A

SUMMER TRAINING REPORT

ON
Merger and Acquisition in ICICI Bank

Submitted in the partial fulfilment of the requirements of degree in

Bachelor of Business Administration
Session 2018-21

Submitted by Submitted to
Aayush Rastogi Dr. Parul Deshwal
BBA(B&I) 5th Semester Associate Professor
00114901818 Dept. of Business Administration

MAHARAJA SURAJMAL INSTITUTE

Affiliated to Guru Gobind Singh Indraprastha University,
Delhi C-4 Janakpuri, New Delhi-110058
 CERTIFICATE

This is to certify that as per best of my belief the project entitled “Merger and
Acquisition in the ICICI Bank” is the bona-fide research work carried out by
AAYUSH RASTOGI in partial fulfillment of the requirements for the Summer
Training Report of the Degree of Bachelor of Business Administration. He has
worked under my guidance.

Dr. Parul Deshwal

(Signature of the Guide)
 ACKNOWLEDGEMENT

I offer my sincere thanks and humble regards to MAHARAJA SURAJMAL

INSTITUTE, GGSIP UNIVERSITY, for imparting us very valuable professional
training in BBA.

I pay my gratitude and sincere regards to Dr. Parul Deshwal , my project guide for
giving me the required help and imparting me with her knowledge. I am thankful to
her as she has been a constant source of advice, motivation and inspiration. I am also
thankful to her for giving suggestions and encouragement throughout the project
work.

Aayush Rastogi
(Student Signature)
 TABLE OF CONTENTS

[Link] TOPIC PAGE

NUMBER
1 Chapter I: Introduction 1
Research Objective
Research Methodology
Limitations of the study

2 Chapter II: Profile of the Organization 6

3 Chapter III: Literature Review 14

4 Chapter IV: Analysis and Interpretation of Data 20

5 Chapter V: Conclusion 33

6 Bibliography 35
 CHAPTER I
INTRODUCTION

1
OBJECTIVES OF THE STUDY

 To study the purpose of mergers and acquisitions in the Banking sector and to study the
benefits of mergers and acquisitions.

 To study the motives behind consolidation in the Banking sector and to study the risk
involved in merger and acquisition.

 To study the Procedure of Bank Mergers and Acquisitions

 To study the HR issues during merger and acquisition and to understand the challenges and
opportunities in the Indian Banking Sector.

 Case Study on the Merger of ICICI Bank and Bank of Rajasthan.

RESEARCH METHODOLOGY

The analysis is purely based on the secondary data.

Secondary Data refers to the data/information collected from censuses, government department,
organizational records and the data originally collected for research purposes.

Secondary Research based on:

 Business Magazines
 Internet Sources
 Finance books

2
LIMITATIONS

1. The major limitation of the project is the time frame. The post-merger analysis is just for
one year and one year is too less period to judge the effect of a merger.

2. The analysis is based on various ratios hence all the limitations of the ratio analysis become
a part of the limitations of the study.

3. Whole of the analysis is based on the balance sheets and profit and loss accounts, which is
a secondary data. Hence cannot be denied of any ambiguity in the data used for analysis.

3
MERGER
Merger is defined as combination of two or more companies into a single company where one
survives and the others lose their corporate existence. The survivor acquires all the assets as well
as liabilities of the merged company or companies. Generally, the surviving company is the buyer,
which retains its identity, and the extinguished company is the seller. Merger is also defined as
amalgamation. Merger is the fusion of two or more existing companies. All assets, liabilities and
the stock of one company stand transferred to

Transferee Company in consideration of payment in the form of:

 Equity shares in the transferee company,


 Debentures in the transferee company,

 Cash, or

A mix of the above modes.

TYPES OF MERGERS
Merger or acquisition depends upon the purpose of the offeror company it wants to achieve. Based
on the offerors‟ objectives profile, combinations could be vertical, horizontal, circular and
conglomeratic as precisely described below with reference to the purpose in view of the offeror
company.

