INTRODUCTION

We know that mergers result in an increase in the new organisation’s resources and workforce,
they affect the efficient functioning of the newly merged entity. This transformation is a critical
period for the organisation and the workforce, which experiences extra pressure and
responsibility in the form of problems of job security, identity crises, etc. Hence, it is important
to motivate the employees and show them the brighter side of the merger and how it would
benefit them.

Equally true is the fact that a merger and acquisition may not always cause disorientation in the
combined organisation. There are several examples where two or more organisations have
merged in a harmonious fashion, resulting in a bigger and more efficient entity.

A combined organisation enjoys an edge over its competitors, and has better opportunities of
growth. However, this may not be possible without paying adequate attention to the grievances
and training of the workforce, alignment of diverse processes, and utilisation of all the critical
information. In addition, proper assessment of the time and method of the merger is highly
essential to facilitate successful merger of organisations.

To meet these ends post-merger reorganisation of a company is necessary. But what is this ‘post-
merger reorganisation’? Post-merger reorganization is the wide term which covers the
reorganization of each & every aspect of the company’s functional areas to achieve objectives
planned & aimed at. The new company formed as a result of merger feels problems in
establishing synchronisation and harmony between the inputs of old companies. So, a planned
initiative is necessary to cope with this problem. This process is called post-merger
reorganisation. Parameters of post-merger reorganization are to be established by the
management team of each amalgamating company differently depending upon its requirements,
objectives of the merger & the management corporate policy. Reorganizations can be a useful
management tool for finding new value and are often essential as part of a merger or acquisition
integration. Getting this type of reorganization right allows business units from the merging
companies to be brought together smoothly, corporate activities to be standardized and
streamlined, people to be aligned behind desired outcomes, and integration synergies to be
delivered quickly.

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FACTORS IN THE POST-MERGER REORGANISATION
The parameters for post-merger reorganisation are to be set by the management of the
amalgamating companies. Post-restructure actions foresee the actions required to be taken after
approval from the Court is obtained in case of the merger of two or more than two companies.
But overall, the factors for setting and going with the parameters are the same. These are:

1. Change of name & logo

In case the restructure is going to result in the change of name or where the Board of
Directors (BOD) decide to change the name of entity post restructuring, then the company will
need to plan to carry out the change of name on all the name boards and letterheads and all
branches/ locations where the name of Company has been posted or displayed, including
company’s website or on internet. Similarly, the arrangements need to be made to modify
corporate logo, if the same is going to change as well.

2. Revised organization chart

A company will need to work on apprising its organization chart at all the levels. It will also
need to reflect new vision/mission & the new thinking post-restructure. In the event of a
takeover, the organization chart may not change expressively; but the acquired entity may need
to align its organizational structure with acquiring entity.

3. Communication

A company should provide proper & timely communication about the restructuring

organization to every single of its employees that would provide updated status, bring clarity on
what’s happening at the organizational level & avoid the miscommunication. Also, it would be
useful to send the communication regarding such changes in the company policies. The company
shall also consider sending an appropriate communication to the bankers & auditors & advisors,
etc. upon formal completion of restructuring activity.

4. Employee compensation, benefits & welfare activities

Companies need to be sensitive with respect to the terms & conditions of the employment.
Usually, the courts would uphold the terms of employment to be not less favourable than existing
the terms & conditions. Post-acquisition, a parent company may want an acquired company to

2
adopt compensation structure of such parent entity. It would result in re-aligning structure as
well as the pay scales of the existing employees. A company will have to carefully handle such
sensitive areas to make sure about the employee satisfaction & comfort that pays in long run in
building an image in addition to preventing or reducing low employee turnout.

Additionally, the company would need to consider the prevailing fringe benefits & the amenities
provided to employees & feasibility of continuing same in the new set up (post restructure). For
example – The Company may re-negotiate insurance premium for the employee-related
insurance policies like (life, accident, medical as applicable) depending on conditions of the
existing policy or preferred insurance vendor recommended by the acquiring entity.

5. Aligning company policies

A company would need to align or amend its internal policies to reflect organization in post
restructure scenario. This might not apply to all the types of restructuring. Particularly in the case
of a takeover, an acquiring entity is likely to claim all its policies of the acquired entity to bring
consistency in the group’s policies.  Specific changes to group policies may be needed depending
on nature & size of business, location, the applicability of relevant State laws. The challenge
continues further in the terms of implementing the changes in companies’ policies e.g. if
acquired company has the policy to use laptops/ computers manufactured by DELL. If AN
acquiring company uses laptops/ computers manufactured by HP, the company would need to
take the decision to implement a group policy or to make the exception until the time the existing
laptops consume expected life & new ones are due for the procurement. Similarly, it would be
appropriate for revisit policies with the respect to the employee uniforms, the mobile phones
provided by a company, to tie up with the insurance agents to the provide cover as per terms &
conditions acceptable to the parent company, HR-policies that impact office timings & leaves
soon.

6. Aligning accounting & internal database management systems

Besides passing appropriate accounting entries to capture the merger/ acquisition/ financial
structure, the company may need to adopt accounting policies, practices based on those followed
by its new parent organization post-acquisition. The company needs to understand any reporting
& database requirements of acquiring a company or merged entity to provide relevant data to the

3
new management & to align existing systems with those of the parent/ merged entity. This may
involve providing suitable training to concerned personnel & understanding issues, if any, to
avoid incorrect reporting.

7. Re-visiting internal processes

The company which is subjected to the restructuring will need to align its internal processes with
that of a merged entity, e.g. the domestic travel processor reimbursement of the expenses
process. The Company’s current process may involve the issue of cheques to the employees
against the expenses claimed; whereas the merged or acquiring entity credits its employee claims
to the bank account maintained for such purpose. Accordingly, the company will need to open a
bank account (expense reimbursement account) for all its employees. The company will also
need to create e-mail ids for employees of merging entity & ensure access to their previous data
as well. In case of an acquisition, acquiring company may insist on changing the email ids of an
acquired entity to ensure consistency with its internal requirements.

8. Re-allocation of people

Restructuring typically would entail re-allocation of persons operating in various positions/

grades in similar functions. At times, allocation in support functions becomes a challenge as now
two persons h & le the similar profile e.g. personnel in HR, finance, administration etc. This
would require reallocation of responsibilities or re-defining the responsibilities to specific
geography/ line of business/ business units. In addition, the situation may rise the new positions
to get created to fit into a new organization structure post-restructure. A careful planning is
needed to avoid overlapping, underutilization of staff & to take care of career progression.

9. Engagement with statutory authorities

This is one of the important areas that deals with legal requirements & are close to the company
secretary. It is crucial to identify the government authorities that are needed to be intimated
formally about a merger or amalgamation or takeover e.g. SEBI, Stock Exchange etc.
Restructuring is likely to require the reflection of changes to numerous government permissions,
as well as licenses &approvals granted in the past for e.g. under labor & industrial laws, sales tax
& service tax registrations, permissions under SEZ/STPI requirements where a unit of a merging

4
entity now becomes part of the merged entity. Proper steps to be taken for updating the
registration of the vehicles owned by the merging entity prior to the merger.

10. Record keeping

Maintenance of records of merging entity & making suitable entries in the records (e.g. registers
under Companies Act reflecting changes in shareholding, directors etc. as applicable) of merged
entity is a must. One will need to dive deep to ensure maintenance of all past records including
statutory & non-statutory registers, original copies of various forms, returns, certificates,
approvals, litigation & property records. The company may need to relocate the records to
centralized storage maintained by the merged/new entity.

11. Immovable Property

A restructuring may cause changes in property records e.g. consequent to the merger if merging
entity stops to exist, the merged entity will need to take steps to make sure that the property
records are updated to reflect a name of a merged (new) entity. If a company is occupying leased
premises, one should check conditions under the lease agreement & complete necessary
formalities such as intimation to the like. If a company has borrowed money against mortgage of
property, the company will need to inform the bank about the restructure & check if any
formalities need to be completed as per bank’s policies. While the order of the Hon’ble Court is
sufficient to bring legal effect to a merger/ amalgamation, the bank may require formal
intimation in the prescribed form within 7 days or so.

12. Expansion of the existing teams to support the larger organization

The restructuring is likely to put the pressure on a support staff, which was supporting an
employee strength before amalgamation e.g. in-house training department was probably h & ling
technical training for 2000 employees. Post amalgamation with another company, the training
function needs to cater to training requirements for 5000 employees. It is further likely that the
amalgamating entity had an independent training department or had a sophisticated training
module to conduct online training, which the amalgamated entity may not have; which would
require further deliberations to implement better practices in the new organization.

