Assignment no-1

Case study on merger between

and

Prepared by :

Bhavya Sawhney

A1802009464

Semester-3

Section-A MBA-IB
Company Profile of ICICI bank
In 1955- The Industrial Credit and Investment Corporation of
India Limited (ICICI) incorporated at the initiative of the World
Bank, the Government of India and representatives of Indian
industry, with the objective of creating a development financial
institution for providing medium-term and long-term project
financing to Indian businesses. Mr.A.Ramaswami Mudaliar
elected as the first Chairman of ICICI Limited.

ICICI Bank started as a wholly owned subsidiary of ICICI Limited, an Indian financial institution, in 1994.
Four years later, when the company offered ICICI Bank's shares to the public, ICICI's shareholding was
reduced to 46%. In the year 2000, ICICI Bank offered made an equity offering in the form of ADRs on the
New York Stock Exchange (NYSE), thereby becoming the first Indian company and the first bank or
financial institution from non-Japan Asia to be listed on the NYSE. In the next year, it acquired the Bank
of Madura Limited in an all-stock amalgamation. Later in the year and the next fiscal year, the bank made
secondary market sales to institutional investors. 

With a change in the corporate structure and the budding competition in the Indian Banking industry, the
management of both ICICI and ICICI Bank were of the opinion that a merger between the two entities
would prove to be an essential step. It was in 2001 that the Boards of Directors of ICICI and ICICI Bank
sanctioned the amalgamation of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI
Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank. In the following
year, the merger was approved by its Company Profile

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81
billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year
ended March 31, 2010. The Bank has a network of 2,035 branches and about 5,518 ATMs
in India and presence in 18 countries. ICICI Bank offers a wide range of banking products
and financial services to corporate and retail customers through a variety of delivery
channels and through its specialised subsidiaries in the areas of investment banking, life and
non-life insurance, venture capital and asset management. The Bank currently has
subsidiaries in the United Kingdom, Russia and Canada, branches in United States,
Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre
and representative offices in United Arab Emirates, China, South Africa, Bangladesh,
Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium
and Germany. 
Company Profile of Bank Of Rajasthan