(A) Vertical combination:

A company would like to take over another company or seek its merger with that company to
expand espousing backward integration to assimilate the resources of supply and forward
integration towards market outlets. The acquiring company through merger of another unit
attempts on reduction of inventories of raw material and finished goods, implements its production
plans as per the objectives and economizes on working capital investments. In other words, in
vertical combinations, the merging undertaking would be either a supplier or a buyer using its
product as intermediary material for final production.

The following main benefits accrue from the vertical combination to the acquirer company i.e.

1. It gains a strong position because of imperfect market of the intermediary products, scarcity of
resources and purchased products;

2. Has control over products specifications.

(B) Horizontal combination:

It is a merger of two competing firms which are at the same stage of industrial process. The
acquiring firm belongs to the same industry as the target company. The main purpose of such
mergers is to obtain economies of scale in production by eliminating duplication of facilities and
the operations and broadening the product line, reduction in investment in working capital,

4
elimination in competition concentration in product, reduction in advertising costs, increase in
market segments and exercise better control on market.

(C) Circular combination:

Companies producing distinct products seek amalgamation to share common distribution and
research facilities to obtain economies by elimination of cost on duplication and promoting market
enlargement. The acquiring company obtains benefits in the form of economies of resource
sharing and diversification.

(D) Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries like DCM and Modi
Industries. The basic purpose of such amalgamations remains utilization of financial resources and
enlarges debt capacity through re-organizing their financial structure so as to service the
shareholders by increased leveraging and EPS, lowering average cost of capital and thereby raising
present worth of the outstanding shares. Merger enhances the overall stability of the acquirer
company and creates balance in the company’s total portfolio of diverse products and production
processes.

ACQUISITION
Acquisition in general sense is acquiring the ownership in the property. In the context of business
combinations, an acquisition is the purchase by one company of a controlling interest in the share
capital of another existing company. Such purchase may be of 100%, or nearly 100%, of the assets
or ownership equity of the acquired entity.

METHODS OF ACQUISITION

An acquisition may be affected by:-

 Agreement with the persons holding majority interest in the company management like
members of the board or major shareholders commanding majority of voting power;
 Purchase of shares in open market.
 To make takeover offer to the general body of shareholders;
 Purchase of new shares by private treaty.

Acquisition of share capital through the following forms of considerations viz. Means of cash,
issuance of loan capital, or insurance of share capital.

5
 CHAPTER II

PROFILE OF THE ORGANIZATION

6
 PROFILE OF ICICI BANK LIMITED

(Industrial Credit and Investment Corporation of India)

ICICI BANK is the second largest bank in India and the biggest in the private sector. It started its
operations in 1994 as a new generation private sector bank. ICICI Bank is the first Indian bank to
be listed on the New York Stock Exchange with US GAAP accounting and has a worldwide
presence including in the UK and Canada.

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 Banks has a network of 2035 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 specialized subsidiaries
in the areas of investment banking, life and non-life insurances, venture capital and asset
management

HISTORY

ICICI Bank was established by the Industrial Credit and Investment Corporation of India (ICICI),
an Indian financial institution, as a wholly owned subsidiary in 1994. The parent company was
formed in 1955 as a joint-venture of the World Bank, India's public-sector banks and public-sector
insurance companies to provide project financing to Indian industry. The bank was founded as the
Industrial Credit and Investment Corporation of India Bank, before it changed its name to the
abbreviated ICICI Bank. The parent company was later merged with the bank.
ICICI Bank launched internet banking operations in 1998.
ICICI's shareholding in ICICI Bank was reduced to 46 percent, through a public offering of shares
in India in 1998, followed by an equity offering in the form of American Depository Receipts on
the NYSE in 2000.
ICICI Bank acquired the Bank of Madura Ltd. An all-stock deal in 2001 and sold additional
stakes to institutional investors during 2001-02.
In the 1990s, ICICI transformed its business from a development financial institution offering only
project finance to a diversified financial services group, offering a wide variety of products and
services, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In
1999, ICICI become the first Indian company and the first bank or financial institution from non-
Japan Asia to be listed on the NYSE.
In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI
and two of its wholly owned retail finance subsidiaries, ICICI Personal Financial Services Limited
and ICICI Capital Services Limited, with ICICI Bank. The merger was approved by shareholders
of ICICI and ICICI Bank in January 2002, by the High Court of Gujarat at Ahmadabad in March
2002 and by the High Court of Judicature at Mumbai and the Reserve Bank of India in April 2002.