13. Revised ISO certification & similar other certifications

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Restructuring could lead to changes in existing certifications such as ISO or similar other
certifications. With the addition of locations or changes in organization structure, suitable
changes need to be reflected to the certifications obtained e.g. post-acquisition, the acquiring
company may decide to close down a branch of acquired company located in Bangalore, since
acquiring company may have a large set up in Bangalore; which would require intimation to
concerned bodies & completing necessary formalities to ensure all locations/ Functions in new
set up are certified.

14. Integration of businesses and operations

Along with the other factors of post-merger reorganisation, integration of businesses and
operations need to be done at a fast pace. It is so because one of the main objectives of merger
and acquisition is the expansion of businesses and operations of the company. This could be
done only by integrating the business and operation of the merged company into the business and
operation of the merged company, or the acquirer.

15. Miscellaneous

The restructure would require the changes to data displayed on the website of the company or
new entity as the case may be. It would want bringing the appropriate changes in the company’s
branding strategy, marketing material, employee visiting cards, employee identity cards, changes
to any power of attorneys issued by the erstwhile entity, consolidation of existing bank accounts
with the same bank, any action related to existing bank guarantees & other miscellaneous items
such as crockery bearing company’s logo, etc. There could be many other aspects to the
restructure beyond those that are stated above, depending on peculiarities of the restructuring by
a company. A company should plan for a restructure & try to cover as many aspects as possible
to ensure smooth transition & taking necessary actions to complete the restructuring process to
its logical end.

6
CULTURAL FACTORS AND POST-MERGER –EXAMPLES

Hindustan Lever Ltd. (HLL) and TOMCO merger

In Hindustan Lever Ltd. (HLL) (known as Hindustan Unilever Ltd. Since July 2007) & Tomco
merger case, HLL had been known for its result oriented, systems-driven work environment,
where a strong emphasis is placed on performance. Accordingly, it always has & strives for the
team of the high performing & high-profile executives, carefully selected from best management
institutes. Discussing the product profitability & target achievement is the only language that its
managers understand. The work culture is very demanding and only the best survives. In fact,
about hundred managers at that time for Unilever Group Company had quit their jobs, as they
were not able to cope with demanding work culture. It was felt that more difficult part would be
a manager of the 2 totally different work cultures & ethos, after the merger. In TOMCO the
employee productivity was only 60% of HLL. It was opined that HLL would have to rationalize
TOMCO’s workforce. HLL itself had launched a voluntary retirement package, in order to get
rid of about 500 workers, however only a few resigned. However, TOMCO employees had been
assured that their employment conditions were to be protected and service conditions would be
honoured. All the employees of TOMCO were to be absorbed as HLL employees.

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POST-MERGER INTEGRATION MODEL

Post-merger integration is a complex process of combining and rearranging businesses to

materialise potential efficiencies and synergies that usually motivate mergers and acquisitions.
This is a critical aspect of mergers; it involves combining the original socio-technical systems of
the merging organisations into one newly combined system.

The process of combining two or more organizations into a single organization involves several
organizational systems, such as assets, people, resources, tasks, and the supporting information
technology.1 The process of combining these systems is known as 'integration'. Integration
Planning is one of the most challenging areas to address pre-close during a merger or
acquisition.2 Even though culture clash between companies can cause integration problems, only
4% of the executives in a survey by Pritchett, LP reported that their organizations include
culture-specific questions in their due diligence checklists. 3 Culture specific due diligence may
include cultural screening and creating a cultural profile of the target firm.

An example of a typical structure for integration consists of three layers: a steering committee,
an integration management office (led by an integration manager) and a variety of additional
teams organized by function (i.e. sales, human resources, finance, and information technology,
etc.) and/or by business unit, product line, process, or geographic location.

More communication to employees is usually necessary during post-merger integrations than

during day-to-day operations. Fortunately, many of the questions from employees can be
anticipated.

Achieving successes early in an integration can help build confidence in a deal and quiet
skeptics.

Common problems that may be encountered during post-merger integrations include resistance
to change, divided loyalties, blurred roles and responsibilities, unclear reporting relationships,
communication tangles, job insecurity, unusual employee turnover, and infighting.

8
The post-merger integration can be classified into four types of models:

1. Absorption

2. Preservation

3. Symbiosis

4. Holding

However, two factors are important in every integration model. These are

i. Necessity for strategic interdependence

The necessity for strategic interdependence arises from the fact that the mergers should attain
those advantages for the merging companies, which would not have been possible without the
merger. These merger advantages are nothing but synergies at different alliance through a
combi9nation or rationalisation of operating finds, economies of scale and/or economies of
scope, assignment of functional skills like the most modern manufacturing methods or detailed
knowledge about sales channels, and the like.

In order to benefit from these synergies, the corresponding strategic abilities must be transferred
from one company to another. This presupposes that management sets the right direction for the
necessary organisational interweaving. It is generally agreed that the higher the degree of
abilities to be transferred between the merging companies, the greater the distinct relations and
interweavings between them, and higher the necessity for strategic interdependence would be.
These interdependences blur the ‘boundary’ or the invisible line between the companies, which
separate the target company from the buyer. However sometimes, the managers and the
employees of the target company often resist this blurring as they want to keep their own identity
and their own method of operation separately. In order to transfer the abilities between the
companies and overcome the possible resistance, the interdependence between the two
companies must be carefully handled. That is why the strategic interdependence is a key factor in
the integration.

9
 ii. Necessity for organisational autonomy

The necessity for organisational autonomy arises from the fact that every company has an
independent culture and identity in which strategic abilities are often securely embedded. If the
autonomy of the company is limited, these abilities can be lost. Management must therefore
investigate which level of independent cultural identity is required to protect the ‘strategic
abilities’, before the integration occurs. But the paradox is that while on the one hand there is a
blurring of the borders between the companies regarding the transfer of abilities and therefore
added value is necessary, on the other, it is the abilities which enable the borders to be retained,
thus protecting the autonomy of the company. This becomes particularly clear during
acquisitions involving the abilities of persons or groups of people. The loss of autonomy within
the company can cause these key personnel, who have crucial knowledge, to leave the company
as they cannot or do not want to identify themselves with the ‘newly’ created company any
more. Therefore, when considering the beginning of integration, the two central aspects listed in
the following have to be looked at:

a) The way in which the added value, concerning the dependencies that must be
created between the integrating companies to make the transfer of strategic
abilities possible should be realised and the planned added value should be
created.

b) The relationship with the companies, which refers to the maintenance of acquired
strategic abilities through the guarantee of autonomy after takeover.

Regardless of the significance and relationship between ‘strategic interdependence’ and

‘organisational autonomy’, the following models of integration arise:

1. Absorption

2. Preservation

3. Symbiosis

4. Holding

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The following diagram aptly depicts the four models of integration based upon varying
degrees of strategic interdependence and organisational autonomy that they have:

Need For Strategic Interdependence

Low High

Need For Organisational Low Holding Acquisition Absorption

Autonomy Acquisition

High Preservation Symbiotic Acquisition

Acquisition

MODELS OF INTEGRATION

1. Absorption Acquisition

A high degree of interdependence and a low degree of autonomy is required to derive any added
value. Here, integration means complete consolidation of the operational activities, organisation
and culture of the companies involved. The aim is a complete fusion of the merging companies.
Absorption acquisition has the following features:

a. High rationalisation potential; primarily resource combination

b. Structured time planning; high rationalisation pressure

c. Optimisation of the composite added value

d. Clear claims to leadership of the buyer management

e. Nevertheless, no destroying in the sense of ‘raiding’

The frequent aims of absorption acquisition are to strengthen and widen business field, and or
improve the abilities forming the basis of the competitive position of a company in a particular

11
business field. For example, through a merger of two companies, cost structure can be improved
with economies of scale and scope, which as a consequence, strengthens competitiveness.

Example: Two of the most important Swiss banks, Union Bank of Switzerland and Swiss
Banking Corporation were amalgamated in December, 1977. The merger was presented as a
(merger of equals, with the intention of merging both company’s activities fully at all levels. An
{5501mm strategy was pursued in the integration process. The reasons pointed out for the
merger: (l) world-wide branch development, (2) crossing critical size, (3) excellent positioning
and synergies augmentation taking a leading position in almost all the important bank markets.
The realisation of synergies stemming from the joining of company activities, the size, as well as
the combining of abilities led to a considerable increase in value.