Bank of Rajasthan is a leading private sector Bank, having branches all over India with
prominent presence in Rajasthan having specialised forex and Industrial finance branches.
The Bank operates in three business segments: treasury operations, banking operations and
others/residual. The services provided by the Bank includes commercial banking, merchant
banking, auxiliary services, consumer banking, deposit and money placement services,
trusts and custodial services, international banking, private sector banking and depository.
The other products provided by the Bank includes anywhere banking, Internet banking,
mobile banking, life insurance, general insurance, mutual funds, depository services, credit
cards, international debit cards, foreign remittances, Western Union money transfer, stamp
franking, online shopping and lockers facility. Bank Of Rajasthan Ltd was incorporated on
May 8, 1943 at at Udaipur, the city of lakes in Rajasthan. The Mansingka brothers of
Bhilwara established the Bank as a joint stock bank. The bank became a scheduled bank in
1948 and acted as a banker to the government of Rajasthan for more than 14 years. In the
year 1955, the Bank was given license by the Reserve Bank of India. In August 1960, the
Bank opened their first mobile branch in Jaipur. In the year 1973, they received license to
deal in foreign exchange from the RBI. In addition, they opened their 100th branch at
Barmer. In the year 1980, they opened their 200th branch in Jodhpur. In January 1983, they
established the Mewar Anchlik Gramin Bank in Udaipur, Rajasthan. In the year 1993, the
Bank received authority to deal as Class-I Merchant Banker. In addition, they started the
currency chest of the Bank. In the year 1997, they opened their 300th branch in Cochin.
They started their first ATM services in the series of quality services to their customers at C-
Scheme Jaipur branch from July 1, 1998. In the year 2000, the Bank made a tie up with
Infosys Technologies for revamping their infotech infrastructure that will allow the bank to
fully computerized. In the year 2002, the Bank introduced a new scheme called 'gaddi-
bangla scheme' to provide loan to buy house and car. They implemented a IT infrastructure
called NetServices Software developed by Novell Software Ltd. The Bank made a tie-up with
Corporation Bank for sharing the teller machine networks. During the year, the Bank signed
an MoU with Bajaj Allianz General Insurance Company to act as their exclusive corporate
agent in Rajasthan. They also signed an MoU with Birla Sun Life Insurance for distributing
Insurance Products. During the year 2002-03, the Bank opened a fully computerized,
Treasury Branch at Mumbai, connected on line with other Any where Banking branches.
They opened seven new fully computerized online branches at Subhash Marg, Jaipur;
Thane (West); Silvasa(UT); Bhavnagar; Malegaon; Jhotwara and Jaipur. In addition, they
opened 4 new Extension Counters and upgraded 15 Extension Counters into full fledged
branches. During the year, UTI entered into ATM sharing venture by joining hands with the
bank. In addition, the Bank signed an MoU with Bank of Baroda to issue co-branded
international Visa Electron DebitCard. During the year 2003-04, the Bank opened 16 new
branches, out of which 12 were located out side Rajasthan. They also opened 9 new
Extension Counters and upgraded 2 Extension Counters into full-fledged branches. In
addition, they installed 27 new ATMs during the year. As per the scheme of merger, all the
assets and liability of the Bank's wholly owned subsidiary company namely Rajasthan Bank
Financial Services Ltd merged with the Bank with effect from April 1, 2003. In November
2003, the Bank launched International Debit Card with tie-up arrangement with the BOB
Cards Ltd. During the year 2004-05, the Bank launched a new retail-banking product under
the name Raj Bank Laghu Udhyami Credit Card (RBLUCC) that enables hassle free credit
limit upto Rs 10.00 lakh to entrepreneurs of small-scale industries, small business entities,
professionals & self-employed persons etc. The Bank also provided Depository Service at
141 centres through direct connectivity. During the year, the Bank opened 17 branches 11
extension counters and 7 Offsite ATMs. The new branches include centers like Jabalpur,
Sendwa, Mandsaur and Burhanpur in Madhya Pradesh, Raipur in Chattisgarh, Hissar,
Ambala Cantt. and Yamuna Nagar in Haryana, Patiala in Punjab, Amravati, Parbhani, Malad
& Vashi in Mahrashtra, Sarat Bose Road in Kolkata, Gopalpura circle in Jaipur & Service
Branch, Kota in Rajasthan and Paschim Vihar in Delhi. In June 2004, the Bank joined Real
Time Gross Settlement (RTGS) system of Reserve Bank of India, which eliminated
settlement risks and has reduced transaction cost and facilitated better funds management
by the Bank. In September 2004, they introduced a New Banking Solution (BancMate) for
the branches other than on Core Banking. With the implementation of BancMate, the data of
entire Bank will be available at central storage at Data Center, which will enable the
availability of delivery channels to all the branches and make Anywhere Banking facility
available at all branches. During the year 2005-06, the Bank opened 14 branches at Ranchi
(Jharkhand), Jammu (J&K), Patna (Bihar), Simla (HP), Guwahati (Assam), Dehradun
(Uttaranchal), Akola and Yawatmal in Maharashtra, Bhatinda and Kapurthala in Punjab,
Meerut in UP and Guntur, Adilabad and Vishakhapatanam in Andhra Pradesh. In addition,
they opened 4 extension counters, 2 Offsite ATMs and upgraded 16 Extension Counters into
full-fledged branches. During the year, the Bank launched Internet banking services. They
terminated the tie up arrangements with Bajaj Allianze General Insurance Company and
Birla Sunlife Insurance Company. In addition, they made new arrangements with United
India Insurance Company Ltd and Life Insurance Corporation of India for marketing their
non-life and life insurance products respectively. In March 2006, the Bank entered into a
rupee drafts drawing arrangement with Wall Street Exchange Centre LLC, Dubai that is an
established exchange company in UAE. During the year 2006-07, the company opened 9
new branches at Muktsar & Khanna in Punjab, Bangalore in Karnataka; Jodhpur in
Rajasthan; Panjim in Goa; Hargobind Enclave & Kalkaji in New Delhi; Warangal & Vijaiwada
in Andhra Pradesh. In addition, they upgraded 30 Extension Counters into full-fledged
branches and opened 4 Offsite ATMs & 12 Onsite ATMs. In August 2006, they commenced
foreign exchange business at their Tirupur branch. During the year 2007-08, the Bank
opened new branches at Dibrugarh, Tinsukia & Jorhat (Assam), Vapi & Kadi (Gujrat),
Gurgaon & Manesar (Haryana), Baddi (Himachal Pradesh), Brahmani Kamleshwar,
Pulgaon, Jalgaon, Bhiwandi, Kandivali, Kolhapur & Nasik (Maharasthra), Moga (Punjab),
Tiruchirapally & T.Nagar Chennai (Tamilnadu) and Siliguri (West Bengal). They upgraded 2
Extension Counters into full-fledged branches Rambagh Palace Hotel, Jaipur and RSRTC
Dungarpur and opened 12 offsite ATMs & 8 Onsite ATMs. During the year 2008-09, the
company implemented the new integrated treasury software 'KASTLE' from 3i Infotech at
Bank's Treasury branch, Mumbai. They came out with Tier II Bond issue (Series VI)
aggregating to Rs 43.80 crore allotted on January 5, 2009. In September 2008, the Bank
signed an MoU with ICRA Ltd under which, ICRA will assign ratings to Bank's loans and
other exposures under the standardised approach of RBI's new capital adequacy framework.
The Bank proposed to open new branches and 28 offsite ATMs at different
locations/centres. They proposed to enter the rupee draft drawing arrangement with Al
Muzaini Exchange Company, Kuwait and Habib Qutar International Ltd, Doha. As on March
31, 2009, the Bank had 463 branches, which includes 6 service branches, 29 offsite ATMs
and 82 onsite ATMs covering 22 States and 2 Union Territories across the country.

