Case study on mergers

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International Journal of Multidisciplinary Research

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

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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 acontinuous basis, technically termed as Corporate Restructuring. It can be defined as a strategy toachieve 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 andenhance their leadership positions. It is a fundamental fact of finance that growth and capitalemployed are two basic drivers of the value of an organization. On the other hand neither growthnor 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 thestrategic move of ICICI bank. The case study will reveal the motives behind and synergies fromsuch 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 manymore 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 andacquisitions activities in India. One of the prominent motives behind Mergers and Acquisitionsin the banking sector is to harvest the benefit of economies of scales. With the help of mergersand 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 installationexpenses for setting up new branches will be saved. Secondly, the most significant vantage isthat 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 synergyfrom past many years. It also assists in shaping up and maximizing shar eholder‟s 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, marketliberalization, 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 proposedamendments in the Banking Regulations.

PROFILE OF ICICI BANK

HISTORY

In 1955, ICICI Limited was incorporated with the collective efforts of the major 3, named WorldBank, Government of India and Indian Industry‟s representatives. The establishment has been

taken place with a view to aid Indian businesses by acting as a source of finance to medium andlong term pr ojects. In 1990‟s, 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 group‟s 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 taxRs. 4,024.98 crore (US $ 896 million) turned out to be the second largest bank in IndianTerritory for the year ended 31st Mach 2010. The Bank has its spread over 19 countries with2530 branches and approx 6102 ATMs in India.

An extensive range of Product and services offered by ICICI though diverse delivery channelsare 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 on8th May, 1943.The Bank served The Government of Rajasthan as Scheduled bank for more than14 years starting from 1948. The founder Chairman of Bank of Rajasthan was an industrialist

http://en.wikipedia.org/wiki/Finance_and_insurance

http://en.wikipedia.org/wiki/Retail_Banking

http://en.wikipedia.org/wiki/Commercial_Banking

http://en.wikipedia.org/wiki/Mortgages

http://en.wikipedia.org/wiki/Credit_Cards

http://en.wikipedia.org/wiki/Asset_Management

http://en.wikipedia.org/wiki/Investment_Banking










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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 InsuranceCompany and Birla Sun Life Insurance

2003 MoU signed with Bank of Baroda to issue co-branded international VisaElectron Debit Card

2005-06 Termination of ties up with Bajaj Allianz General Insurance Company andBirla 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 bankingand depository, Credit facilities to SMEs ,gold facilities internet banking mobile banking, lifeinsurance, mutual fund services, western union money transfer services and many more. Theabove mentioned products and services can be divided into 3 segments called treasuryoperations, Banking operations and residuals.



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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, Capitalmarket and alliedindustries

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

Retail Banking

Commercial Banking

Mortgages

Credit Cards

Private Banking

Asset Management

Investment Banking

Corporate or wholesale banking,

Personal banking ,

Commercial banking,

Retail banking,

Finance and

insurance,

Investment Banking,

Auxiliary services,

Merchant banking,

Trust and custodialservices,

6 Business presence 19 countries All over India

7 Number of offices 1717* 478*

http://en.wikipedia.org/wiki/National_Stock_Exchange_of_India

http://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=ICICIBANK&section=7

http://en.wikipedia.org/wiki/Bombay_Stock_Exchange

http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=532174

http://en.wikipedia.org/wiki/New_York_Stock_Exchange

http://www.nyse.com/about/listed/quickquote.html?ticker=ibn

http://en.wikipedia.org/wiki/NASDAQ

http://quotes.nasdaq.com/asp/SummaryQuote.asp?symbol=IBN&selected=IBN






http://en.wikipedia.org/wiki/Private_Banking





http://en.wikipedia.org/wiki/Private_Banking






http://quotes.nasdaq.com/asp/SummaryQuote.asp?symbol=IBN&selected=IBN

http://en.wikipedia.org/wiki/NASDAQ

http://www.nyse.com/about/listed/quickquote.html?ticker=ibn

http://en.wikipedia.org/wiki/New_York_Stock_Exchange

http://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=532174

http://en.wikipedia.org/wiki/Bombay_Stock_Exchange

http://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=ICICIBANK&section=7

http://en.wikipedia.org/wiki/National_Stock_Exchange_of_India



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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 AssetRatio)