2. Preservation Acquisition

This is characterised by a high degree of autonomy between the companies involved in the
merger. Through this, the abilities established in the company cultures are to be protected and
maintained. The source of the benefit is the sharing of abilities through learning processes a well
as the support of the target company. Preservation acquisitions frequently display the following
features:

a. Greater distance from established business

b. High significance of company at the target company

c. Study of added value and resources of the object

d. Avoidance of ‘encroachments’

e. Assignment of resources and management know-how

f. Accompaniment of the object growth by motivated ‘champions’ on the buyer’s

part

The main aim of preservation acquisitions is ‘reconnaissance’, which means that a company
penetrates into new lines of business, most requiring new basic abilities. These abilities are not
available in the acquirer company. Therefore, the acquisition should provide an access to these
abilities found in the target company.

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Example: The purchase of a genetic engineering company by a food manufacturing corporation,
with the aim of building up a business field for genetically modified food. Another example is
that of Elan taking over Athena. In 1996, Athena Neurosciences Inc. (USA) was taken over by
Elan plc. (IRL). Athena was a relatively small research company (turnover US$53.4 million in
1996, pre-tax profit US$29.8 million), which has specialised in the research and deve10pment of
neurological diagnostics and therapy (for Alzheimer and Parkinson disease among others). Elan
is also part of the pharmaceutical industry (turnover US$192.6 million in 1996, pre-tax profit
US$67.6 million) which until now dealt with amphetamines and various biopharmaceuticals. The
purchase price amounted to US$601 million, financed by a stock swap and an increase of capital,
which corresponds to a sales volume multiplier of 12.4. The acquisition is a classic case of
preservation acquisition, reasons being that Elan sought, in addition to improved access to the
US market, a reinforcement of the R&D area of pharmaceutical agents. This acquisition is linked
to Elan’s strategic aim of developing itself into a full-scale pharmaceutical supplier. The aim of
the acquisition was to obtain abilities in R&D. which were worth the high purchase price for
Elan although it was a company in deficit. Athena was purely a research company. This is
evident in that, of the 337 employees, 240 were working in research (figures from 1996 before
the merger). This means that the value of the company was almost exclusively justified by the
value of the abilities of the employees. Therefore, in such a merger, it is extremely important that
valuable employees do not leave the company, otherwise the structures and concentrations of
ability that have grown over the years could be lost. The form of integration which is
recommended in such a case, and which was also used in this concrete case is preservation, that
is Elan limited itself to utilising Athena’s research results by developing marketable products.
The autonomy of Athena remained largely untouched.

3. Symbiotic acquisitions

In symbiotic acquisitions, a high degree of strategic interdependence is necessary, as is a high

degree of autonomy, because the acquired abilities must be maintained in an organisational
context. The companies involved frequently work separately from each other and their
interdependence increases only gradually. Symbiotic acquisitions have the following features:

a. Similar positions which are nonetheless worth protecting (for example, another
strategic target group, particular resource structure)

13
 b. Initiation of ‘Co-evolution’ between the buyer and the object: the purchasing
company also wants to change

c. Greater attention is paid to the boundary between the companies

d. Assignment of skills as intensive as possible.

e. Later connection of both companies

The main aim of symbiotic acquisitions is field expansion. In an acquisition which aims at
expanding the field of business, a company uses its abilities in new, related lines of business, or
new abilities are brought to the existing lines of business.

Example: Daimler Chrysler AG resulted from the merger of Daimler-Benz AG, Stuttgart and
Chrysler Corporation, Auburn Hills, Michigan, USA, in 1998. Through this merger, a leading
world motor company arose, which with regard to sales volume, stock exchange value and yield
counts as one of the leading companies of the industry. The main reason for the merger was
growing pressure from competition. The changes in the world of economics, particularly the
globalisation of the markets, present international companies like Daimler-Benz and Chrysler
with new challenges.

4. Holding Acquisition

This is not a type of integration in the conventional sense, since integration is not striven for in
the case. The characteristics of holding acquisition are:

a. Integration and value increase are not striven for, apart from risk distribution or
the assignment of general management capabilities through capital transfer.

b. The only integrational measure in such an acquisition is the administration in a

holding. So, it is purely a financial investment.

c. Holding acquisitions are purely financial investments.

d. No significant interest in prom combination, resource dividing or skills

assignment

e. Need for a judgement of the efficiency of the object management.

14
CHAPTER-1 BANK PROFILE

ICICI BANK
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 2,009
branches and about 5,219 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 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. ICICI Bank's equity shares are listed in India on Bombay
Stock Exchange and the National Stock Exchange of India Limited and its
American Depositary Receipts (ADRs) are listed on the New York Stock
Exchange (NYSE)

15
Officers:

Chairman: K. Vaman Kamath

Managing Director and CEO: Chanda D. Kochhar
Executive Director and CFO: N. S. Kannan

Competitors:
HDFC Bank

Punjab National Bank

State Bank of India

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

16
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
shareholders, the High Court of Gujarat at Ahmedabad as well as the High Court of
Judicature at Mumbai and the Reserve Bank of India

Present Scenario

ICICI Bank has its equity shares listed in India on Bombay Stock Exchange and
the National Stock Exchange of India Limited. Overseas, its American Depositary
Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). As of
December 31, 2008, ICICI is India's second-largest bank, boasting an asset value
of Rs. 3,744.10 billion and profit after tax Rs. 30.14 billion, for the nine months,
that ended on December 31, 2008.
Branches & ATMs
ICICI Bank has a wide network both in Indian and abroad. In India alone, the bank
has 1,420 branches and about 4,644 ATMs. Talking about foreign countries, ICICI
Bank has made its presence felt in 18 countries - United States, Singapore,
Bahrain, and 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. The Bank proudly holds its
subsidiaries in the United Kingdom, Russia and Canada out of which, the UK
subsidiary has established branches in Belgium and Germany.

17
Products & Services Personal Banking

 Deposits
 Loans
 Cards
 Investments
 Insurance
 Demat Services
 Wealth Management

NRI Banking

 Money Transfer
 Bank Accounts
 Investments
 Property Solutions
 Insurance
 Loans

Business Banking

 Corporate Net Banking

 Cash Management
 Trade Services
 FX Online
 SME Services
 Online Taxes
 Custodial Service.

18
PRESENT STOCK MARKET POSITION OF ICICI BANK LIMITED

ICICI Bank Limited (the Bank) is an India-based banking company engaged in

providing a range of banking products and services to corporate and retail
customers through a variety of delivery channels. During the fiscal year ended
March 31, 2009 (fiscal 2009), the Bank had total assets of Rs. 4,826.9 billion
($94.9 billion).

19
CHAPTER-2

MERGER OF ICICI WITH ICICI BANK

ICICI Bank and ICICI, along with other ICICI group companies, were operating as
a “virtual universal bank”, offering a wide range of financial products and services.
The merger of ICICI and two of its subsidiaries with ICICI Bank has combined
two organizations with complementary strengths and products and similar
processes and operating architecture. The merger has combined the large capital
base of ICICI with the strong deposit raising capability of ICICI Bank, giving
ICICI Bank improved ability to increase its market share in banking fees and
commissions, while lowering the overall cost of funding through access to lower-
cost retail deposits. ICICI Bank would now be able to fully leverage the strong
corporate relationships that ICICI has built, seamlessly providing the whole range
of financial products and services to corporate clients. The merger has also resulted
in the integration of the retail finance operations of ICICI, and its two merging
subsidiaries, and ICICI Bank into one entity, creating an optimal structure for the
retail business and allowing the full range of asset and liability products to be
offered to all retail customers.

The share exchange ratio approved for the merger was one fully paid-up equity
share of ICICI Bank for two fully paid-up equity shares of ICICI. This was
determined on the basis of a comprehensive valuation process incorporating
international best practices, carried out by two separate financial advisors and an
independent accounting firm. The equity shares of ICICI Bank held by ICICI have
not been cancelled in the merger. In accordance with the provisions of the Scheme
of Amalgamation, these shares have been transferred to a Trust to be divested by

20
appropriate placement. The proceeds of such divestment would accrue to the
merged entity. With the merger taking effect, the paid-up share capital of the Bank
has increased to Rs. 6.13 billion, comprising 613 million shares of Rs.10 each.

