You are on page 1of 16

ZENITH

International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

STRATEGIC MOVE OF ICICI BANK: A CASE STUDY OF MERGER OF ICICI BANK AND BANK OF RAJASTHAN
DR. ABHINN BAXI BHATNAGAR*; MS. NITU SINHA**
*Associate Professor, Galgotias Business School, Greater Noida. **Research Associate, Galgotias Business School, Greater Noida. ____________________________________________________________________________________

ABSTRACT Changing is the regulation of nature. Any business organization undergoes change on a continuous basis, technically termed as Corporate Restructuring. It can be defined as a strategy to achieve faster growth, desired capital structure and change in the ownership and control of company. The reasons behind change may be external or internal factors. In the present scenario, business organization undertakes changes to increase their cutting edge over the competition and enhance their leadership positions. It is a fundamental fact of finance that growth and capital employed are two basic drivers of the value of an organization. On the other hand neither growth nor improvement in ROCE is possible unless the company is under the control of competent, progressive and visionary management. The present paper is an attempt to understand the strategic move of ICICI bank. The case study will reveal the motives behind and synergies from such M&A activities. An attempt has been made to analyze, Is corporate restructuring a tool to enhance the shareholders value. Why ICICI Bank has taken such a strategic move and many more questions will be solved from the case study. ______________________________________________________________________________ INTRODUCTION Mergers and acquisitions in banking sector has become admired trend throughout the country. A large number of public sector, private sector and other banks are engaged in mergers and acquisitions activities in India. One of the prominent motives behind Mergers and Acquisitions in the banking sector is to harvest the benefit of economies of scales. With the help of mergers and acquisitions in the banking sector, the banks can achieve significant growth in their operations and minimize their expenses to a considerable extent say for example installation expenses for setting up new branches will be saved. Secondly, the most significant vantage is that it eliminates competition from the banking industry. Proven to be an act of corporate action, mergers and acquisitions in the banking sector has ensured efficiency, profitability and synergy from past many years. It also assists in shaping up and maximizing shareholders value. The driving force behind the growing trend of mergers and acquisitions in the banking sector other than efficiency, profitability and synergy can be deregulation in the financial market, market liberalization, economic reforms and many more. After all, RBI has the only authority to regulate

192

www.zenithresearch.org.in

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

all merger and acquisition related activities pertaining to banking sector in recent proposed amendments in the Banking Regulations. PROFILE OF ICICI BANK HISTORY In 1955, ICICI Limited was incorporated with the collective efforts of the major 3, named World Bank, Government of India and Indian Industrys representatives. The establishment has been taken place with a view to aid Indian businesses by acting as a source of finance to medium and long term projects. In 1990s, the ICICI institution started diversifying its operations, and end up at the wholly owned subsidiary called ICICI Bank. The Bank was established in 1994 and became the first bank listed on NYSE (New York Stock Exchange). Few merger related details:Years 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.
www.zenithresearch.org.in

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

193

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

named Late Seth Shri Govind Ram Seksaria who started the bank with initial investment of Rs. 10 lacs. Ties up Details:Year 2000 2002 2003 2005-06 2008 Particulars Bind off with Infosys Technology in order to get fully automated MoU signed by Bank of Rajasthan with Bajaj Allianz General Insurance Company and Birla Sun Life Insurance MoU signed with Bank of Baroda to issue co-branded international Visa Electron Debit Card Termination of ties up with Bajaj Allianz General Insurance Company and Birla Sun Life Insurance The Bank signed an MoU with ICRA Ltd. in September

CORPORATE PROFILE The Bank of Rajasthan with the asset base of Rs. 17,300.06 crores incurred the net loss after provisions and taxes remained at Rs. 102.13 crores for the year ended 31st Mar 2010. The bank operates through all over India as a private sector bank with 463 branches works as network. It includes 67 onsite and 29 offsite ATMs in 230 cities along with specialized Industrial and forex branches. The bank provided a broad range of products and services includes commercial banking, Personal banking ,merchant banking, auxiliary services, consumer banking, deposit and money placement services, trusts and custodial services, international banking, private sector banking and depository, Credit facilities to SMEs ,gold facilities internet banking mobile banking, life insurance, mutual fund services, western union money transfer services and many more. The above mentioned products and services can be divided into 3 segments called treasury operations, Banking operations and residuals.