19.41* 7.52*

13 Net NPA Ratio 2.12* 1.60*

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

** 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 second-largest bank with total asset base of Rs. 3,634.00 billion (US$ 81 billion) as at March 31, 2010and 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 deliverycomprises Investment Banking, life and non-life insurance, venture capital and assetmanagement. The ICICI Bank has major subsidiaries in Canada, Russia and United Kingdom

(UK), branches in many areas like Bahrain, Bangladesh, China, Dubai International FinanceCentre, Hong Kong, Indonesia, Malaysia etc. and having representative offices in Singapore,South Africa, Sri Lanka, Thailand, United Arab Emirates and United States. Belgium andGermany act as established branches of UK subsidiary. The Listing of ICICI Bank's equityshares has in India on The Bombay Stock Exchange and the National Stock Exchange and alsoits 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 rolefor any company to ascertain the financial position which acts as an indicator of businesssoundness. 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, 2010from 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.

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





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III. Strong capital adequacy ratio of 19.14% and Tier-1(Equity Capital and disclosedreserves) capital adequacy of 13.48%.

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

OPERATING TRENDS

PROFIT & LOSS ACCOUNT

The Profit of the year ended March 31, 2009 stood 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 butdeclined by 9.61% in FY2009 as compared to FY 2008.

An increase net interest margin from 2.4% in FY2009 to 2.5% in FY2010.

Operating and administrative expenses decreased by 9.37% from Rs. 1952.99 crores infiscal 2009 to Rs. 1770.03 crores in fiscal 2010 due to overall cost reduction initiativesundertaken by the bank. The reduction initiatives include various expenses owing toadvertisement, printing and stationery, publicity and postage and communicationexpenses in FY 2010 as compared to FY2009.

The depreciation of the bank has reduced from 678.6 crores in 2009 to 619.5 crores in2010. The percentage change in depreciation is 8.71%.

BALANCE SHEET

There has been decrease in total asset by 4.19% to Rs. 3,634.00 billion at year-end fiscal2010 from Rs. 3,793.01 billion at year-end fiscal 2009. It has been showing decreasingtrend since from FY 2005.

Net advances decreased continuously since from FY2005, 34% decreased in betweenFY2006-2007 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.

With the increase in investment majorly in non-SLR by Rs. 128.18 billion, Totalinvestments has increased by 17.3% from Rs. 1,030.58 billion at FY2009 to Rs.1, 208.93 billion at FY2010. The other investments were in government and other securities of Rs.50.17 billion.

The ICICI Bank has continuously improvised its reserve capital since from FY 2006, whichmeliorates equity share capital and reserves from Rs. 495.33 billion at year-end fiscal 2009to Rs. 516.18billion at year-end fiscal 2010.

Change in organizational strategy reduced 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 pasttwo years whereas Savings account deposits and Current account deposits increased from



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Rs.626.68 billion at year-end fiscal 2009 to Rs. 842.16 billion at year-end fiscal 2010. Onother side term deposits has decreased to Rs. 1,178.01 billion at year-end fiscal 2010 fromRs. 1,556.80 billion at year-end fiscal 2009.

On account of new capital eligible borrowings, borrowings have been increased at ICICI bank from Rs. 931.55 billion at FY 2009 to Rs. 942.64 billion at FY 2010.

There has been decrease in other liabilities and provisions by 64.57 %.

CURRENT SCENARIO [2010]

With the beefed up in deposit franchise at the end March 31, 2010, the CASA ratio has beenincreased due to strong growth in savings and current account deposits. The bank‟s branchnetwork has been in expansion mode in order to enhance its deposit franchise and create anintegrated distribution network for both asset and liability products.