The merger process was complex and posed significant challenges. The merger of
a financial institution with a commercial bank to create the country’s first universal
bank had significant implications for the entire financial system. It therefore
involved extensive dialogue with the Government and Reserve Bank of India. The
merger also posed the challenge of compliance with regulatory norms applicable to
banks in respect of ICICI’s assets and liabilities, particularly the reserve
requirements. This required resources of about Rs. 210.00 billion to be raised in
less than six months for investment in Government securities and cash reserves, in
addition to normal resource mobilization for ongoing business requirements. We
leveraged our strong retail franchise, including the distribution network acquired in
the merger of the erstwhile Bank of Madura Limited with ICICI Bank in fiscal
2001, to grow our retail deposit base. We also achieved significant success in
securitizing loans and developing a market for securitized debt in India. We also
adopted proactive strategies to minimize the duration of our Government securities
portfolio, in order to mitigate the interest-rate risk arising from the acquisition of a
portfolio of about Rs. 180.00 billion in five months.

As both ICICI and ICICI Bank were listed in Indian and US markets, effective
communication to a wide range of investors was a critical part of the merger
process. It was equally important to communicate the rationale for the merger to
international and domestic institutional lenders and to rating agencies. The merger
process was required to satisfy legal and regulatory procedures in India as well as
to comply with United States Securities and Exchange Commission requirements
under US securities laws. The merger of India’s largest financial institution with its

21
largest private sector bank also involved significant accounting complexities. In
accordance with best practices in accounting, the merger has been accounted for
under the purchase method of accounting under Indian GAAP. Consequently,
ICICI’s assets have been fair-valued for their incorporation in the books of
accounts. The fair value of ICICI’s loan portfolio was determined by an
independent valuer, while ICICI’s equity and related investment portfolio was fair-
valued by determining its markto- market value. The total additional provisions &
write-offs required to reflect the fair values of ICICI’s assets determined at Rs.
37.80 billion have de-risked the loan and investment portfolio and created a
significant cushion in the balance sheet, while maintaining healthy levels of capital
adequacy. The merger was approved by the shareholders of both companies in
January 2002, by the High Court of Gujarat at Ahmedabad in March 2002, and by
the High Court of Judicature at Mumbai and the Reserve Bank of India (RBI) in
April 2002. The challenge of mobilization of resources for compliance with
statutory reserve requirements applicable to banks, on ICICI’s outstanding
liabilities on merger, was met successfully within the target date of March 30,
2002.

22
 Boards of ICICI and ICICI Bank Approve Merger.

The Board of Directors of ICICI Limited (NYSE:IC) and the Board of Directors of
ICICI Bank Limited (NYSE:IBN) in separate meetings at Mumbai, approved the
merger of ICICI with ICICI Bank.

The merger of two wholly-owned subsidiaries of ICICI, ICICI Personal Financial

Services Limited and ICICI of two wholly-owned subsidiaries of ICICI, ICICI
Personal Financial Services Limited and ICICI Capital Services Limited, with
ICICI Bank was also approved by the respective Boards. The proposal has been
submitted to the Reserve Bank of India (RBI) for its consideration and approval,
and shall be subject to various other approvals, including the approval of the
shareholders of the respective companies, the High Courts of Mumbai and Gujarat,
and the Government of India as may be required. Consequently, the Appointed
Date of merger is proposed to be March 31, 2002, or the date from which RBI's
approval becomes effective, whichever is later. The Scheme of Amalgamation
("the Scheme") approved by the respective Boards envisages a share exchange
ratio of one domestic equity share of ICICI Bank for two domestic equity shares of
ICICI. As each American Depositary Share (ADS) of ICICI represents five
domestic equity shares while each ADS of ICICI Bank represents two domestic
equity shares, the ADS holders of ICICI would be issued five ADS of ICICI Bank
in exchange for four ADS of ICICI.

The share exchange ratio approved by the Boards of the two entities was based on
a valuation process incorporating international best practices in respect of a merger
of two affiliate companies. JM Morgan Stanley was appointed by ICICI to advise it
on a fair exchange ratio, while ICICI Bank appointed DSP Merrill Lynch for the

23
same purpose. Thereafter, ICICI and ICICI Bank jointly appointed the leading
accounting firm, Deloitte, Haskins & Sells to recommend the final share exchange
ratio to the Boards of the two entities. The share exchange ratio has been
determined in accordance with best practices in valuation, using the relative market
prices, discounted cash flows and book values. Davis Polk & Wardwell are the
international legal counsel and Amarchand & Mangaldas & Suresh A. Shroff &
Co. are the domestic legal counsel for the merger.

The Scheme will be filed before the High Courts of Mumbai and Gujarat and
subsequently placed for approval at the meetings of shareholders of the respective
companies. ICICI and ICICI Bank have submitted to RBI the proposal for the
merger and compliance with regulatory norms applicable to banks, and would
adhere to RBI's decision in the matter.

The merged entity would be the second largest bank in India with total assets of
about Rs. 95,000 crore (proforma at September 30, 2001), 396 existing branches/
extension counters of ICICI Bank, 140 existing retail finance offices and centres of
ICICI, and 8,275 employees. The merged entity would leverage on its large capital
base, comprehensive suite of products and services, extensive corporate and retail
customer relationships, technology-enabled distribution architecture, strong brand
franchise and vast talent pool. The retail segment will be a key driver of growth for
the merged entity, with respect to both assets and liabilities. The merged entity's
competitive edge in the financial system is reflected in the combined cost-to-
income ratio of 27 per cent (proforma for the half-year ended September 30, 2001),
which compares favourably with that of other Indian banks of comparable size and
scale of operations.

The merger is expected to be beneficial to shareholders of both entities. The

merger would enhance value for shareholders of ICICI through the merged entity's

24
access to low-cost deposits, greater opportunities for earning fee-based income and
the ability to participate in the payments system and provide transaction-banking
services. The merger would enhance value for shareholders of ICICI Bank through
the large capital base and scale of operations, access to ICICI's strong corporate
relationships built up over five decades, entry into new business segments, higher
market share in various business segments, particularly fee-based services, and
access to the vast talent pool of ICICI and its subsidiaries. The process of
integration between ICICI Bank and ICICI is expected to be smooth due to the
strong synergies between the two entities.

Consequent to the merger of ICICI with ICICI Bank, the Board of Directors of
ICICI Bank is proposed to be reconstituted in compliance with the Banking
Regulation Act, 1949 and in accordance with best practices in corporate
governance. It is proposed that the Board of Directors of the merged entity would
be headed by Mr. N. Vaghul as the non-executive Chairman. The executive
management at the Board level would comprise Mr. K. V. Kamath as Managing
Director and Chief Executive Officer, Mr. H. N. Sinor and Mrs. Lalita D. Gupte as
Joint Managing Directors and Mrs. Kalpana Morparia, Mr. S. Mukherji, Mrs.
Chanda D. Kochhar and Dr. Nachiket M. MOR as Executive Directors. The
executive management at the Board level would not constitute more than one-half
of the total strength of the Board.

ICICI currently holds 46% of the paid-up equity share capital of ICICI Bank. This
holding would not be cancelled under the scheme of amalgamation. It is proposed
to be held in trust for the benefit of the merged entity, and divested through
appropriate placement in fiscal 2003. The proceeds from the divestment will
accrue to the merged entity.

25
At the time of the merger, ICICI Bank would align the Indian GAAP accounting
policies of ICICI to those of ICICI Bank, including a higher general provision
against standard assets. Further, in accordance with international best practices in
accounting, ICICI Bank has decided to adopt the "purchase method" of accounting,
which is mandatory under US GAAP, to account for the merger under Indian
GAAP as well. ICICI's assets and liabilities will therefore be fair valued for the
purpose of incorporation in the accounts of ICICI Bank on the Appointed Date.

Full compliance with the prudential norms applicable to banks on all of ICICI's
existing liabilities is likely to have some adverse impact on the overall profitability
of both entities in fiscal 2002.

In 1998, ICICI had set up the Special Asset Management Group for focus on
recovery and resolution of credit exposures, where the operations of the borrower
companies had been adversely impacted due to systemic or other factors. This
initiative has yielded significant benefits, due to the creation of a focused team of
professionals and development of the specialized skill sets essential for asset
resolution. ICICI is exploring several options for the creation of an asset
reconstruction company, which would own and manage non-performing loans.
ICICI proposes to work actively with the Government of India, RBI and other
institutions and banks to create an enabling framework for an industry-wide
mechanism that would maximize the economic value of distressed assets in the
financial system.