7
In 2008, following the 2008 financial crisis, customers rushed to ICICI ATMs and branches in
some locations due to rumors of an adverse financial position of ICICI Bank. The Reserve Bank
of India issued a clarification on the financial strength of ICICI Bank to dispel the rumors.

SUBSIDARIES

 Domestic

 ICICI Prudential Life Insurance Company Limited

 ICICI Lombard General Insurance Company Limited
 ICICI Prudential Asset Management Company Limited
 ICICI Prudential Trust Limited
 ICICI Securities Limited
 ICICI Securities Primary Dealership Limited
 ICICI Venture Funds Management Company Limited
 ICICI Home Finance Company Limited
 ICICI Investment Management Company Limited
 ICICI Trusteeship Services Limited
 ICICI Prudential Pension Funds Management Company Limited.

 International

 ICICI Bank UK PLC

 ICICI Bank Canada
 ICICI Bank Germany
 ICICI Bank Eurasia Limited Liability Company
 ICICI Securities Holdings Inc.
 ICICI Securities Inc.
 ICICI International Limited

8
 BANK OF RAJASTHAN

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 March 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 specialised 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 product and services can be divided into 3 segments called treasury
operations, Banking operations and residuals.

HISTORY

It was set up at Udaipur in 1943 with an initial capital of Rs.10.00 lacs. An eminent
Industrialist Late Seth Shri Govind Ram Seksaria was the founder chairman and Late Shri
Dwarka Prasad Gupta was the first General Manager.

It was classified as the Scheduled Bank in 1948. The Bank also established a rural (Gramin)
bank Mewar Anchlik Gramin Bank in Ahmadabad District in Gujarat on 26 January 1983.
The bank's central office is located at Jaipur, although its registered office is in Udaipur.
Presently the bank has 463 branches in 24 states, with 294 of the branches being in Rajasthan.

9
 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 NSE: BANKRAJAS

BSE: 532174
NYSE: IBN BSE: 500019
NASDAQ: IBN

 Finance and
5 Products insurance  Corporate or
Wholesale
banking
 Retail Banking
 Personal banking
 Commercial

Banking
 Commercial
banking
 Mortgages
 Retail banking
 Credit Cards
 Auxiliary services

 Private Banking  Merchant banking

 Asset

Management
 Trust and
custodial services
 Investment
Banking

6 Business presence 19 countries All over India

10
7 Number of offices 1717* 478*

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 19.41* 7.52*

Ratio)

13 Net NPA Ratio 2.12* 1.60*

11
 SWOT ANALYSIS

STRENGTH

 ICICI is the second largest bank in terms of total assets and market share.
 Total assets of ICICI are Rs. 4062.34 Billion and recorded a maximum profit after tax of
Rs. 51.51 billion and located in 19 countries.
 ICICI bank is the first bank in India to introduce complete mobile banking solutions and
jewelry card.
 The bank has PAN India presence of around 2567 branches and 8003 ATMs.
 Its strong and transparent balance sheet is one of the major strength of ICICI bank.
 Marketing and advertising strategies of ICICI have good reach compared to other banks in
India.

WEAKNESS

 Customer support of ICICI bank is not performing well in terms of resolving complaint.
There are a lot of consumer complaints against ICICI.
 The bank has the most stringent policies in terms of recovering the debts and loans.
 The employees of ICICI bank are in maximum stress because of the aggressive policies of
the management to win ahead in the race. This may result in less productivity in future
years.
 The bank service charges are comparatively higher.