194

www.zenithresearch.org.in

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

A GLIMPSE OF THE BANKS S. No. Key Rationale 1 2 Type Industry ICICI Bank Private sector Banking financial services Bank of Rajasthan Private sector Banking, Loan, Capital market and allied industries 1943, Udaipur NSE: BANKRAJAS BSE: 500019 Corporate or wholesale banking, Personal banking , Commercial banking, Retail banking, Finance and insurance, Investment Banking, Auxiliary services, Merchant banking,
www.zenithresearch.org.in

3 4

Year of Incorporation Traded as

1994 (promoted by ICICI) NSE: ICICIBANK BSE: 532174 NYSE: IBN NASDAQ: IBN Finance and insurance Retail Banking Commercial Banking Mortgages Credit Cards Private Banking Asset Management Investment Banking

Products

Trust and custodial services,

6 7

Business presence Number of offices

19 countries 1717*

All over India 478*

195

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

8 9 10 11 12 13

Number of employees Total Income Profit Total Assets CRAR (Capital to Risk Asset Ratio) Net NPA Ratio

35256* 32,999.36** 4,024.98** 363,399.71** 19.41* 2.12*

3983* 1,489.48** (102.13)** 17,300.06** 7.52* 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 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. II. 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. 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.

196

www.zenithresearch.org.in

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

III. IV.

Strong capital adequacy ratio of 19.14% and Tier-1(Equity Capital and disclosed reserves) capital adequacy of 13.48%. 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 but declined 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 in fiscal 2009 to Rs. 1770.03 crores in fiscal 2010 due to overall cost reduction initiatives undertaken by the bank. The reduction initiatives include various expenses owing to advertisement, printing and stationery, publicity and postage and communication expenses in FY 2010 as compared to FY2009. The depreciation of the bank has reduced from 678.6 crores in 2009 to 619.5 crores in 2010. 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 fiscal 2010 from Rs. 3,793.01 billion at year-end fiscal 2009. It has been showing decreasing trend since from FY 2005. Net advances decreased continuously since from FY2005, 34% decreased in between FY2006-2007 and by 17.0% from Rs. 2,183.11 billion at year-end FY 2009 to Rs. 1,812.06 billion at year-end FY 2010.
www.zenithresearch.org.in

With the increase in investment majorly in non-SLR by Rs. 128.18 billion, Total investments has increased by 17.3% from Rs. 1,030.58 billion at FY2009 to Rs.1, 208.93 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, which meliorates equity share capital and reserves from Rs. 495.33 billion at year-end fiscal 2009 to Rs. 516.18billion at year-end fiscal 2010. 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 past two years whereas Savings account deposits and Current account deposits increased from

197

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

Rs.626.68 billion at year-end fiscal 2009 to Rs. 842.16 billion at year-end fiscal 2010. On other side term deposits has decreased to Rs. 1,178.01 billion at year-end fiscal 2010 from Rs. 1,556.80 billion at year-end fiscal 2009. 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 been increased due to strong growth in savings and current account deposits. The banks branch network has been in expansion mode in order to enhance its deposit franchise and create an integrated distribution network for both asset and liability products.