Why should the merger take place , basically the rational for the merger?

India’s largest private lender ICICI Bank’s proposed merger with the troubled bank — Bank
of Rajasthan or BoR — appears to be an expensive deal. Bank of Rajasthan, which was
founded in 1943, is going through a rough patch since its promoter Tayal family and Group
companies were barred from accessing the market by the SEBI in March for mis-declaring its
holding in the bank .Following the merger, the Tayal family will quit the Bank of Rajasthan.
The board of the banks has given in-principle approval to the merger; a final view will be
taken on May 23 after receiving the report of the valuation consultant Haribhakti & Co. Bank
of Rajasthan is worth Rs 1,500 crore as per its share price today. The scrip surged 20 per cent
to Rs 99.50 on BSE.

ICICI Bank has a presence in 18 countries and has over 2,000 branches.
The total business of country's largest private sector lender ICICI Bank will cross Rs 4 lakh
crore after its takeover of the Bank.
The rationale for the merger, according to the ICICI Bank management, is that it would have taken the
bank three years to build the kind of low-cost current account and savings account (CASA)
relationship; it gets to build upon now with the latest move. ICICI Bank has had its sights set firmly on
expanding its share of CASA deposits. Going by the share swap details, BoR’s stock was valued
roughly at twice its closing price.

The rationale for the merger, according to the ICICI Bank management, is that it would have taken the
bank three years to build the kind of low-cost current account and savings account (CASA)
relationship; it gets to build upon now with the latest move. ICICI Bank has had its sights set firmly on
expanding its share of CASA deposits. Consider this: the bank added CASA deposits aggregating over
Rs 21,000 crore in the year ended March 2010. In contrast, BoR’s CASA deposits were Rs 4,163 at the
end of the past fiscal. BoR’s base is too low to bring about any dramatic improvement in ICICI Bank’s
low-cost deposits base.

ICICI banks sole aim is to increase its CASA deposits. However, contradicting to the
situation ICICI bank added CASA deposit for the year ended March 2010 aggregating over
Rs 21000 crore. On the other hand BoR’s CASA deposits stand at Rs 4163 at the end of
past fiscal. BoR’s base is too low to bring about any dramatic improvement in ICICI bank’s
low cost deposit base.
What BOR offers is it franchise constituting a network of 463 branches out of which 271 are
in urban areas. However, if productivity of branches is taken into consideration BoR is far
behind ICICI bank. Also BoR ability to generate income from its assets is lower than ICICI
bank. While BoR clocked a return on average assets (RoAA) at 0.7%, ICICI bank reported a
RoAA at 1%. Considering this the proposed merger will be RoAA-dilutive for ICICI bank.
However there is one thing where BoR is better than ICICI bank is the quality of books. At
the end of December 2009 quarter, net non-performing assets (NPAs) formed 1.05% of
advances of BoR. This is much better than ICICI bank at the end of FY10. But then what has
to be taken into consideration is that ICICI bank’s asset size is way above when compared to
BoR.
Even in past mergers have taken place like the HDFC bank acquiring Centurion Bank of
Punjab (CBoP). This merger has led a lag effect on HDFC asset quality since CBoP asset
quality was fairly poor.  This may not happen with ICICI bank and BoR merger since BoR
asset quality is better.
Thus the overall merger with BoR is an expensive one for ICICI bank. According to the
sources the share swap of BoR is valued at Rs 6.6 crore per branch which clearly indicates
ICICI bank had no option but to pay a premium.
SWAP RATIO FOR ICICI-BOR MERGER SHOULD BE MINIMUM 1: 3 .
ICICI Bank further stated that it has entered into an agreement with certain shareholders of
Bank of Rajasthan agreeing to effect the amalgamation of Bank of Rajasthan with ICICI
Bank with a share exchange ratio of 25 shares of ICICI Bank for 118 shares of Bank of
Rajasthan.

