Merger Icici

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ZENITH

International Journal of Multidisciplinary Research

Vol.2 Issue 5, May 2012, ISSN 2231 5780

www.zenithresearch.org.in

192

STRATEGIC MOVE OF ICICI BANK:

A CASE STUDY OF MERGER OF ICICI BANK AND BANK OF

RAJASTHAN

DR. ABHINN BAXI BHATNAGAR*; MS. NITU SINHA**

*Associate Professor,

Galgotias Business School,

Greater Noida.

**Research Associate,

Galgotias Business School,

Greater Noida.

__________________________________________________________________________________

__

ABSTRACT

Changing is the regulation of nature. Any business organization undergoes change on a

continuous basis, technically termed as Corporate Restructuring. It can be defined as a strategy to

achieve faster growth, desired capital structure and change in the ownership and control of

company. The reasons behind change may be external or internal factors. In the present scenario,

business organization undertakes changes to increase their cutting edge over the competition and

enhance their leadership positions. It is a fundamental fact of finance that growth and capital

employed are two basic drivers of the value of an organization. On the other hand neither growth

nor improvement in ROCE is possible unless the company is under the control of competent,

progressive and visionary management. The present paper is an attempt to understand the

strategic move of ICICI bank. The case study will reveal the motives behind and synergies from


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such M&A activities. An attempt has been made to analyze, Is corporate restructuring a tool to

enhance the shareholders value. Why ICICI Bank has taken such a strategic move and many

more questions will be solved from the case study.

______________________________________________________________________________

INTRODUCTION

Mergers and acquisitions in banking sector has become admired trend throughout the country.

A large number of public sector, private sector and other banks are engaged in mergers and

acquisitions activities in India. One of the prominent motives behind Mergers and Acquisitions

in the banking sector is to harvest the benefit of economies of scales. With the help of mergers

and acquisitions in the banking sector, the banks can achieve significant growth in their

operations and minimize their expenses to a considerable extent say for example installation

expenses for setting up new branches will be saved. Secondly, the most significant vantage is

that it eliminates competition from the banking industry. Proven to be an act of corporate action,

mergers and acquisitions in the banking sector has ensured efficiency, profitability and synergy

from past many years. It also assists in shaping up and maximizing shareholders value. The

driving force behind the growing trend of mergers and acquisitions in the banking sector other

than efficiency, profitability and synergy can be deregulation in the financial market, market

liberalization, economic reforms and many more. After all, RBI has the only authority to regulate

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all merger and acquisition related activities pertaining to banking sector in recent proposed

amendments in the Banking Regulations.

PROFILE OF ICICI BANK

HISTORY

In 1955, ICICI Limited was incorporated with the collective efforts of the major 3, named World


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Bank, Government of India and Indian Industrys representatives. The establishment has been

taken place with a view to aid Indian businesses by acting as a source of finance to medium and

long term projects. In 1990s, the ICICI institution started diversifying its operations, and end up

at the wholly owned subsidiary called ICICI Bank. The Bank was established in 1994 and

became the first bank listed on NYSE (New York Stock Exchange).

Few merger related details:-

Years Particulars

2001 Bank of Madura (est. 1943) was acquired by ICICI , an all-stock

amalgamation

2002 Integration of banking operations and groups financing of ICICI in to

individual entity, consisting both wholesale and retail.

2007 ICICI amalgamated Sangli Bank, the deal costing Rs. 302 crores

CORPORATE PROFILE

ICICI bank with the asset base of Rs. 363,399.71 crore (US $ 81 Billion) and net profit after tax

Rs. 4,024.98 crore (US $ 896 million) turned out to be the second largest bank in Indian

Territory for the year ended 31

st

Mach 2010. The Bank has its spread over 19 countries with

2530 branches and approx 6102 ATMs in India.