Source: Companys official site (www.icicibank.com) Total deposits of the bank have not been showing growing trend since from past 5 years as per data, instead of CASA deposits which has increased by 34% to Rs. 84,216 crore (US$ 18.8 billion) at March 31, 2010 from Rs. 62,668 crore (US$ 14.0 billion) at March 31, 2009. The bank has also established widely through its distribution reach by way of branch network that is increased to 1,741 at April 24, 2010. The loan book (Advances) of the Bank decreased primarily due to the repayments from the retail loan portfolio and the loan portfolio of overseas branches. Currently, the loan book (Advances)
www.zenithresearch.org.in

198

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

still at Rs. 181,206 crore (US$ 40.4 billion) as on March 31, 2010 from Rs. 218,311 crore (US$ 48.6 billion) at March 31, 2009. CAPITAL ADEQUACY RATIO The Bank is subject to the capital adequacy norms stipulated by the RBI guidelines on Basel II which became applicable with effect from March 31, 2008. The guidelines require the Bank to maintain a minimum ratio of total capital to risk adjusted assets (CRAR) of 9.0%, with a minimum Tier I capital ratio of 6.0%. Prior to March 31, 2008, the Bank was subject to the capital adequacy norms as stipulated by the RBI guidelines on Basel I. The ratio depicts strong position in the area of Capital adequacy which infers less default risk for ICICI Bank. FINANCIAL ANALYSIS OF BANK OF RAJASTHAN The bank of Rajasthan, one of the leading banks in private sector was established in 1943 with the initial capital of Rs. 10 lakh. The bank declared as scheduled bank in 1948 which has its specialization in forex and industrial finance. The bank located at jaipur has its branches spread all across 22 states of India as on Mar 31, 2009. The assets size of the Bank of Rajasthan has been showed a growing trend from past 5 years, stood at 17320.23 crores as on March 31, 2010. The net profit has gone down from 117.71 crores as year ended March 2009 to 102.13 crores at FY 2010 which reflects a drastic decrease in net profit by 186.76%. OPERATING TRENDS INCOME AND PROFITABILITY Total income received from interest and others income registered a growth of 25.8% from FY 2008 at Rs. 1513.40 crores as on 31st March 2009.the reason behind the growth was increment in the yield on advances, where as total income was declined by 1.11% from FY 2009 to Rs. 1496.67 crores as on year ended 2010.
www.zenithresearch.org.in

The Profit after tax for the year 2008 and 2009 were remained at similar levels due to increase in provision of Non-Performing Assets. The bank of Rajasthan reported net loss at the year ended 2010 (after provisions and taxes) stood at Rs. 102.13 crore against the net profir of Rs. 117.71 crores for the previous year. As Bank of Rajasthan was facing losses during the year 2009-2010, the shareholders were not proposed for any dividend.

199

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

BALANCE SHEET The bank of Rajasthan has been showing increasing trend but at a low pace. It has increased by 0.49% from Rs. 17235.09 crores as on year ended 2009, and grow by 8.99% over the previous year. The quality of assets at Bank of Rajasthan have been continuously deteriorating since from 2007 stood at Rs. 293.81 crores as on year ended 2010 as compared to Rs. 160.9 crores at the year ended 2009. 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 is 1.27% reduced from previous year. The balance sheet showing the freeze of equity capital infusion to the Bank of Rajasthan remained 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 is 0.82% down the line. Borrowings at Bank of Rajasthan have shown good sign for the bank as it has been continuously decreasing since from FY 2006. Currently the banks borrowings stood at Rs. 0.65 crores as on year ended 2010. 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 banks substantial exposure in sectors like textiles and real estates. It was the key sensitive area for Bank of Rajasthan to maintain its assets quality.
www.zenithresearch.org.in

The bank had the opportunity to build a good deposit base as it was the established franchise in the state of Rajasthan, but due to low cost Current Accounts and Saving Accounts (CASA) deposits the bank faced declining trend from past 4 years. With the decline in CASA and side by side high interest rate heated up the cost of deposits. Due to lack of capital Bank of Rajasthan has facing low credit growth of 4.69% due to lower disbursement and large prepayments by some of its clients. The credit growth was remain stable with advances during FY 2010.