OPPORTUNITY

 Banking sector was expected to grow at a rate of 17% in the coming years.
 ICICI bank has the minimum amount of nonperforming assets.
 ICICI bank is expected to have 20% credit growth in the upcoming years.
 As per 2010 data in TOI, the total numbers of b-schools in India are more than 1500. This
can ensure regular supply of trained human power in financial products and banking
services.

12
THREAT

 RBI allowed foreign banks to invest up to 74% in Indian banking.

 Government sector banks are in urge of modernizing the capacities to ensure the customers
switching to new age banks are minimized.
 HDFC is the major competitor for ICICI and other upcoming banks like AXIS, HSBC
impose a major threat.
 Though customer acquisition is high in one side, the unsatisfied customers are increasing
and switching to other banks.

13
 CHAPTER III

REVIEW OF LITERATURE

14
Key Differences between Merger vs Acquisition

MERGER ACQUISITION

Procedure Two or more individual companies join One company completely

to form a new business entity takes over the operations of
another
Mutual Decision A merger is agreed upon by mutual The decision of acquisition
consent of the involved parties might not be mutual; in case
the acquiring company takes
over another enterprise
without the latter’s consent, it
is termed as a hostile takeover

Name of Company The merged entity operates under a new The acquired company mostly
name operates under the name of the
parent company. In some
cases, however, the former
can retain its original name if
the parent company allows it

Comparative The parties involved in a merger are of The acquiring company is

Stature similar stature, size, and scale of larger and financially stronger
operations than the target company
Power There is dilution of power between the The acquiring company exerts
involved companies absolute power over the
acquired one
Shares The merged company issues new shares New shares are not issued

15
 PURPOSE OF MERGERS AND ACQUISITIONS
The purpose for an offeror company for acquiring another company shall be reflected in the
corporate objectives. It has to decide the specific objectives to be achieved through acquisition.
The basic purpose of merger or business combination is to achieve faster growth of the corporate
business. Faster growth may be had through product improvement and competitive position.

Other possible purposes for acquisition are short listed below: -

(1) Procurement of supplies:

1. To safeguard the source of supplies of raw materials or intermediary product;

2. To obtain economies of purchase in the form of discount, savings in transportation costs,

overhead costs in buying department, etc.;

3. To share the benefits of suppliers‟ economies by standardizing the materials.

(2) Revamping production facilities:

1. To achieve economies of scale by amalgamating production facilities through more

intensive utilization of plant and resources;

2. To standardize product specifications, improvement of quality of product, expanding

3. Market and aiming at consumers satisfaction through strengthening after sale Services;

4. To obtain improved production technology and know-how from the offered company

5. To reduce cost, improve quality and produce competitive products to retain and improve
market share.

(3) Market expansion and strategy:

1. To eliminate competition and protect existing market

2. To obtain a new market outlets in possession of the offeree

3. Strengthening retain outlets and sale the goods to rationalize distribution

4. To reduce advertising cost and improve public image of the offeree company

5. Strategic control of patents and copyrights

(4) Financial strength:

1. To improve liquidity and have direct access to cash resource

2. To dispose of surplus and outdated assets for cash out of combined enterprise

16
 3. To enhance gearing capacity, borrow on better strength and the greater assets backing
4. To avail tax benefits
5. To improve EPS (Earning Per Share)

(5) General gains:

1. To improve its own image and attract superior managerial talents to manage its affairs;

2. To offer better satisfaction to consumers or users of the product.

(6) Own developmental plans:

The purpose of acquisition is backed by the offeror company’s own developmental plans. A
company thinks in terms of acquiring the other company only when it has arrived at its own
development plan to expand its operation having examined its own internal strength where it might
not have any problem of taxation, accounting, valuation, etc. But might feel resource constraints
with limitations of funds and lack of skill managerial personnel’s. It has to aim at suitable
combination where it could have opportunities to supplement its funds by issuance of securities,
secure additional financial facilities eliminate competition and strengthen its market position.