26
 IMPACT OF MERGER OF ICICI BANK WITH ICICI
LIMITED

• Retail Banking

• Wholesale Banking

• Project Finance & Special Assets Management

• International Business

• Corporate Centre

The Project Finance Group comprises our project finance operations for
infrastructure, oil &gas, manufacturing and shipping sectors. The Special Assets
Management Group is responsible for large non-performing loans and accounts
under watch. The International Business Group is responsible for ICICI Bank’s
international operations as well as coordinating the international strategies and
alliances of its subsidiaries and affiliates

The Corporate Centre comprises all shared services and corporate functions,
including finance and secretarial, investor relations, risk management, legal,
human resources and corporate branding and communications.

27
Retail Banking

The retail business is the key driver of ICICI Bank’s growth strategy, with the
objective of diversifying the asset portfolio and building a low-cost stable resource
base. With a complete product suite across both asset and liability products as well
as a wide range of banking services, ICICI Bank is today a retail financial
supermarket with the ability to cross-sell the entire range of credit and investment
products and other banking services to our customers. The key dimensions of our
retail strategy are products, channels and processes, under a strong customer
focus. Changing demographics and the trend towards upward migration in income
levels coupled with existing low retail credit penetration levels have created a
major growth opportunity in retail finance. ICICI Bank’s retail assets business is
capitalizing on this opportunity with a competitive positioning and strategy
comprising innovative products, wide distribution, strong credit controls and high
customer service standards and rapidly growing volumes in each segment to
achieve economies of scale. ICICI Bank’s retail portfolio (including the portfolio
of ICICI Home Finance Company Limited, its wholly-owned subsidiary) at March
31, 2002 was over Rs. 76.00 billion, as compared to the combined retail portfolio
of ICICI and ICICI Bank of about Rs. 29.00 billion at March 31, 2001. Our retail
asset products include mortgages, automobile and two-wheeler loans, commercial
vehicles and construction equipment financing, consumer durable loans, personal
loans and credit cards.

In the mortgages business, we expanded our reach to more than 140 locations
across the country. We were the first to introduce adjustable rate home loans, with
interest rates linked to a floating prime lending rate. This product received
excellent response from customers cross the country and was a key driver of
growth in the mortgages segment. It also enabled us to price loans competitively

28
and achieve better asset-liability management. Other products and product variants
introduced this year included loans against existing property as well as several
value-added features – retail property services and home insurance policies
bundled with the loan. During fiscal 2002 we emerged as a leading player in the
mortgages business.

During fiscal 2002 we consolidated our position as clear market leaders in

automobile loans. We expanded our distribution network to 145 cities and towns
across the country. The key drivers of growth were the strength of our corporate
relationships with leading automobile manufacturers, strong distribution capability
and customer service focus. We rapidly increased our presence in other segments
as well. We expanded our two-wheeler business to over 140 locations. ICICI Bank
partners manufacturers in distributing their products and therefore enjoys preferred
status with them. We were able to offer competitive products to our customers by
leveraging economies of scale resulting from the rapid growth in operations. In the
credit cards business we expanded our distribution to 36 locations. The total
number of cards in force increased by 450,000 to about 650,000 at the end of fiscal
2002. During the year we launched two co-branded cards, with Hindustan
Petroleum Corporation Limited (HPCL) and BPL Mobile respectively. We also
entered the merchant acquiring business during the year. ICICI Bank is the largest
incremental issuer of cards (including both debit and credit cards) in India. ICICI
Bank’s “Ncash” debit card is a deposit access product that allows cash withdrawals
through ATMs and also enables purchases at merchant establishments with point-
of-sale terminals. The card is valid internationally and earns loyalty points on
usage. Wealso introduced a domestic debit card variant primarily for our payroll
customers. As at March, 31, 2002, ICICI Bank had issued about 600,000 debit

29
cards. During fiscal 2002, ICICI Bank also implemented two smart card projects,
at a corporate worksite and an educational institution.

In order to reduce our funding cost and create a stable funding base, we continued
our focus on retail deposits in fiscal 2002. The number of customer accounts
increased from 3.2 millionto over 5 million. ICICI Bank’s life stage segmentation
strategy offering differentiated liability products to various categories of customers
(kid-e-bank for children, bank@campus for students, Power Pay for salaried
employees, ICICI Select for high net worth individuals and Business Multiplier for
businessmen) contributed significantly to the rapid growth in the retail ability base.
They have developed a successful third party distribution model with a growing
market share in distribution of mutual funds, Reserve Bank of India relief bonds
and insurance products.

This allows us to meet all customer needs through products that are
complementary to those that we offer directly, while leveraging our distribution
capability to earn fee income from third parties. They also provide online
trading facilities through www.ICICIdirect.com. ICICI direct provides complete
end-to-end integration for seamless electronic trading on the stock exchanges and
has been rated “TxA1” by CRISIL, indicating highest ability to service broking
transactions. ICICI direct has also launched India’s first Digitally Signed Contract
Notes (DSCN), which allows a customer to view and print their contract notes
online. ICICI Bank has pioneered a multi-channel distribution strategy in India,
giving our customers24x7 access to banking services. The enhanced convenience
that this offers the customer has supported our customer acquisition efforts and
migration of customer transactions from branches to lower-cost technology-
enabled channels. During the year, ICICI Bank continued to expand its non-branch
channels aggressively and successfully migrated customer transaction volumes to

30
these channels. Only 35% of customer induced transactions now take place at
branches. ICICI Bank set up over 500 new ATMs during fiscal 2002, taking the
ATM network to over 1,000 ATMs. Master, Cirrus and Maestro cards can now be
used on all our ATMs. Other new initiatives on ATMs include multilingual
screens, bill payments and prepaid mobile card recharge facility. ICICI Bank now
has over one million retail Internet banking accounts. Retail Internet banking
customers can view their bank accounts, transfer funds between their own accounts
and to any other ICICI Bank account. ICICI Bank also offers the facility of
transferring funds to accounts in any branch of any bank, in eight cities through
Cheques, India’s first Internet based inter-bank fund transfer facility. Customers
can also open a fixed or recurring deposit, make a stop-cheque request and inquire
into the status of a cheque online. Customers can write to the account manager
through the secure channel and subscribe to account statement by e-mail. ICICI
Bank offers its customers the facility of paying utility bills online in over 120cities
in India. All major online shopping services are linked to ICICI Bank’s online
payments facility. ICICI Bank has also focused on the call centre as a key channel.
ICICI Bank’s call centre can now be accessed by customers in 100 cities, and is
India’s largest domestic call centre. The call centre is a single point of contact for
customers across all products. It provides various self-service options and also
personalized communication with customer service officers for a full range of
transactions and account and product related queries. The call centre is now
evolving into a complete relationship management channel not only for complaint
resolution but also for cross-selling on inbound calls. The call centre uses state-of-
the-art voice-over Internet-protocol technology and cutting-edge desktop
applications to provide a single view of the customer’s relationship. ICICI Bank’s
mobile banking services provide the latest information on account balances

31
previous transactions, credit card outstanding and payment status and allow
customers to request a chequebook or account statement.

32
Corporate Banking

ICICI Bank’s corporate banking strategy is based on providing customized

financial solutions to clients, tailored to meet their specific requirements. The
corporate banking strategy focuses on careful management of credit risk and
adequate return on risk capital through risk-based pricing and proactive portfolio
management, rapid growth in fee-based services and extensive use of technology
to deliver high levels of customer satisfaction in a cost effective manner. Our focus
in fiscal 2002 was on expanding the range and depth of our corporate relationships,
acquiring new clients and cross-selling all our corporate banking products and
services to the existing client base. We continued to focus on working capital
finance for highly-rated clients ,structured transactions and channel financing. In
longer-term loans, in the absence of traditional capital expenditure financing
opportunities and limited corporate-credit growth, ICICI Bank has taken advantage
of emerging opportunities in the public sector disinvestment process, through
structuring and advisory services. We focused strongly on transaction banking
services such as cash management and non-fund-based facilities such as letters of
credit and bank guarantees to increase our market share in banking fees and
commissions. We have already achieved significant success in cash management
services, with total volumes of Rs. 1.72trillion for fiscal 2002. We also targeted
high value current accounts to reduce our cost of funding. We implemented a
customer-level profitability-based pricing model. As the pioneers of securitization
in India, we were successful in creating a market for securitized corporate debt,
which would help to expand and deepen the debt markets .During the year we
enhanced our technology-based delivery platforms and expanded the scope of our
web-based services. ICICI Bank provides Internet banking services to its wholesale
banking clients through ICICImarkets.com, a finance portal that is the single point

