in the market
Times Bank Increase the presence of HDFC Bank in the depository
participant activities
HDFC Bank saves on the cost associated with technology upgradation
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Impact of M&A Oriental Bank of Commerce
Global Trust Bank
OBC will get much needed edge in the southern part of the
country Both banks will get benefited from common core banking
solution Finacle, which will help in the consolidation
Punjab National Bank
Nedungadi Bank PNB will be able to reach out to southern region, especially in
Kerala
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