Source: Company‟s 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.

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 retailloan 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 IIwhich became applicable with effect from March 31, 2008. The guidelines require the Bank tomaintain a minimum ratio of total capital to risk adjusted assets (CRAR) of 9.0%, with aminimum Tier I capital ratio of 6.0%. Prior to March 31, 2008, the Bank was subject to thecapital 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 withthe initial capital of Rs. 10 lakh. The bank declared as scheduled bank in 1948 which has itsspecialization in forex and industrial finance. The bank located at jaipur has its branches spreadall 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 atFY 2010 which reflects a drastic decrease in net profit by 186.76%.

OPERATING TRENDS

INCOME AND PROFITABILITY

Total income received from interest and others income registered a growth of 25.8% fromFY 2008 at Rs. 1513.40 crores as on 31st March 2009.the reason behind the growth wasincrement in the yield on advances, where as total income was declined by 1.11% fromFY 2009 to Rs. 1496.67 crores as on year ended 2010.

The Profit after tax for the year 2008 and 2009 were remained at similar levels due toincrease in provision of Non-Performing Assets. The bank of Rajasthan reported net lossat 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.

As Bank of Rajasthan was facing losses during the year 2009-2010, the shareholderswere not proposed for any dividend.



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BALANCE SHEET

The bank of Rajasthan has been showing increasing trend but at a low pace. It hasincreased by 0.49% from Rs. 17235.09 crores as on year ended 2009, and grow by 8.99%

over the previous year.

The quality of assets at Bank of Rajasthan have been continuously deteriorating sincefrom 2007 stood at Rs. 293.81 crores as on year ended 2010 as compared to Rs. 160.9crores at the year ended 2009.

Although investment at Bank of Rajasthan has been 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 is1.27% reduced from previous year.

The balance sheet showing the freeze of equity capital infusion to the Bank of Rajasthanremained at Rs. 161.35 crores as on year ended 2010. The bank also has not issued fresh

shares to the market.

The growth in deposits at Bank of Rajasthan was moderate during 2008 to 2009 as per industry trend line but got hurdled in FY 2010 stood at Rs. 1506.35 crores, which is0.82% down the line.

Borrowings at Bank of Rajasthan have shown good sign for the bank as it has beencontinuously decreasing since from FY 2006. Currently the bank‟s borrowings stood at

Rs. 0.65 crores as on year ended 2010.

Continuous 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 bank‟s substantial exposure in sectors like textiles and real estates. It was the key sensitive areafor 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 inthe 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 byside 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 stablewith advances during FY 2010.



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CAPITAL ADEQUACY RATIO (CAR)

As per Basel I, the Bank of Rajasthan‟s CAR stood at 7.74% as on year ended 2010 as comparedto 12% of previous financial year. The below mentioned graph depicts the trend lines of Non-

Performing assets and CAR. Tier 1 CAR was marginally above the prescribed regulatoryrequirement of 6% but had declined in March 31st 2010 stood at 3.87%.

The overall condition of Bank of Rajasthan was seen continuously deteriorating due to variouslegal issues. Some of those were:-

Notice from Jaipur Stock exchange limited for alleged violation of clause 36 of the listingagreement.

Penelty by RBI on Bank of Rajasthan of Rs. 25 lakhs.

Union strike by 3 major employee union of Bank of Rajasthan i.e., AIBOREF,

AIBOROA and ABBOR.

Notice by Rajasthan high court.

Source: Asian CERC (Amount in Crores)



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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 itssubsidiaries. The strategic focus of the bank has shifted to balance sheet growth and market shareheighten 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

The condition of Bank of Rajasthan had been seeing in under pressure after a series of probescontinued by RBI. Irregular performance of the bank gave rise to several investigations alongwith 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 theSahara Group, Lucknow based. The Central Banking Institution of India had appointed DeloitteHaskin & Sells to look after the bank‟s lending policies and information security system.