33
web-based interface for all our corporate clients. The Corporate Internet Banking
(CIB) platform of ICICI markets allows clients to conduct banking business online
in a secure environment. Clients can view accounts online, transfer funds between
their own accounts or to other accounts, and avail of other such services. ICICI
Bank offers forex trading through the Internet on FX Online and Government of
India securities trading through Debt Online. The corporate banking business is
organized into special relationship groups for the Government and public sector,
large corporate, emerging corporate and agri-business. ICICI Bank has strong
linkages with several large public sector companies, and is leveraging

CORPORATE STRATEGY

These relationships to expand the range of services that it offers to them. ICICI
Bank has also established relationships with several state governments, having
financed state-level enterprises. Besides, ICICI Bank has been empanelled in eight
states for collection of sales tax. ICICI Bank is also involved with several other
state government initiatives. In the corporate client segment, ICICI Bank is
focusing on increasing its share of banking business with its corporate clients. In
the emerging corporate segment, ICICI Bank’s focus is on establishing structured
financing arrangements and implementing a liability-led business strategy,
providing sophisticated banking services to its clients. ICICI Bank has also
developed several innovative structures for agri-business, including dairy farming.
ICICI Bank is working with state governments and agri-based corporate to evolve
viable and sustainable systems for financing agriculture. ICICI Bank’s dedicated
Structured Products & Portfolio Management Group, with access to expertise in
financial structuring and related legal, accounting and tax issues, actively supports
the business groups in designing financial products and solutions. This Group is
34
also responsible for managing the asset portfolio by structuring portfolio buyouts
and sell-downs. The enhanced capital base consequent to the merger will
significantly increase ICICI Bank’s ability to leverage its strong corporate
relationships and provide non-fund-based facilities and trade finance services to its
corporate clients. ICICI Bank is leveraging technology to set up centralized
processing facilities to process large transaction volumes, thereby benefiting from
economies of scale. A dedicated Corporate Operations & Technology Group has
been set up for developing and managing back-office processing and delivery
capabilities.

Treasury

The principal responsibilities of the Treasury include management of liquidity and

exposure to market risks, mobilization of resources from domestic and
international financial institutions and banks, and proprietary trading. Additionally,
the Treasury is leveraging its strong relationships with financial sector players to
provide a wide range of banking services in addition to its liability products. The
Treasury is also responsible for ICICI Bank’s capital markets and custodial
services operations.

During fiscal 2002, the focus was on the challenge of meeting regulatory reserve
requirements on ICICI’s liabilities prior to the merger for meeting the reserve
requirements and managing the interest-rate risk arising from the acquisition of
Government securities aggregating about Rs. 180.00 billion in an environment of
low interest rates. Yields on Government securities reached historic lows during
2001-2002 as a consequence of the easy liquidity environment and RBI’s soft-
interest-rate policy. To minimize the risk of adverse mark-to-market impact on any
rise in interest rates, ICICI Bank adopted a strategy of acquiring securities of lower
duration. A significant portion of the requirement of Government securities was
35
acquired through active participation in primary auctions of floating-rate bonds and
short-maturity Treasury bills. \Prior to the merger, in addition to its resource
mobilization from the wholesale segment, ICICI had raised a foreign currency loan
of USD 75 million at LIBOR + 70 basis points, setting a new benchmark for a five-
year borrowing by an Indian entity in the international markets after the Asian
currency crisis. ICICI had also borrowed USD 50 million from Kreditanstalt fur
Wiederaufbau (KfW), a German financial institution, for twelve-and-a-half years.

This was the first borrowing by ICICI from KfW without a Government of India
guarantee. ICICI also entered into an agreement with Asian Development Bank
(ADB) for availing a 25-year USD 80 million loan for housing finance, and with
DEG, Germany for an 8-year USD 25 million loan. The focus of trading operations
was active, broad-based market-making in key markets including corporate bonds,
Government securities and interest-rate swap markets. Substantial reduction in
interest rates provided an opportunity to capture gains in the fixed-income market
by active churning of the trading portfolio.

Project Finance and Special Assets

ICICI BANK project finance activities include financing new projects as well as
capacity additions in the manufacturing sector and structured finance to the
infrastructure and oil, gas and petrochemicals sectors. Over the years, we have
developed considerable expertise in financing complex project finance transactions
and effectively allocating the associated risks. Our presence has been viewed by
most sponsors as critical to the success of their projects, on account of our
proficiency in developing enforceable contract models, syndicating requisite funds
and working out complex issues related to Government regulations. Our project
finance business is focused on structuring and syndication of financing for large
projects by leveraging our expertise in project financing, and churning our project
36
finance portfolio to prevent portfolio concentration and to manage portfolio risk.
We view our role not only as providers of project finance but as arrangers and
facilitators, creating appropriate financing structures that may serve as financing
and investment vehicles for a wider range of market participants.

Infrastructure Sector.

The infrastructure sector has not witnessed the anticipated growth, mainly due to
policy-levelis sues and delay in closure of various projects. While there were few
opportunities in the power sector, the telecom and road sectors witnessed
considerable activity. Guarantees to Department of Telecommunications on behalf
of various telecom companies for basic, cellular and national and international
long-distance licenses presented a significant non-fund based business opportunity.
We have also capitalized on opportunities in the road sector, in both annuity and
toll-based projects, including lead arranger mandates for four road projects of
National Highway Authority of India (NHAI). The pace of growth in the road
sector is expected to increase both due to NHAI’s National Highway Development
Programme and the larger state-level projects. Going forward, we expect ports and
urban infrastructure sectors, in addition to telecom and roads, to provide significant
business opportunities. Corporatization has already been initiated for five out of
twelve major ports. Ports would also require significant expansion and
modernization of facilities. We were appointed lead arrangers for a chemical port
terminal project. The power sector is also expected to pick up with opportunities in
the privatization of distribution, financial closure of select private projects with
competitive tariffs, capacity additions in the public sector and its own reform and
restructuring. We provided advisory services to the Ministry of Power, developing
a comprehensive blueprint for private sector participation in hydropower. The

37
Managing Director & CEO was a member of the Distribution Policy committee
which submitted a report improving efficiency in power distribution in the country.

Manufacturing Sector

Fiscal 2002 saw few new projects in the manufacturing sector on account of lower
economic growth and existing over-capacities in several commodities. Our focus in
this sector is on projects sponsored by entities that have proven ability to commit
the required financial resources and implement projects successfully within
planned time-frames. We are also implementing tighter security measures, such as
security interests in project contracts and escrow accounts to capture cash flows.
We also believe that there is significant scope for consolidation in several
segments in the manufacturing sector, which presents opportunities for structuring
and syndicating acquisition financing.

Special Assets Management

Liberalization and integration with the global economy have posed major
competitive challenges for Indian industry. Cyclical downturns in commodity
demand and prices have adversely affected the performance of several sectors.
This has impacted asset quality in the financial system. ICICI Bank’s efforts at
asset resolution are driven by the Special Assets Management Group (SAMG), set
up to manage large non-performing loans and large accounts under watch that
require close monitoring. In case of exposures to essentially viable companies.
SAMG’s approach includes operational and financial restructuring, completion of
projects under implementation, sale of unproductive assets and catalyzing

38
consolidation. In respect of exposures to unviable and essentially uneconomical
projects, we adopt an aggressive approach aimed at out-of-court settlements,
enforcing collateral and driving consolidation. The accent is on time-value of
recovery and a pragmatic approach towards settlements. During fiscal 2002,
SAMG was strengthened by the induction of some of our highest-rated performers
into the group.

International Business

ICICI BANK have already established a presence in the international markets,

primarily in the areas of information technology, investment banking and banking
products and services for the This posed the dual challenge of raising resources for
meeting the reserve requirements and managing the interest-rate risk arising from
the acquisition of Government securities aggregating about Rs. 180.00 billion in an
environment of low interest rates. Yields on Government securities reached
historic lows during 2001-2002 as a consequence of the easy liquidity environment
and RBI’s soft-interest-rate policy. To minimize the risk of adverse mark-to-
market impact on any rise in interest rates, ICICI Bank adopted a strategy of
acquiring securities of lower duration. A significant portion of the requirement of
Government securities was acquired through active participation in primary
auctions of floating-rate bonds and short-maturity Treasury bills. Prior to the
merger, in addition to its resource mobilization from the wholesale segment, ICICI
had raised a foreign currency loan of USD 75 million at LIBOR + 70 basis points,
setting a new benchmark for a five-year borrowing by an Indian entity in the
international markets after the Asian currency crisis. ICICI had also borrowed
USD 50 million from Kreditanstalt fur Wiederaufbau (KfW), a German financial
institution, for twelve-and-a-half years. This was the first borrowing by ICICI from
39
KfW without a Government of India guarantee. ICICI also entered into an
agreement with Asian Development Bank (ADB) for availing a 25-year USD 80
million loan for housing finance, and with DEG, Germany for an 8-year USD 25
million loan. The focus of trading operations was active, broad-based market-
making in key markets including corporate bonds, Government securities and
interest-rate swap markets. Substantial reduction in interest rates provided an
opportunity to capture gains in the fixed income market by active churning of the
trading portfolio.