An extensive range of Product and services offered by ICICI though diverse delivery channels

are personal banking, corporate banking, NRI banking, finance and insurance, retail banking,

commercial banking, mortgages, credit cards, asset management, investment banking

PROFILE OF BANK OF RAJASTHAN

HISTORY

The bank of Rajasthan was established as Joint Stock Bank by Mansingka brothers at Udaipur on

8th May, 1943.The Bank served The Government of Rajasthan as Scheduled bank for more than

14 years starting from 1948. The founder Chairman of Bank of Rajasthan was an industrialist ZENITH


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named Late Seth Shri Govind Ram Seksaria who started the bank with initial investment of Rs.

10 lacs.

Ties up Details:-

Year Particulars

2000 Bind off with Infosys Technology in order to get fully automated

2002 MoU signed by Bank of Rajasthan with Bajaj Allianz General Insurance

Company and Birla Sun Life Insurance

2003 MoU signed with Bank of Baroda to issue co-branded international Visa

Electron Debit Card

2005-06 Termination of ties up with Bajaj Allianz General Insurance Company and

Birla Sun Life Insurance

2008 The Bank signed an MoU with ICRA Ltd. in September

CORPORATE PROFILE

The Bank of Rajasthan with the asset base of Rs. 17,300.06 crores incurred the net loss after

provisions and taxes remained at Rs. 102.13 crores for the year ended 31st Mar 2010. The bank

operates through all over India as a private sector bank with 463 branches works as network. It

includes 67 onsite and 29 offsite ATMs in 230 cities along with specialized Industrial and forex

branches.

The bank provided a broad range of products and services includes commercial banking,

Personal banking ,merchant banking, auxiliary services, consumer banking, deposit and money

placement services, trusts and custodial services, international banking, private sector banking

and depository, Credit facilities to SMEs ,gold facilities internet banking mobile banking, life

insurance, mutual fund services, western union money transfer services and many more. The


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above mentioned products and services can be divided into 3 segments called treasury

operations, Banking operations and residuals.ZENITH




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A GLIMPSE OF THE BANKS

S. No. Key Rationale ICICI Bank Bank of Rajasthan

1 Type Private sector Private sector

2 Industry Banking financial services Banking, Loan, Capital

market and allied

industries

3 Year of Incorporation 1994 (promoted by ICICI) 1943, Udaipur

4 Traded as NSE: ICICIBANK

BSE: 532174

NYSE: IBN

NASDAQ: IBN

NSE: BANKRAJAS

BSE: 500019

5 Products Finance and insurance


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e or

wholesale banking,

insurance,

services,

6 Business presence 19 countries All over India

7 Number of offices 1717* 478*ZENITH




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8 Number of employees 35256* 3983*

9 Total Income 32,999.36** 1,489.48**

10 Profit 4,024.98** (102.13)**

11 Total Assets 363,399.71** 17,300.06**

12 CRAR (Capital to Risk Asset

Ratio)

19.41* 7.52*

13 Net NPA Ratio 2.12* 1.60*

* http://www.rbi.org.in/scripts/AnnualPublications.aspx


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** Source: Asian CERC (Amount in Crores)

FINANCIAL ANALYSIS OF ICICI BANK

ICICI Bank, one of the fastest growing bank in India bearing the position of India's secondlargest bank

with total asset base of Rs. 3,634.00 billion (US$ 81 billion) as at March 31, 2010

and profit after tax of Rs. 40.25 billion (US$ 896 million) for the year ended March 31, 2010.

The Bank has its spread over India and has wings in 19 other countries. It consist a wide network

of 2,530 branches and about 6,102 ATMs in India. ICICI Bank has offered a wide range of

products and financial services to retail and corporate customers by various means of delivery

comprises Investment Banking, life and non-life insurance, venture capital and asset

management. The ICICI Bank has major subsidiaries in Canada, Russia and United Kingdom

(UK), branches in many areas like Bahrain, Bangladesh, China, Dubai International Finance

Centre, Hong Kong, Indonesia, Malaysia etc. and having representative offices in Singapore,

South Africa, Sri Lanka, Thailand, United Arab Emirates and United States. Belgium and

Germany act as established branches of UK subsidiary. The Listing of ICICI Bank's equity

shares has in India on The Bombay Stock Exchange and the National Stock Exchange and also

its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

Estimations and assumptions related to assets and liabilities (including contingent liabilities)

have to be made while preparing financial statement. A financial statement performs a vital role

for any company to ascertain the financial position which acts as an indicator of business

soundness. For financial overview past five years data has been used in this study.