(7) Strategic purpose:

The Acquirer Company view the merger to achieve strategic objectives through alternative type
of combinations which may be horizontal, vertical, product expansion, market extensional or other
specified unrelated objectives depending upon the corporate strategies. Thus, various types of
combinations distinct with each other in nature are adopted to pursue this objective like vertical or
horizontal combination.

(8) Corporate friendliness:

Although it is rare but it is true that business houses exhibit degrees of cooperative spirit despite
competitiveness in providing rescues to each other from hostile takeovers and cultivate situations
of collaborations sharing goodwill of each other to achieve performance heights through business
combinations. The corporate aim at circular combinations by pursuing this objective.

(9) Desired level of integration:

Mergers and acquisition are pursued to obtain the desired level of integration between the two
combining business houses. Such integration could be operational or financial. This gives birth to
conglomerate combinations. The purpose and the requirements of the offeror company go a long
way in selecting a suitable partner for merger or acquisition in business combinations.

17
 BENEFITS OF MERGERS AND ACQUISITIONS

1. Growth or Diversification: - Companies that desire rapid growth in size or market share or
diversification in the range of their products may find that a merger can be used to fulfill the
objective instead of going through the tome consuming process of internal growth or
diversification. The firm may achieve the same objective in a short period of time by merging
with an existing firm. In addition such a strategy is often less costly than the alternative of
developing the necessary production capability and capacity. If a firm that wants to expand
operations in existing or new product area can find a suitable going concern. It may avoid many
of risks associated with a design; manufacture the sale of addition or new products. Moreover
when a firm expands or extends its product line by acquiring another firm, it also removes a
potential competitor.

2. Synergism: - The nature of synergism is very simple. Synergism exists whenever the value of
the combination is greater than the sum of the values of its parts. In other words, synergism is
“2+2=5”. But identifying synergy on evaluating it may be difficult; in fact sometimes its
implementations may be very subtle. As broadly defined to include any incremental value
resulting from business combination, synergism in the basic economic justification of merger.
The incremental value may derive from increase in either operational or financial efficiency.

 Operating Synergism: - Operating synergism may result from economies of scale, some
degree of monopoly power or increased managerial efficiency. The value may be achieved
by increasing the sales volume in relation to assets employed increasing profit margins or
decreasing operating risks. Although operating synergy usually is the result of either
vertical/horizontal integration some synergistic also may result from conglomerate growth.
In addition, sometimes a firm may acquire another to obtain patents, copyrights, technical
proficiency, marketing skills, specific fixes assets, customer relationship or managerial
personnel. Operating synergism occurs when these assets, which are intangible, may be
combined with the existing assets and organization of the acquiring firm to produce an
incremental value. Although that value may be difficult to appraise it may be the primary
motive behind the acquisition.

 Financial synergism-Among these are incremental values resulting from complementary

internal funds flows more efficient use of financial leverage, increase external financial
capability and income tax advantages.

Other motives for Merger

Merger may be motivated by two other factors that should not be classified under synergism. These
are the opportunities for acquiring firm to obtain assets at bargain price and the desire of
shareholders of the acquired firm to increase the liquidity of their holdings.

1. Purchase of Assets at Bargain Prices

Mergers may be explained by opportunity to acquire assets, particularly land mineral rights, plant
and equipment, at lower cost than would be incurred if they were purchased or constructed at the
current market prices. If the market price of many socks have been considerably below the
replacement cost of the assets they represent, expanding firm considering construction plants,
developing mines or buying equipments often have found that the desired assets could be obtained
where by heaper by acquiring a firm that already owned and operated that asset. Risk could be
18
reduced because the assets were already in place and an organization of people knew how to
operate them and market their products. Many of the mergers can be financed by cash tender offers
to the acquired firm’s shareholders at price substantially above the current market. Even so, the
assets can be acquired for less than their current casts of construction. The basic factor underlying
this apparently is that inflation in construction costs not fully rejected in stock prices because of
high interest rates and limited optimism by stock investors regarding future economic conditions.