CREDIT RATING

During the year, ICICI became the first Indian company to be rated higher than the
sovereign rating for India by Moody’s Investor Service, when its senior and
subordinated long term foreign currency debt was rated Ba1 i.e. one notch above
the sovereign rating for India. The same rating has been assigned to ICICI Bank
post-merger. ICICI Bank’s credit ratings as per various credit rating agencies
(including ratings assigned to debt instruments issued by ICICI now transferred to
ICICI Bank on merger) are given below:

Agency Rating

– Foreign currency debt Ba1

– Foreign currency deposits Ba3

Standard & Poor’s (S&P) BB

Credit Analysis & Research Limited (CARE) CARE AAA

Investment Information and Credit Rating Agency (ICRA) LAAA

40
HUMAN RESOURCES

ICICI Bank views its human capital as a key source of competitive advantage.
Consequently the development and management of human capital is an essential
element of our strategy and a key management activity .Human resources
management in fiscal 2002 focused on smooth integration of the employee sand
human resource management systems in the context of the merger, as well as on
continuous improvement of recruitment, training and performance management
processes. The process of integration involved defining the organizational structure
of the merged entity people placement in various positions across the business and
corporate groups, and integration of the grade and remuneration structure for the
employees of the four entities. The organizational structure was announced in
February 2002 and became effective on May 3, 2002. The people placement
process was based on appropriate competency profiling tools and matching
employee profiles to job specifications. The grade integration process has also
been success fully completed, using job evaluation techniques. While ICICI Bank
is India’s second-largest bank, it had just over 7,700 employees at March 31, 2002,
demonstrating our unique technology-driven, productivity-focused business model.

The recruitment process has been streamlined and a uniform recruitment policy
and process implemented across the merged organization. Robust ability-testing
and competency -profiling tools are being used to strengthen the campus
recruitment process and match the profiles of employees to the needs of the
organization. ICICI Bank continues to be a preferred employer at leading business
schools and higher education institutions across the country, offering a wide range
of career opportunities across the entire spectrum of financial services. In addition
41
to campus recruitment, ICICI Bank also undertakes lateral recruitment to bring
new skills, competencies and experience into the organization and meet the
requirements of rapidly growing businesses. A Six Sigma initiative has been
undertaken for the lateral recruitment process to improve capabilities in this area.
ICICI Bank encourages cross-functional movement, enriching employees’
knowledge and experience and giving them a holistic view of the organization
while ensuring that the bank leverages its human capital optimally. The rapidly
changing business environment and the constant challenges it poses to
organizations and businesses make it imperative to continuously enhance
knowledge and skill sets across the organization. ICICI Bank believes that building
a learning organization is critical for being competitive in products and services
and meeting customer expectations. ICICI Bank has built strong capabilities in
training and development to build competencies. Training on products and
operations is imparted through web-based training modules. Special programmes
on functional training and leadership development to build knowledge as well as
management ability are conducted at a dedicated training facility. ICICI Bank also
draws from the best available training programmes and faculty, both international
and domestic; to meet its training and development needs and build globally
benchmarked skills and capabilities.

ICICI Bank seeks to build in all its employees a total commitment towards
exceptional standards of performance and productivity, adaptability to changing
organizational needs and the demands of the business environment and a
willingness to learn and acquire new capabilities. ICICI Bank believes in defining
clear performance parameters for employees and empowering them to achieve
their goals. This has helped to create a culture of high performance across the

42
organization. ICICI Bank also has a structured process of identifying and
developing leadership potential the focus on human resources management as a
key organizational activity has resulted in the creation of an exceptional pool of
talent, a performance-oriented organizational culture and has imparted agility and
flexibility to the organization, enabling it to capitalize on opportunities and deliver
value to its stakeholders.

ORGANIZATIONAL EXCELLENCE

ICICI Bank recognizes the importance of organizational excellence in its business.

Developing and deploying world-class skills in a variety of areas such as
technology, financial engineering, transaction processing and portfolio
management, credit evaluation, customer segmentation and product design, and
building and maintaining deep and enduring relationships of trust with our retail
and wholesale customers are essential elements of our strategy. Different
businesses across the ICICI group have over the past few months used successfully
the Six Sigma methodology to focus on customer satisfaction and enhanced
efficiency in operations. Application of Six Sigma techniques in regional
processing centres, branch layout and design, and the home finance and demat
services businesses have reduced turnaround time and significantly improved
operational efficiency.

43
CHAPTER-3

HIHGLIGHT OF MERGER

Strong complementary organizations

Having similar operating architecture, people and processes. This merged entity is
consequently well-positioned to harness synergistic advantages and thereby
provide benefits to both ICICI and ICICI Bank.

Benefits of merger
 Forward leap” in the hierarchy of Indian banks

 A discontinuous jump in size and scale

 Achieve size and scale of operations

 Leverage ICICI’s capital and client base to increase fee income

 Higher profitability by leveraging on technology and low cost

structure

 Offer a complete product suite with immense cross-selling

opportunities

 ICICI’s presence in retail finance, insurance, investment banking

and venture capital

 Access to the ICICI group’s talent pool improved ability to further

diversify asset portfolio and business revenues Lower funding
costs

44
 Ability to accept/ offer checking accounts

 Availability of float money due to active participation in the

payments system

45
Merger process of ICICI BANK AND ICICI LIMITED -
highlights

1. Valuation
 Independently appointed investment bankers

 ICICI - JM Morgan Stanley

 ICICI Bank - DSP Merrill Lynch

 Jointly appointed independent accountant to recommend the final

exchange ratio

 Deloitte, Haskins & Sells appointed

 Recommended one share of ICICI Bank for two shares of

ICICI, which was approved by the respective Boards

2. Transfer of ICICI’s shareholding in ICICI Bank to an

SPV prior to the merger
 Divestment in FY2003 by way of appropriate placement

3. Consolidation of retail operations

 Merger of ICICI PFS and ICICI Capital Services with ICICI Bank

46
CHAPTER-4

Merger process - regulatory issues

 Merger effective on

 March 31, 2002 or the date of RBI approval, whichever is later

 Shareholders’ approval

 High court approval

 Accounting for the merger in line with international best practices

 Purchase method, mandatory under US GAAP, to be adopted under Indian GAAP

as well.

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem.

Research methodology constitutes of research methods, selection criterion of
research methods, used in context of research study and explanation of using of a
particular method or technique so that research results are capable of being
evaluated either by researcher himself or by others. Why a research study has been
undertaken, how the research problem has been formulated, why data have been
collected and what particular technique of analyzing data has been used and a best
of similar other question are usually answered when we talk of Research

47
methodology concerning a research problem or study. The main aim of research is
to find out the truth which is hidden and which has not been discovered as yet

The research methodology that I undertook for the purpose of this study is
enumerated below-

RESEARCH DESIGN: DESCRIPTIVE

Descriptive studies are well structured, they tend to be rigid and its approach can
not be changed every now and then. Descriptive study can be divided in two
categories:

(A) Cross sectional

(B) Longitudinal
Descriptive study is undertaken in many circumstances:

1. When the researcher is interested in knowing the characteristics of certain

groups such as age, profession.
2. When the researcher is interested in knowing the proportion of people in
given population who have behaved in a particular manner, making
projection of certain things.
I have taken descriptive because my research includes the knowing the merger
and consolidation of icici bank and icici limited.

48
 SCOPE OF THE STUDY
Each and every project study along with its certain objectives also has scope for
future. And this scope in future gives to new researches a new need to research a
new project with a new scope. Scope of the study not only consist one or two
future business plan but sometime it also gives idea about a new business which
becomes much more profitable for the researches then the older one.

Scope of the study could give the projected scenario merger and consolidation of
ICICI bank and ICICI limited.