KEY HIGHLIGHTS

I. 7.1% increase in profit after tax to Rs 4,024.98 crore for the year ended March 31, 2010

from Rs. 3,758.13 crore for the year ended March 31, 2009.

II. Net non-performing asset decreased to Rs. 3,841.11 crore at March 31, 2010 from Rs.

4,553.94 crore at March 31, 2009.ZENITH





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III. Strong capital adequacy ratio of 19.14% and Tier-1(Equity Capital and disclosed

reserves) capital adequacy of 13.48%.

IV. The shareholders also enjoying the dividend of approximately Rs. 12 per share proposed.

OPERATING TRENDS

PROFIT & LOSS ACCOUNT

od at Rs. 3,758 crore (US$ 837 million),

which was then increased by 7.1% approx.(Profit after tax) to the year ended March 31,

2010 (FY2010). It has been showing increasing trend from FY2005 to FY2008 but

declined by 9.61% in FY2009 as compared to FY 2008.

nd administrative expenses decreased by 9.37% from Rs. 1952.99 crores in

fiscal 2009 to Rs. 1770.03 crores in fiscal 2010 due to overall cost reduction initiatives

undertaken by the bank. The reduction initiatives include various expenses owing to

advertisement, printing and stationery, publicity and postage and communication

expenses in FY 2010 as compared to FY2009.

2010. The percentage change in depreciation is 8.71%.

BALANCE SHEET

-end fiscal

2010 from Rs. 3,793.01 billion at year-end fiscal 2009. It has been showing decreasing

trend since from FY 2005.

FY2006-2007 and by 17.0% from Rs. 2,183.11 billion at year-end FY 2009 to Rs.

1,812.06 billion at year-end FY 2010.

majorly in non-SLR by Rs. 128.18 billion, Total

investments has increased by 17.3% from Rs. 1,030.58 billion at FY2009 to Rs.1, 208.93


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billion at FY2010. The other investments were in government and other securities of Rs.

50.17 billion.

nk has continuously improvised its reserve capital since from FY 2006, which

meliorates equity share capital and reserves from Rs. 495.33 billion at year-end fiscal 2009

to Rs. 516.18billion at year-end fiscal 2010.

duced the total deposits by 7.5% from Rs. 2,183.48

billion at FY2009 to Rs. 2,020.17 billion at FY 2010. It has been reducing since from past

two years whereas Savings account deposits and Current account deposits increased from ZENITH




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Rs.626.68 billion at year-end fiscal 2009 to Rs. 842.16 billion at year-end fiscal 2010. On

other side term deposits has decreased to Rs. 1,178.01 billion at year-end fiscal 2010 from

Rs. 1,556.80 billion at year-end fiscal 2009.

CICI

bank from Rs. 931.55 billion at FY 2009 to Rs. 942.64 billion at FY 2010.

CURRENT SCENARIO [2010]

With the beefed up in deposit franchise at the end March 31, 2010, the CASA ratio has been

increased due to strong growth in savings and current account deposits. The banks branch

network has been in expansion mode in order to enhance its deposit franchise and create an

integrated distribution network for both asset and liability products.

Source: Companys official site (www.icicibank.com)

Total deposits of the bank have not been showing growing trend since from past 5 years as per

data, instead of CASA deposits which has increased by 34% to Rs. 84,216 crore (US$ 18.8

billion) at March 31, 2010 from Rs. 62,668 crore (US$ 14.0 billion) at March 31, 2009.


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The bank has also established widely through its distribution reach by way of branch network

that is increased to 1,741 at April 24, 2010.

