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 such M&A activities. An attempt has been made to analyze, Is corporate rest ructuring 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 regulateall 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 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).

Years 2001 2002 2007

Particulars Bank of Madura (est. 1943) was acquired by ICICI , an all-stock amalgamation Integration of banking operations and groups financing of ICICI in to individual entity, consisting both wholesale and retail. 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 31st 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 named Late Seth Shri Govind Ram Seksaria who started the bank with initial investment of Rs. 10 lacs. 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 above mentioned products and services can be divided into 3 segments called treasury operations, Banking operations and residuals.

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. 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

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 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 25th 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 probesThe 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 CICI 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 lourish 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 18th 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 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.Haribhakti & co. has been appointed as an independent valuer by both the banks to evaluate the valuation.

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 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 Regulatory Concerns Asset Quality Management Legal Issues related to EGM Union Strike and violation of Company Law Post merging challenges Corporate governance Risk of asset quality deterioration Justify operations or leverage synergy

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 o 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.In contrast the NPA ratio in Bank of Rajasthan has been showed increasing trend since from 2007 as shown in graph above.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 eeks 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

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. 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 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 HR Machiraju, Mergers, Acquisitions & Takeovers, New age international publishers, first edition 2007. Prasad G. Godbole, Mergers, Acquisition & Corporate Restructuring, Vikas Publishing House Pvt. Ltd., 2009. Annual Report on Trend and Progress of Banking in India 2009-10,RBI,Mumbai Annual Reports of Bank of Rajasthan