Whatever scope I observed in my project are not exactly having all the features of
the scope which I described above but also not lacking all the features.

We highlight the major themes to emerge from the study. We looked the key
findings from the areas of production, survey of executive opinion in global
organizations, within which we examined major operation, including staffing,
performance management, rewards, development, and career management and
knowledge and learning.

- Factors which I observed while doing project study are following-

Working management

Quality of services provided by the bank.

Satisfaction of the bank customer.

Strategy of bank after merging.

49
TOOLS AND TECHNIQUES

As no study could be successfully completed without proper tools and techniques,

same with my project. For the better presentation and right explanation I used tools
of statistics and computer very frequently. And I am very thankful to all those tools
for helping me a lot. Basic tools which I used for project from statistics are-

- Bar Charts

- Pie charts

- Tables

Bar charts and pie charts are really useful tools for every research to show the
result in a well clear, ease and simple way. Because I used bar charts and pie charts
in project for showing data in a systematic way, so it need not necessary for any
observer to read all the theoretical detail, simple on seeing the charts any body
could know that what is being said.

Technological Tools

Ms-Word

Ms-excel

Internet

Above application software of Microsoft helped me a lot in making project more

interactive and productive. Microsoft-Excel had a great role in my project, it
created for me a situation of “you sit and get”. I provided it simply all the detail of
data and in return it given me all the relevant information..

50
Microsoft-Access did the performance of my personal assistant who organizes my
all the details of document without disturbing them even a single time in all the
project duration.

And in last Microsoft-Word did help me for the documentation of the project in a
presentable form.

Applied Principles and Concepts

While I started to do the project the main thing which was the matter of concern
was that around what principles I have to revolve my project. Because with out
having any hypothesis and objective we can not determine that what output or
result we are expecting form the project.

And second thing is that having only tools and techniques for the purpose of
project is not relevant until unless we have the principals for which we have to use
those tools and techniques.

Mathematical Averages

Standard Deviation

Correlation

Sources of Primary and Secondary data:

For the purpose of project data is very much required which works as a food for
process which will ultimately give output in the form of information. So before
mentioning the source of data for the project I would like to mention that what type
of data I have collected for the purpose of project and what it is exactly.

51
PRIMARY RESEARCH:

This consisted questionnaire and interaction from various people. Including the
employee of the icici bank limited (M.P.NAGAR, NEW MARKET).BHOPAL

A focus group study has conducted to design the customer survey questionnaire
with a sample size of 100 respondents. The survey was conducted in Bhopal.

SECONDARY RESEARCH:

1 Internet,

2 Books

3 Journals,

4 Newspaper,

5 Annual report,

6 Database available in the library,

7 Catalogues and presentations.

SAMPLING TECHNIQUE

For my survey I used Cluster Sampling technique. I selected a sample of 100

employees around the area and interviewed them according to the questionnaire.

In the survey I tried to find out their performance of the bank after merge. I also
tried to find out that are they satisfaction of customer with the quality of services
which provided by the ICICI BANK LIMITED. after merging

52
CHAPTER-5

LIMITATIONS OF THE STUDY

Following limitations were faced during the study:

1. While designing the questionnaire it was kept in mind to gather more and
more information from each target person. For the neither present nor
descriptive questions could have served the purpose. Therefore the
questionnaire contained in the open-ended questions.

2. The study was conducted in BHOPAL. The sample size was of 100 so that
accuracy of data so collected could absurd covered by circulation of
questionnaire.

3. The accuracy of indications given by the respondents may not be consider

adequate as whether the language used in the questionnaire is understood by
the respondent cannot be taken for granted.

4. The study is based on the information gathered from the employee in bank
Therefore in such case it is possible that the information supplied might be
biased because the company might have shown partiality towards their
information

5. It is rather difficult to give a precise conclusion of merger but I have tried to

the best of my capability to give the conclusion on a comprehensive manner
53
CHAPTER-6

DATA ANALYSIS & INTERPRETATION

Q1. Do you think that the merger of icici bank and icici limited is better then other
bank merger?

Opinions No. of Respondents Percentage (%)

Excellent 43 43

good 44 44

Poor 13 13

13%
43%

44%

excellent good poor

54
INTERPRETATION: Out of 100 respondent only 43 % respondent were told that
merger of icici bank and icici limited is excellent then other company 44% told
good while13% told poor.

Q2. Do you think that after merger performance of icici bank limited is better?

Opinions No. of Respondents Percentage (%)

Yes 86 86

No 14 14

Total 100 100

14

86

INTERPRETATION

Out of 100 respondent only 86% respondent were told that after merger
performance of icici bank limited is better while 14% told no.

55
 Q3 Do you think that services provided by icici bank limited after merger is
effective then other bank?

Opinions No. of Respondents Percentage (%)

Yes 72 72

No 28 28

Total 100 100

28

Yes
zz No

72

INTERPRETATION

Out of 100 respondents only 72% think that services provided by icici bank limited
after merger is effective then other while 28% don’t think that.

56
Q4. Do you think that merger icici limited beneficial for icici bank?

Opinions No. of Respondents Percentage (%)

Yes 86 86

No 14 14

Total 100 100

14

Yes
No
86

INTERPRETATION

Out of 100 respondents only 14 % respondent were not satisfied while 86% think
that merger with icici limited is beneficial for icici bank.

57
Q5 Are you satisfied with the statement merger can provide a multitude of ways to
increase efficiency merged bank?

Opinions No. of Respondents Percentage (%)

Satisfied 67 67

Unsatisfied 33 33

Total 100 100

33

satisfied
unsatisfied
67

INTERPRETATION

Out of 100 respondent only 67 % respondent were not satisfied while 33%were not
satisfied with the statement merger can provide a multitude of ways to increase
efficiency merged bank.

58
CHAPTER - 7

FINDING’S

a) Performance of ICICI BANK. After merger with ICICI LTD being effective
in comparison of other bank. It increases their performance.
b) Most the customer is satisfied by the services provided by the ICICI BANK
after merger. It increase the value of the bank in their customer
c) Merger of ICICI BANK & ICICI .LTD are provide a multitude of ways to
increase efficiency ICICI BANK.LTD
d) ICICI BANK .LTD provides the facility as per the expectations of their
customer. In this way they become successful to achieve their goal.
e) This merger successfully faces the competition of other bank.
f) Merger of ICICI BANK with ICICI.LTD increase the share value of ICICI
BANK.LTD
g) Most of the customers are attracted by new scheme of ICICI BANK.LTD
after merging. This schemes for attract the customer and it also help to make
a distinct image of ICICI BANK.LTD in the competition of present scenario.
h) Merger of ICICI BANK with ICICI.LTD help full for growth of Indian
economy.

59
CONCLUSION

Merger and acquisition is nothing new in the Indian banking industry. But there
has been a change in impetus. Earlier, with the banks firmly under the control of
RBI, mergers were forced upon to save weak banks from collapsing. The gradual
privatisation and globalisation of the banking industry has now forced banks
themselves to go in for merger. Increase in profitability, synergies in operation,
global scale and other such reasons have replaced the social and political motives
of yesteryears. Successful mergers can lead to prosperity both for the shareholders
of the merged company and for the economy as a whole. The true catalyst of a
successful merger is the top executive whose pragmatic and dynamic leadership
and a clear foresight can help a merger click. The trick is to neutralise the expected
pitfalls while bringing the best out of operational synergies. The making of ICICI
Bank into a ‘Universal bank’ has shown the way. This reverse merger has thus
opened up a challenge to the banks and financial institutions in India to merge and
become ‘financial conglomerate(s)’ by exploiting the present favourable business
environment and also to de-risk their operating environment

60
 BIBLIOGRAPHY
Periodical: Business World

Economics time

Research Methodology: C.R.Kothari, 2nd edition.

S.N Murty and U Bhojanna

Website Address:

www.icici.org.com

www.icici bank.com

www.economic time.com

www.googlesearch.com

 BOOKS

o Rabi Narayan Kar and Minakshi, Mergers Acquisitions & Corporate

Restructuring: Strategies & Practices, Taxmaan Publications (P.) Ltd., 3rd edition

o Kamal Ghosh Ray, Mergers and Acquisitions: Strategy, Valuation and

Integration, PHI Learning Pvt. Ltd., November 2015

o Rajinder S. Aurora, Kavita Shetty and Sharad R. Kale, Mergers and Acquisitions,
Oxford University Press, First edition

 Websites

o Mergerintegration.com

o academia.edu

o scribd.com

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o enterslice.com

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