The loan book (Advances) of the Bank decreased primarily due to the repayments from the retail

loan portfolio and the loan portfolio of overseas branches. Currently, the loan book (Advances)

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still at Rs. 181,206 crore (US$ 40.4 billion) as on March 31, 2010 from Rs. 218,311 crore (US$

48.6 billion) at March 31, 2009.

CAPITAL ADEQUACY RATIO

The Bank is subject to the capital adequacy norms stipulated by the RBI guidelines on Basel II

which became applicable with effect from March 31, 2008. The guidelines require the Bank to

maintain a minimum ratio of total capital to risk adjusted assets (CRAR) of 9.0%, with a

minimum Tier I capital ratio of 6.0%. Prior to March 31, 2008, the Bank was subject to the

capital adequacy norms as stipulated by the RBI guidelines on Basel I.

The ratio depicts strong position in the area of Capital adequacy which infers less default risk

for ICICI Bank.

FINANCIAL ANALYSIS OF BANK OF RAJASTHAN

The bank of Rajasthan, one of the leading banks in private sector was established in 1943 with

the initial capital of Rs. 10 lakh. The bank declared as scheduled bank in 1948 which has its

specialization in forex and industrial finance. The bank located at jaipur has its branches spread

all across 22 states of India as on Mar 31, 2009.

The assets size of the Bank of Rajasthan has been showed a growing trend from past 5 years,

stood at 17320.23 crores as on March 31, 2010.

The net profit has gone down from 117.71 crores as year ended March 2009 to 102.13 crores at

FY 2010 which reflects a drastic decrease in net profit by 186.76%.


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OPERATING TRENDS

INCOME AND PROFITABILITY

8% from

FY 2008 at Rs. 1513.40 crores as on 31

st

March 2009.the reason behind the growth was

increment in the yield on advances, where as total income was declined by 1.11% from

FY 2009 to Rs. 1496.67 crores as on year ended 2010.

x for the year 2008 and 2009 were remained at similar levels due to

increase in provision of Non-Performing Assets. The bank of Rajasthan reported net loss

at the year ended 2010 (after provisions and taxes) stood at Rs. 102.13 crore against the

net profir of Rs. 117.71 crores for the previous year.

the year 2009-2010, the shareholders

were not proposed for any dividend.ZENITH




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BALANCE SHEET

ing increasing trend but at a low pace. It has

increased by 0.49% from Rs. 17235.09 crores as on year ended 2009, and grow by 8.99%

over the previous year.

from 2007 stood at Rs. 293.81 crores as on year ended 2010 as compared to Rs. 160.9

crores at the year ended 2009.

shown positive sign from the year

2006 to 2008 but it got off track to Rs. 6722.51 crores as on year ended 2010 which is


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1.27% reduced from previous year.

remained at Rs. 161.35 crores as on year ended 2010. The bank also has not issued fresh

shares to the market.

industry trend line but got hurdled in FY 2010 stood at Rs. 1506.35 crores, which is

0.82% down the line.

good sign for the bank as it has been

continuously decreasing since from FY 2006. Currently the banks borrowings stood at

Rs. 0.65 crores as on year ended 2010.

ontinuous growth in other liabilities and provisions over the years reported Rs. 1320.72

crores amount as on year ended 2010.

CURRENT SCENARIO [2010]

The Bank of Rajasthan has been facing the problem of deteriorated market conditions due to

banks substantial exposure in sectors like textiles and real estates. It was the key sensitive area

for Bank of Rajasthan to maintain its assets quality.

The bank had the opportunity to build a good deposit base as it was the established franchise in

the state of Rajasthan, but due to low cost Current Accounts and Saving Accounts (CASA)

deposits the bank faced declining trend from past 4 years. With the decline in CASA and side by

side high interest rate heated up the cost of deposits.