2. Increased Managerial Skills or Technology

Occasionally a firm will have good potential that is finds it unable to develop fully because of
deficiencies in certain areas of management or an absence of needed product or production
technology. If the firm cannot hire the management or the technology it needs, it might combine
with a compatible firm that has needed managerial, personnel or technical expertise. Of course,
any merger, regardless of specific motive for it, should contribute to the maximization of owner’s
wealth.

19
 CHAPTER IV
ANALYSIS AND INTERPRETATION OF DATA

20
 Analysis of Share Price Movements and Shareholding Pattern Changes

Mergers and takeovers are important events in the life of any company. Merger announcements
have a significant impact on the share prices of both the bidder and target banks. There is concrete
evidence for wealth shifting in the global arena from bidder bank shareholders to target bank
shareholders and vice versa. The present deal appears more favorable to BoR since their
shareholders gained almost 90% between 07.05.2010 (the start of merger negotiations) and
23.05.2010 (Board Meeting approval).

Particulars ICICI Bank Bank of Rajasthan

Swap ratio 1:4.72 ( 25:118)

Price before a day of merger announcement 901.10 82.85

Price on the day of merger announcement 809.20 99.45

Price after a day of merger announcement 824.45 119.35

Source: Economic Times and website of NSE

For the purpose of analysis, the BoR share price data has been divided into three periods, viz,
Period I, Period II and Period III respectively.

PERIOD I
Pertains to the point starting from February 26, 2010 (the day the RBI imposed the penalty) to May
6, 2010 (the day before merger negotiations started).
On February 26th, the closing price of BoR’s scrip was 61.8 and on 6th May, it was 84.7. This is
the period where the bank faced serious actions from the regulators. During this period, the bank’s
scrip value appreciated by 20.9% against the Bank Nifty return of 9.9%. BoR recorded a price of
66.85 and 62.5 on March 8 (SEBI ban) and March 9 (RBI’s special audit order) respectively.

21
PERIOD II

Represents the time period from May 6 to May 17, 2010 (period of merger negotiations).
On May 6th, BoR’s scrip was at 84.7 and ICICI Bank was traded at 902.85. On May 17th, ICICI
Bank and BoR recorded a price of 901.1 and 82.25 respectively. It indicates that merger negotiation
has a zero effect on the price of merging entities. The Bank Nifty return for the period was 2.7%.

22
PERIOD III
Comprises the time period after the merger announcement, i.e., May 18 to June 24, 2010.
On June 24th, BoR filed the information about the merger to the Bombay Stock Exchange.
On May 16th, BoR’s price was 82.85. After the announcement of the merger, it shot up drastically
to 99.45, 119.35, 131.30, 144.45, 158.9, and 162.3 on May 17th, 18th, 19th, 20th, 21th and 24th
respectively.
On the contrary, ICICI’s price reduced from 901.10 to 809.35. During the period, BoR gained
about 77%, whereas ICICI lost 1.7% of its value.
It is interesting to note that Bank Nifty showed a decline of 4.6 % during this period. Short term
wealth creation of BoR can be read in line with the valuation and fixation of swap ratio.

The indicative price agreed by both the banks was 188 per share. In the light of the present analysis,
it can be concluded that there was not much vulnerability in the prices during the negotiation
period. But, after the announcement, BoR’s share price adjusted almost to the price offered by
ICICI.

It is worthwhile to analyze the shareholding pattern of BoR for the 4th quarter of FY of 2009 and
the first quarter of FY of 2010 in the context of ‘unusual actions’ from the authorities.
Between 31.03.2010 and 30.06.2010, the holding of institutional investors increased from 5.73%
to 16.24% out of which FII’s part increased from 2.34% to 8.95%. Both the holding of body
corporate and retail investors reduced considerably. This can be interpreted as a case of
information asymmetry and insider trading.

23
 NEGATIVES

 The negatives for ICICI Bank are the potential risks arising from BoRs non-performing loans and
that BoR is trading at expensive valuations.

