One fine morning, out of the blue, Rana (Talwar) called Deepak (Parekh) and offered to merge. The discussion didn’t move much. Months later, Rana called again. This time, there was urgency in his voice. He wanted to do something very soon.
Deepak called him over for lunch at his house on a Sunday. Over Heineken beer and lunch, Centurion BoP’s managing director Shailendra (Bhandari), Rana, Aditya (Puri) and Deepak discussed a possible merger and swore to keep it confidential. ‘They were in a hurry and for some reasons Rana was saying that either we do it today or he will go across the road,’ Deepak told me. He possibly meant that if Deepak was not interested, he would approach another bank.
Too many retail loans were going bad and they had to set aside a fat sum to take care of bad loans. This would have affected Centurion BoP’s earnings and stock price. Rana wanted to seal the deal to cover up the March earnings.
A few days later when they finally shook hands, Deepak called Venu (Yaga Venugopal Reddy, then RBI governor). Not too many in the Indian financial sector address Reddy as Venu and that shows Deepak’s relationship with him, which goes back to the early 1990s when Reddy was with the Finance Ministry.
‘I want to see you.’
‘Something very urgent and important . . . We had a talk with Rana. We want to take over Centurion Bank of Punjab.’
‘No need to see me. We are happy. Leeladhar [deputy governor V. Leeladhar] will call you.’
It was around six in the evening and Leeladhar had just left his office on Mint Road in Mumbai and was on his way home. Once he heard from his boss, Leeladhar called Deepak and returned to his office. He was heading the critical department of banking operations and development at the RBI.
Other deputy governors called Deepak and said he had solved their problem.
Reddy’s reaction was instant not because he knew Deepak well but because it fitted well into the RBI’s consolidation strategy in Indian banking sector. Centurion BoP was one of the relatively small and weak banks that the RBI was closely monitoring. The RBI was not hunting for any suitor but when Deepak appeared on the scene with the proposal, Reddy felt hugely relieved.
HDFC Bank was not the original suitor. Rana had first spoken to Deepak about merging his bank with Infrastructure Development Finance Co. Ltd (IDFC), of which Deepak was chairman. IDFC’s managing director Rajeev Lall had always felt the need for a banking licence to get access to the cheap funds desperately needed for infrastructure financing, but could not take the idea forward because the then finance minister P. Chidambaram, I am told, was not inclined to say ‘yes’ to it. Creation of IDFC was Chidambaram’s idea to address the infrastructure financing concerns in a growing economy. It was part of his 1997 dream budget.
‘How about merging with HDFC Bank?’ Deepak suggested. At this stage, Aditya got involved. Till then, V. S. Rangan, then financial controller of HDFC, was the other person in the know of things.
Shailendra remembers the lunch and beer at Deepak’s home. ‘Deepak suggested a swap ratio to which Rana said “no”. He wanted to improve it,’ he told me.
Rana wanted one share of HDFC Bank for every twenty-three shares of Centurion BoP. He was basically trying to squeeze the last drop and Deepak was not playing ball; they walked away from the meeting. After months of negotiations the deal was struck—but at a different ratio.
Rana insisted that HDFC Bank must agree to absorb all the people from Centurion BoP. Aditya agreed.