Due to lack of capital Bank of Rajasthan has facing low credit growth of 4.69% due to lower

disbursement and large prepayments by some of its clients. The credit growth was remain stable

with advances during FY 2010.ZENITH




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CAPITAL ADEQUACY RATIO (CAR)

As per Basel I, the Bank of Rajasthans CAR stood at 7.74% as on year ended 2010 as compared

to 12% of previous financial year. The below mentioned graph depicts the trend lines of

NonPerforming assets and CAR. Tier 1 CAR was marginally above the prescribed regulatory

requirement of 6% but had declined in March 31

st

2010 stood at 3.87%.

The overall condition of Bank of Rajasthan was seen continuously deteriorating due to various

legal issues. Some of those were:-

ge limited for alleged violation of clause 36 of the listing

agreement.

union of Bank of Rajasthan i.e., AIBOREF,

AIBOROA and ABBOR.

t.

Source: Asian CERC (Amount in Crores)ZENITH




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PROCESSION OF MERGER

I. FIRST CALL

GENERAL STATE OF ICICI BANK

The ICICI Bank has become a drawing card in insurance and asset management through its

subsidiaries. The strategic focus of the bank has shifted to balance sheet growth and market share

heighten in order to improvise returns and profitability index. The merger with Bank of

Rajasthan could be one of the strategic moves of ICICI bank to attain its vision.

GENERAL STATE OF BANK OF RAJASTHAN


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The condition of Bank of Rajasthan had been seeing in under pressure after a series of probes

continued by RBI. Irregular performance of the bank gave rise to several investigations along

with the order of RBI for a special audit. The decision of audit had been taken when Bank of

Rajasthan corresponded to give prominent intraday overdraft which was beyond the limit to the

Sahara Group, Lucknow based. The Central Banking Institution of India had appointed Deloitte

Haskin & Sells to look after the banks lending policies and information security system.

On 25

th

Feb 2010, Reserve Bank of India has imposed a pecuniary penalty of Rs. 25 lakh(Rupees

Twenty Five Lakh only) on The Bank of Rajasthan Ltd. in exert of powers enthroned under the

provisions of Section 47A(1)(b) of the Banking Regulation Act, 1949. On the following grounds

the penalty were imposed:-

i. Acquisition of Immovable properties- Violation the RBIs guidelines/directions issued

under Section 35A of the Banking Regulation Act, 1949.

ii. Blue-penciled the records banks IT system

iii. Non-adherence of guidelines related to Know Your Customers and anti money

laundering in opening and conduct of accounts.

iv. Irregular accounts conduct of a corporate group

v. Misrepresentation of facts- unable to produce documents sought by the Reserve Bank of

India.

The issue of Corporate Governance Standards was also one of the key areas which acted as a

loophole for the merger. Past from several years the bank has been in the eyeshot of RBI.

During the annual inspection of BoR, RBI found out unconventional disclosure of Shareholding

patterns of the promoter group. The shareholding pattern had been declined from 55% to 28.6%

between June 2007 and 2009 revealed by Market watchdog, SEBI.

The Tayals, Controllers of the Bank of Rajasthan started their search for suitable deal with

heading bank in order to enter into merger deal after the series of probes.ZENITH


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203

The discussions were held with many leading banks named ICICI Bank, HDFC Bank, Axis Bank

etc. The HDFC Bank has not shown any positive concern in this preposition. The officials of

Axis bank have denied the deal as they were not ready to pay demanded price. Somehow The

ICICI bank becomes ready to pay the price higher than the market valuation of Bank of

Rajasthan. However, the deal would mean little dilution for ICICI, as the market capitalization of

ICICI registered at Rs. 1, 00,717 crore whereas, BoR had Rs. 1323 crore only.

II. SECOND CALL: - A non-cash merger deal was approved by the board of directors of the

Indias second largest private sector bank. It was estimated that the merger would further

flourish the ICICIs branch network by 25 percent approximately.