 As on FY-10 the net worth of BoR was approximately Rs.760 crore and that of ICICI Bank Rs. 5,
17,000 crore. For December 2009 quarter, BoR reported loss of Rs. 44 crore on an income of Rs.
373 crore.

ICICI Bank is offering to pay 188.42 rupees per share, in an all-share deal, for Bank of Rajasthan,
a premium of 89 percent to the small lender, valuing the business at $668 million. The Bank of
Rajasthan approved the deal, which will be subject to regulatory agreement.

ICICI Bank Bank of

Rajasthan
Largest Mcap ([Link]) 99,125 1,471
Branches 2,009 458*

ATM 5,219 111*

no. of Employees 34,596* 4,075*

Gross NPA (%) 5.06 2.8*

Capital Adequacy (%) 19.41 11.3#

Loan Book([Link]) 1,81,200 8,100#

Low-cost deposits (%) 41.7 27.4*

Business/Employees(Rs. 1,154* 532*

Crore)
*As of March 2009;

# As of December 2009;

*ALL THE FIGURES ARE AS OF MARCH 31 2010.

24
 Important Dates in Icici and Bor Merger

RBI imposed penalty of 25 lakhs on BoR because of serious violations February 26,2010
SEBI banned 100 entities allegedly holding BoR shares March 8,2010
RBI ordered special audit March 9,2010
Rapid round of negotiations and due diligence May 6 - May 17,
2010
Merger news on newspaper May 18, 2010
Board meeting approval of both the banks May 23, 2010
BoR cancels EGM on Calcutta Civil Court order June 20, 2010
BoR seeks legal advice on validity of EGM June 22, 2010
Information to Stock Exchange June 23, 2010
Submits application to RBI for approval June 24, 2010
RBI approval Aug 12, 2010
Source: Economic Times and Business Line &Websites of the banks.

25
 Pre-Merger Challenges

Regulatory Concerns

Lots of litigation was charged on Bank of Rajasthan related to misrepresentation of promoter’s

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.

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 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.

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 Post Merger Challenges

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 Rajasthan’s 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 Rajasthan’s wide branch network in north and west India). Thirdly,
by way of technological leverage and forth could be forward and backward integration

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% CONTRIBUTION OF BOTH THE BANKS IN THE MERGER

%contribution of %contribution Of
PARAMETER ICICI bank Bank of Rajasthan
Balance Sheet Size( million) 83% 4.5%
Number of Branches 66% 21%
Owners Equity( / million) 79% .10%
Deposits( / million) 82% 6.9%

Advances( / million) 81% 4.3%

Net Profit after Tax( /million) 91% NA
Minimum .10%
Average 7.4%
Maximum 21%
% shareholding of BoR in the combined entity 03%

It clearly indicates that the average contribution of BoR in the combined entity in terms of various
size variables is 7.4% which is higher than the actual shareholding of BOR in the combined entity
(3%).

So on the basis of contribution analysis it can be argued that BoR got undervalued.
But, it is to be remembered that profitability aspect is not considered in that analysis as BoR
reported a net loss of 1021 million rupees in the financial year prior to the merger

If the valuation had been based on financial parameters like book value, market value, net
profit and EPS, it should have been more favorable to ICICI Bank

Also it was a dilutive deal for ICICI Bank. In all these financial aspects, BoR is far below ICICI
Bank whose strategy was similar to their previous acquisitions. Through the mergers with Bank of
Madura and Sangli Bank, they increased their geographical coverage in Tamil Nadu and
Maharashtra. Out of the 263 branches of Bank of Madura, 182 were in Tamil Nadu and out of the
198 branches of Sangli Bank, 158 were in Maharashtra only.

It is obvious that ICICI Bank’s desire to acquire a bank having strong presence in northern
India was one of the major reasons for the acquisition of BoR. The BoR’s strong CASA
deposits which amount to about 40% has played a major role in the fixation of swap ratio. So if
we consider all these aspects together, it can be concluded that the valuation is fair and a favorable
exchange ratio for BoR (on the basis of market price) got reflected in the stock market.