200

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

CAPITAL ADEQUACY RATIO (CAR) As per Basel I, the Bank of Rajasthans CAR stood at 7.74% as on year ended 2010 as compared to 12% of previous financial year. The below mentioned graph depicts the trend lines of NonPerforming assets and CAR. Tier 1 CAR was marginally above the prescribed regulatory requirement of 6% but had declined in March 31st 2010 stood at 3.87%. The overall condition of Bank of Rajasthan was seen continuously deteriorating due to various legal issues. Some of those were: Notice from Jaipur Stock exchange limited for alleged violation of clause 36 of the listing agreement. 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)

201

www.zenithresearch.org.in

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

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. ii. iii. iv. v. Acquisition of Immovable properties- Violation the RBIs guidelines/directions issued under Section 35A of the Banking Regulation Act, 1949. Blue-penciled the records banks IT system Non-adherence of guidelines related to Know Your Customers and anti money laundering in opening and conduct of accounts. Irregular accounts conduct of a corporate group
www.zenithresearch.org.in

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

The issue of Corporate Governance Standards was also one of the key areas which acted as a loophole for the merger. Past from several years the bank has been in the eyeshot of RBI. During the annual inspection of BoR, RBI found out unconventional disclosure of Shareholding patterns of the promoter group. The shareholding pattern had been declined from 55% to 28.6% between June 2007 and 2009 revealed by Market watchdog, SEBI. The Tayals, Controllers of the Bank of Rajasthan started their search for suitable deal with heading bank in order to enter into merger deal after the series of probes.

202

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

The discussions were held with many leading banks named ICICI Bank, HDFC Bank, Axis Bank etc. The HDFC Bank has not shown any positive concern in this preposition. The officials of Axis bank have denied the deal as they were not ready to pay demanded price. Somehow The ICICI bank becomes ready to pay the price higher than the market valuation of Bank of Rajasthan. However, the deal would mean little dilution for ICICI, as the market capitalization of ICICI registered at Rs. 1, 00,717 crore whereas, BoR had Rs. 1323 crore only. II. SECOND CALL: - A non-cash merger deal was approved by the board of directors of the Indias second largest private sector bank. It was estimated that the merger would further flourish the ICICIs branch network by 25 percent approximately. It was decided that the report will be presented to Board of Directors after the approval of independent valuer and further to Shareholders & Reserve Bank of India. The deal in its intermediation decided that the swapping ration will be at 1:4.72 which will inferred as The ICICI Bank would allot 25 shares for every 118 shares of Bank of Rajasthan. The deal was based on the internal analysis of the proposed amalgamation which certainly be calculated considering the followings:i. ii. iii. Strategic value of the deal Market capitalization per branch of the former private sector banks 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.
www.zenithresearch.org.in

203

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

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 to accounts of the corporate group. For these regulatory proceedings, RBI had imposed 25 lacs as a penalty on BoR for concealing the necessary facts. ASSET QUALITY MANAGEMENT In a merger asset quality always being a major concern for both the parties as the factor can turn out the profitability or synergy. The ICICI bank raised its quarterly profit 44% by showing a downfall in bad loans provisions and in the retail lending. It infers that ICICI banks NonPerforming Assets (NPA) Ratio improved to 0.945 from 1.87% in previous year.

204

www.zenithresearch.org.in

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

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 weeks of the requisition. The decision of appointment of own chairman by the shareholders of BoR was continued after knowing the fact of void as per company Act 1956. POST MERGING CHALLENGES The amalgamation of ICICI bank with Bank of Rajasthan came in to effect on August 13, 2010 when RBI approved the deal. The key issues that hindered the proposed merger have been discussed earlier, now the focus of ICICI bank should be on followings:HR ISSUES Human capital has always being a major concern for the merging firms. The integration of human resource of both the entities sets the path of growth through synergy. Work cultures have 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.
www.zenithresearch.org.in

205

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

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
www.zenithresearch.org.in

206

ZENITH
International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780

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 Search Engine - Google.com

207

www.zenithresearch.org.in