It was decided that the report will be presented to Board of Directors after the approval of

independent valuer and further to Shareholders & Reserve Bank of India. The deal in its

intermediation decided that the swapping ration will be at 1:4.72 which will inferred as The

ICICI Bank would allot 25 shares for every 118 shares of Bank of Rajasthan.

The deal was based on the internal analysis of the proposed amalgamation which certainly be

calculated considering the followings:-

i. Strategic value of the deal

ii. Market capitalization per branch of the former private sector banks

iii. And comparison of deal with the relevant precedent transactions.

On May 18

th

2010, Bank of Rajasthans closing price mounted 52-weeks high at 99.50 while the

benchmark SENSEX grew only by 0.24 percent whereas ICICI Bank closed at 1.45 percent

lower at 889.35. Along with Share prices the ADR trading of ICICI bank has also fell down by


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2.18 percent at $ 38.61 on the New York Stock Exchange (NYSE).

After consideration of share prices the swap deal indicated that 90 percent premium has been

given by ICICI bank to Bank of Rajasthan.

The Bank of Rajasthan cost to ICICI bank at nearly Rs. 3041 crore on the basis of internal

valuation. In elaborated form, ICICI bank have to pay about 6.6 crore* for each of the BoR

Branch.

*valuation= Rs. 3041/ 463 branches (Rs. 6.6 crore at an average rate)

In line with market capitalization of the BoRs branches, an implied valuation by the exchange

ratio was scheduled to be decided but due diligence, freelance valuation and approvals will be

considered as the finale valuation.

Although valuation in monetary terms does have a strong impact in any merger but without

consideration of about 30 lakh customers and approx. 4000 employees, the deal might turned to a

big failure.ZENITH




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Haribhakti & co. has been appointed as an independent valuer by both the banks to evaluate the

valuation.

III. FINAL DAY

On 12

th

of August 2010, Alpana Killawala, CGM, department of communication, RBI has

published a press release that All branches of Bank of Rajasthan Ltd. will function as branches

of ICICI Bank Ltd. with effect from August 13, 2010. This is consequent upon the Reserve Bank

of India sanctioning the Scheme of Amalgamation of Bank of Rajasthan Ltd. with ICICI Bank

Ltd. The Scheme has been sanctioned in exercise of the powers contained in Sub-section (4) of


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Section 44A of the Banking Regulation Act, 1949. The Scheme will come into force with effect

from close of business on August 12, 2010.

PRE-POST MERGING CHALLENGES

At the time, when the Tayal Family decided to undergo for change through merger with ICICI

bank, lots of problems were already aroused which acted as the strong base to merger. The Bank

of Rajasthan was facing following challenges before amalgamation:-

Pre merging challenges Post merging challenges

Regulatory Concerns Corporate governance

Asset Quality Management Risk of asset quality deterioration

Legal Issues related to EGM Justify operations or leverage synergy

Union Strike and violation of Company Law

REGULATORY CONCERNS

Lots of litigation was charged on Bank of Rajasthan related to misrepresentation of promoters

stake which was unveiled by Security and Exchange Board of India on the pointers of Reserve

Bank of India. Others were distortion of documents and violation of regulatory norms pertaining

to accounts of the corporate group. For these regulatory proceedings, RBI had imposed 25 lacs as

a penalty on BoR for concealing the necessary facts.

ASSET QUALITY MANAGEMENT

In a merger asset quality always being a major concern for both the parties as the factor can turn

out the profitability or synergy. The ICICI bank raised its quarterly profit 44% by showing a

downfall in bad loans provisions and in the retail lending. It infers that ICICI banks NonPerforming

Assets (NPA) Ratio improved to 0.945 from 1.87% in previous year.ZENITH




205

In contrast the NPA ratio in Bank of Rajasthan has been showed increasing trend since from

2007 as shown in graph above.


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Before amalgamation ICICI bank has assess the risk by Bors loan portfolio, Deposit base staff

liabilities and Investments. In the deal Amarchand & Mangaldas & Suresh A Shroff & Co were

acting as the legal advisors whereas ICICI securities and JM Financials were the Financial

Advisors for valuation purpose.