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29
 The total assets increased by 11.8% from ₹ 3,634.00 billion at March 31, 2010 to ₹4,062.34
billion at March 31, 2011 (including ₹155.96 billion of Bank of Rajasthan at August 12, 2010),
primarily due to increase in investments and advances. Investments increased by 11.4% from ₹
1,208.93 billion at March 31, 2010 to ₹ 1,346.86 billion at March 31, 2011. The net advances
increased by 19.4% from ₹1,812.06 billion at March 31, 2010 to ₹2,163.66 billion at March 31,
2011.
 Cash and cash equivalents decreased from ₹388.73 billion at March 31, 2010 to ₹340.90 billion
at March 31, 2011. The decrease was primarily due to a decrease in balances with RBI from
₹241.73 billion at March 31, 2010 to ₹171.23 billion at March 31, 2011 due to higher than
stipulated CRR balance maintained at March 31, 2010.
 Total investment was in increasing trend during pre-merger periods, however after merger Total
investments increased by 11.4% from ₹ 1,208.93 billion at March 31, 2010 to ₹ 1,346.86 billion
at March 31, 2011 including ₹ 70.96 billion of Bank of Rajasthan at August 12, 2010, primarily
due to an increase in investment in corporate bonds and debentures by ₹ 125.1 1 billion, RIDF
and other related investments in lieu of shortfall in directed lending requirements by ₹ 49.70
billion including ₹ 21.34 billion of Bank of Rajasthan at August 12, 2010 and investments in
commercial paper and certificate of deposits by ₹ 31.21 billion

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31
 Though after merger the network and branches of ICICI Bank had increased but interest
income did not increase to such extent. This was due to decrease in yield on advance, loss
on securitized pool of assets. The decrease in yield on advances was primarily due to a
decrease in the proportion of the high yielding unsecured retail portfolio in total advances
and decrease in yield on domestic non-retail advances reflecting the declining trend in
interest rates during fiscal 2010 which continued in the first half of fiscal 2011. RBI
increased the CRR by 75 basis points to 5.75% in February 2010 and further by 25 basis
points to 6.00% effective April 24, 2010. As CRR balances do not earn any interest income,
these increases had a negative impact on yield on interest-earning assets in fiscal 2011. On
the other hand, income on interest earning investment increased primarily due to an
increase in investment in higher-yielding credit substitutes like corporate bonds and
debentures, certificate of deposits and commercial paper.

 During fiscal 2011, the decrease in non-interest income was primarily on account of a
decrease in income from treasury-related activities. During fiscal 2011, there was an
increase in fee income and income by way of dividends included in lease and other income.
The equity markets remained volatile due to global and domestic developments including
the political unrest in the Middle East and concerns on global recovery due to possible
impact on crude oil prices, and continued high levels of inflation in India and resultant
monetary tightening. These factors impacted market sentiment resulting in decline in
realised/unrealised profit on equity investments for fiscal 2011 as compared to fiscal 2010.

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CHAPTER V

CONCLUSION

33
 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 in northern and western India.
 It would combine Bank of Rajasthan’s branch franchise with ICICI Bank’s strong capital
base, to enhance the ability of the merged entity to capitalize on the growth opportunities
in the Indian economy.
 During the merger from the negotiation period, there are upward movements in the share
prices of both ICICI bank and the Bank of Rajasthan .However, the most surprising fact
was that when the RBI and SEBI were originating the actions against the irregularities in
the Bank of Rajasthan .Henceforth, the reason for the share price being treasured can be
acknowledged due to the information asymmetry or the insider trading or both of them.
 After the announcement of merger, BoR gained about 77% in price and ICICI Bank
declined by 1.7%. The sharp increase in the share price of the BoR can be explained as a
shift to the price offered by ICICI Bank.
 This is the third amalgamation 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.

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 BIBLIOGRAPHY

 [Link]
bse/[Link]
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 http:/[Link]/home
 http:/[Link]/bormerger

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