ICICI Bank offered 25 shares for every 118 shares of BoR (or a swap ratio of 1:4.72) held by
the Tayal family. Under the share-swap ratio, the Tayal group will receive 1.88-crore ICICI
Bank shares for their 8.88-crore BoR shares.

ICICI BANK SHAREHOLDERS APPROVE BOR MERGER:-

ON 22 JUNE, The country's largest private sector lender ICICI Bank today said its
shareholders have approved the merger of Bank of Rajasthan with itself.
The shareholders of the bank approved the amalgamation of Bank of Rajasthan with ICICI
Bank at the extraordinary general meeting held at Vadodara yesterday, the bank said in a
statement.

Strategic Value to the banks after the merger will be :

“This is based on an internal analysis of the strategic value of the proposed amalgamation,
average market capitalisation per branch of old private sector banks and relevant precedent
transactions. The proposed amalgamation would substantially enhance ICICI Bank's 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 Rajasthan's branch franchise with ICICI Bank's strong capital
base. The valuation implied by the share exchange ratio as mentioned is in line with the
market capitalisation per branch of old private sector banks in India. It also compares
favourably with relevant precedent transactions. The final determination of the share
exchange ratio is subject to due diligence, independent valuation and approvals,” ICICI Bank
added.

Bank of Rajasthan has informed stock exchanges that “the board met on Tuesday, where in-
principle approval by majority was given for an amalgamation of the bank (transferor bank)
with ICICI Bank (transferee bank) subject to receipt of valuation report from an independent
valuer and other required approvals/permissions.”
Another bank of the pre independence era losing out its operations

The proposed merger of Bank of Rajasthan with ICICI Bank has seen the exit of another
private bank belonging to the pre-independence era. Interestingly, BoR can stake claim to the
Rajasthan name since the bank was in existence long before the formation of the state. In
1942, the original promoters of the bank wanted to name it the Bank of Udaipur or Bank of
Mewar. But keeping the regional ambitions in mind, they named it the Bank of Rajasthan
which literally means bank of the princely states. It was much later that the state of Rajasthan
was formed.

BOR BECOMES PART OF ICICI, INTEGRATION PROCESS STARTS:-

Udaipur-based Bank of Rajasthan (BoR) became part of the country's largest private sector
lender ICICI Bank following the RBI approval to merger proposal of the two lenders. All 463
branches of BoR has started functioning as ICICI Bank's as per the directive of the Reserve
Bank of India.
"With this, ICICI Bank will have a branch network of about 2,500 branches, by far the largest
among private sector banks. This will position the bank well to capitalise on the growth
opportunities in the Indian economy," ICICI Bank CEO and Managing Director Chanda
Kochhar said. The merger "creates a good strategic fit, combining ICICI Bank's capital base
and product suite with Bank of Rajasthan's branch network", she added.
This is the third acquisition by ICICI Bank. It had earlier acquired Bank of Madura way back
in 2001 and Maharashtra-based Sangli Bank in 2007.
\The integration, according sources, will take some time as IT systems will have to integrate
with the ICICI Bank network."The integration will be completed this month," Pravin Tayal,
the promoter of the BoR had said.
With the merger, the balance sheet of ICICI Bank would cross Rs 4 lakh crore. BoR has a
total business of over Rs 23,000 crore, against nearly Rs 3, 84,000 crore of ICICI Bank.
Meanwhile, the Reserve Bank has fixed Rs 154.50 per share as price for dissenting
shareholders of Bank of Rajasthan, BoR informed the Bombay Stock Exchange (BSE).
Shares of the ICICI Bank were trading at Rs 963, up 1.51 per cent, while the BoR shares
were up 6.39 per cent at Rs 202 at BSE. The BoR filing further said that its managing director
and CEO G Padmanabhan, who was appointed by the RBI in November, stepped down
yesterday. It further said that meeting of the BoR board, scheduled to be held today, to
approve the quarterly results, has been cancelled.
Earlier in May, the 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.
Post approval by the shareholders; the banks moved RBI on June 25 for regulatory clearance.
The merger process, which was mired in controversy, moved ahead after the Calcutta High
Court dismissed a petition by minority shareholders against the amalgamation. The High
Court also asked the petitioner to pay a cost of Rs 50,000 for a frivolous case.