LEGAL ISSUES RELATED TO EGM

The issue rose of legal binding of Shareholders decision on the BoR. The Extraordinary General

Meeting was cancelled by Kolkata civil court as the shareholders of BoR got the stay order

against the meeting. The reason found behind the merger was that the employees at BoR were

filed a complaint against the holding of EGM as they were opposed of the amalgamation.

UNION STRIKE AND VIOLATION OF COMPANY LAW

Around 4300 employees of BoR in all 463 branches across the country announced union strike to

protest against the proposed deal. The three major employees unions participated in the same

were All India Bank of Rajasthan Employees Federation (AIBOREF), All India Bank of

Rajasthan officers Association (AIBOROA) and Akhil Bhartiya Bank of Rajasthan Karamchari

Sangh (ABBORKS). The act performed by the employees in fear of thousands of job losses and

incompatible work cultures.

According to Companies Act 1956, 10% of the shareholders can requisition a meeting with the

permission of the Board of the company. After that the board has to hold the meeting within 3

weeks of the requisition. The decision of appointment of own chairman by the shareholders of

BoR was continued after knowing the fact of void as per company Act 1956.

POST MERGING CHALLENGES

The amalgamation of ICICI bank with Bank of Rajasthan came in to effect on August 13, 2010

when RBI approved the deal. The key issues that hindered the proposed merger have been

discussed earlier, now the focus of ICICI bank should be on followings:-

HR ISSUES

Human capital has always being a major concern for the merging firms. The integration of

human resource of both the entities sets the path of growth through synergy. Work cultures have


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always differed from organization to organization. To cope up with the change depends on the

ability of the organization and its problem solving approach.

In the amalgamation of ICICI bank and BoR, the issue related to the fear in the minds of

employees of being sacked by the transferee bank should be considered as major challenge after

merger. It was already assured by Ms. Chanda Kochhar, CEO and Managing Director of ICICI

bank that no employee will lose job after merger.ZENITH




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RISK OF DETERIORATION OF QUALITY OF ASSET

As Bank of Rajasthan have members of branch in the interior and rural area of Rajasthan,

number of loans disbursed to agricultural workers and the low profile people of the rural areas.

In future, there may be problem of recovery and chances of delinquency of such pre merge loans

by Bank of Rajasthan. It may increased the of NPA in the near future..

LEVERAGE AND SYNERGY

Before the deal announcement the share price of the ICICI bank was Rs. 889 where the swap

ratio implied substantial premium to the Bank of Rajasthans present price which was almost

89% higher. Do this high amount paid for synergy? The major challenge before this merger deal

would be to gain synergies which could be in any flow such as cost optimization through better

negotiation with vendors, economies of scale, eliminating overlaps and many more. Secondly,

through revenue enhancement this infers new market access (as ICICI bank will be able to get

readymade access to Bank of Rajasthans wide branch network in north and west India). Thirdly,

by way of technological leverage and forth could be forward and backward integration.

CONCLUSION

The above case of amalgamation will be substantially to enhance ICICI Banks branch network,

already the largest among Indian private sector banks, and especially strengthen its presence in


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northern and western India. It would combine Bank of Rajasthans branch franchise with ICICI

Banks strong capital base, to enhance the ability of the merged entity to capitalize on the growth

opportunities in the Indian economy. This is the third acquisition by ICICI Bank. It had earlier

acquired Bank of Madura way back in 2001 and the Maharashtra-based Sangli Bank in 2007

which shows that ICICI Bank believe in the expansion by the strategic move through

amalgamation which definitely a cost effective strategy.

REQUIRED

(a) Is corporate restructuring a tool to enhance the shareholders value.

(b) Why ICICI Bank has taken such a strategic move?

REFERENCES

first edition 2007.

House Pvt. Ltd., 2009.

on Trend and Progress of Banking in India 2009-10,RBI,Mumbai




207

ank

ntrol.com/annual-report

- Google.com

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