On 25th Feb 2010, Reserve Bank of India has imposed a pecuniary penalty of Rs. 25 lakh(RupeesTwenty 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 groundsthe penalty were imposed:-

i. Acquisition of Immovable properties- Violation the RBI‟s guidelines/directions issued

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

ii. Blue- penciled the records bank‟s IT system

iii. Non-adherence of guidelines related to Know Your Customers and anti moneylaundering in opening and conduct of accounts.

iv. Irregular account‟s 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 withheading bank in order to enter into merger deal after the series of probes.



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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 TheICICI 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 theIndia‟s second largest private sector bank. It was estimated that the merger would further flourish the ICICI‟s 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 itsintermediation decided that the swapping ration will be at 1:4.72 which will inferred as TheICICI 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 becalculated 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 18th 2010, Bank of Rajasthan„s 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 by2.18 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 beengiven by ICICI bank to Bank of Rajasthan.

The Bank of Rajasthan cost to ICICI bank at nearly Rs. 3041 crore on the basis of internalvaluation. 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 BoR‟s branches, an implied valuation by the exchangeratio was scheduled to be decided but due diligence, freelance valuation and approvals will beconsidered as the finale valuation.

Although valuation in monetary terms does have a strong impact in any merger but withoutconsideration of about 30 lakh customers and approx. 4000 employees, the deal might turned to a big failure.



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

III. FINAL DAY

On 12th 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 Section 44A of the Banking Regulation Act, 1949. The Scheme will come into force with effectfrom 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 promoter‟sstake which was unveiled by Security and Exchange Board of India on the pointers of ReserveBank of India. Others were distortion of documents and violation of regulatory norms pertainingto accounts of the corporate group. For these regulatory proceedings, RBI had imposed 25 lacs asa 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 turnout the profitability or synergy. The ICICI bank raised its quarterly profit 44% by showing adownfall in bad loans provisions and in the retail lending. It infers that ICICI bank‟s Non-Performing Assets (NPA) Ratio improved to 0.945 from 1.87% in previous year.



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In contrast the NPA ratio in Bank of Rajasthan has been showed increasing trend since from2007 as shown in graph above.

Before amalgamation ICICI bank has assess the risk by Bor‟s loan portfolio, Deposit base staff

liabilities and Investments. In the deal Amarchand & Mangaldas & Suresh A Shroff & Co wereacting as the legal advisors whereas ICICI securities and JM Financials were the FinancialAdvisors for valuation purpose.

LEGAL ISSUES RELATED TO EGM

The issue rose of legal binding of Shareholder‟s 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 werefiled 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 samewere All India Bank of Rajasthan Employees Federation (AIBOREF), All India Bank of Rajasthan officers Association (AIBOROA) and Akhil Bhartiya Bank of Rajasthan KaramchariSangh (ABBORKS). The act performed by the employees in fear of thousands of job losses andincompatible 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 3weeks 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, 2010when RBI approved the deal. The key issues that hindered the proposed merger have beendiscussed 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 havealways differed from organization to organization. To cope up with the change depends on theability 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.



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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 swapratio implied substantial premium to the Bank of Rajasthan‟s present price which was almost89% higher. Do this high amount paid for synergy? The major challenge before this merger dealwould 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 getreadymade access to Bank of Rajasthan‟s 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 Bank‟s branch network,

already the largest among Indian private sector banks, and especially strengthen its presence innorthern and western India. It would combine Bank of Rajasthan‟s branch franchise with ICICIBank‟s 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 2007which 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

HR Machiraju, Mergers, Acquisitions & Takeovers, New age international publishers,first edition 2007.

Prasad G. Godbole, Mergers, Acquisition & Corporate Restructuring, Vikas PublishingHouse Pvt. Ltd., 2009.

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

Annual Reports of Bank of Rajasthan



ZENITH




c h . o r g . i n

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Annual Reports of ICICI Bank

http://www.moneycontrol.com/annual-report

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

http://www.capitaline.com/user

http://www.icicibank.com/aboutus

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Case study on mergers