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A
PROJECT REPORT
ON
An Evaluation of the MERGER AND CONSOLIDATION OF
ICICI LTD. AND ICICI BANK
A Report Submitted In Partial Fulfillment of the Requirements
For The Award of the Degree of
MASTER OF BUSINESS ADMINISTRATION
(Collaborative program of M.S.Ramaiah Management Institute with PRIST
University)
By
Rahul Kumar
REG NO :- Cm2091860060
Under the Guidance of
Prof Savitha Rani
PRIST UNIVERSITYVallam, Thanjavur, 2011
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STUDENTS DECLARATION
I hereby declare that the Project Report conducted MERGER AND
CONSOLIDATION OF ICICI LTD.AND ICICI BANK under the guidance
ofProf Savitha Rani submitted in Partial fulfilment of the requirements
for the Degree ofMASTER OF BUSINESS ADMINISTRATION Collaborative
program with PRIST University to M.S.RAMAIAH MANAGEMENT NSTITUTE.
It is my original work and the same has not been submitted for the award
of my other Degree.
Place: Bangalore Rahul Kumar
Date: Reg. No:
CM2091860060
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CERTIFICATE
This is to certify that the Project Report on MERGER AND
CONSOLIDATION OF ICICI LTD. AND ICICI BANK submitted in partial
fulfilment of the requirements for the award of the degree ofMASTER OF
BUSINESS DMINISTRATIONOf PRIST UNIVERSITYIn collaboration
with M.S.RAMAIAH MANAGEMENT INSTITUTEUnder my supervision and
guidance and that no part of this report has been submitted for the award
of any other degree/diploma/fellowship or similar titles or prizes.
FACULTY GUIDE
Signature:
Name: Savitha Rani
Qualifications:
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ACKNOWLEDGEMENT
I extend my special gratitude to our beloved director Shri. ANANDARAM,
Our DEAN, & our Co-coordinator Muralidharan Harikrishnan for
inspiring me to take up this project.
I would like to use this opportunity to thank my institution guide Prof.
Savitha Rani, faculty ofM.S Ramaiah Management Institute for her
constant guidance and support.
.
Last but not the least; I would like to thank all others who directly or
indirectly helped me in this regard
STUDENT NAME
Rahul kumar
Registration No. CM2091860060
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Table of ContentsSl. No Particulars Page
No1. Chapter 1 7-8
Introduction 8
2. Chapter 2 9-10
Objective of The Study 10
3. Chapter 3 11-24
Introduction of Corporate Restructure 11
Corporate Restructuring 12
Types Of Corporate Restructuring 13-17
Common Motivations For Merger And Acquisitions 18
Merger and Consolidation Procedure 19
Merger and Consolidation Shareholders right 20
Advantage of Merger 21-22
. Purpose of Merger And Consolidation 22-24
4. Chapter 4 25-27
Procedure of Merger And Consolidation 26
Procedure of Bank Merger 26- 27
RBI Guidelines on Merger And Consolidation Of
Banks
27
5. Chapter 5 28- 32 Introduction Of Bank 29
Competitors 29
. Product And Services 30-31
6. Chapter 6 34-50
Merger Of ICICI And ICICI Bank 34-35
Boards of ICICI and ICICI Bank Approve Merger 36-38
IMPACT OF MERGER OF ICICI BANK WITH ICICI
LIMITED
38-49
Merger process of ICICI Bank Ltd- highlights 50
7. Chapter 7 Research design 51-54
Tables 55-67
Graphs 68-77
Limitation Of Study 79
Findings 80
Conclusions 81
Bibliography 82
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Introduction:-
The financial year 2007-08 witnessed a slew of acquisitions across
diverse sectors of the economy in India. Unlike in the past, such activity
was not limited to acquisitions within India or of Indian companies. Of allsectors, steel was the most dominant in terms of stake sales as deals
valuing $ 3.862 billion took place in Q1 of 2007-08 by the Indian
companies in the global arena. Energy ranked second, with automotive
and auto components close on its heels.1 In the domestic segment, iron
ore, aviation and steel were the most prolific in terms of mergers and
acquisitions.
With Indian corporate houses showing sustained growth over the last
decade, many have shown an interest in growing globally by choosing to
acquire or merge with other companies outside India. One such examplewould be the acquisition of Britains Corus by Tata an Indian conglomerate
by way of a leveraged buy-out. The Tatas also acquired Jaguar and Land
Rover in a significant cross border transaction. Whereas both transactions
involved the acquisition of assets in a foreign jurisdiction, both
transactions were also governed by Indian domestic law.
Whether a merger or an acquisition is that of an Indian entity or it is
an Indian entity acquiring a foreign entity, such a transaction would be
governed by Indian domestic law. In the sections which follow, we touch
up on different laws with a view to educate the reader of the broader
areas of law which would be of significance.
Mergers and acquisitions are methods by which distinct businesses
may combine. Joint ventures are another way for two businesses to work
together to achieve growth as partners in progress, though a joint venture
is more of a contractual arrangement between two or more businesses.
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OBJECTIVE OF THE STUDY
1. To study about merger and consolidation of bank.
2. To know about services provided by the ICICI bank limited after
merging.
3. Analysis of impact of merger on ICICI bank.
4. Study about working of the bank after merge.
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Introduction of CorporateRestructureCorporate restructuring
It can be defined as any change in the business capacity or
portfolios that is carried out by an inorganic route or a change in the
capital structure of a company that is not a part of its ordinary course of
business or any change in ownership of control over the management of
the company or a combination of there off.
Action taken to expand or contract a firms basic operations or
fundamentally change is asset or financial structure are referred to as
Corporate restructuring activities. Corporate Restructuring is a catchall
term that refers to a broad array of activities, ranging from reorganizing
business units to take overs and joint ventures to divestitures and spin offs
and equity carve outs. While focus in this project is on corporate
restructuring involving M & A.
Reasons of Corporate restructuring
Any company undergo change on a continual basis. Change is the order of
the day corporate sector cannot be an exception to his pro-active
organization translate problems into opportunities and there by growth.
There are many reasons why change is forced upon a company.
Change in external environment due to:
Increase in competition
Advent of new & more efficient technology
Emergence of new competitive product.
Emergence of new market
Emergence of new classes of consumers
Demographic changes
Business cycle
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Some companies undertake changes to increase their cutting edge over
the competition and enhance there leadership position, so as to make it
impossible for other competitors to catch up with them.
Types of Corporate restructuring
1. Merger
2. Consolidation
3. Acquisition
4. Divestiture
5. Demergers
6. Carve Out
7. Joint Ventures
8. Reduction of Capital
9. Buy Back Of Securities
10. Delisting Of Shares or Company.
11. Merger and Amalgamations
The term merger is not defined under the Companies Act, 1956
(the Companies Act), the Income Tax Act, 1961 (the ITA) or any other
Indian law. Simply put, a merger is a combination of two or more distinct
entities into one; the desired effect being not just the accumulation of
assets and liabilities of the distinct entities, but to achieve several other
benefits such as, economies of scale, acquisition of cutting edge
technologies, obtaining access into sectors / markets with established
players etc. Generally, in a merger, the merging entities would cease to be
in existence and would merge into a single surviving entity.
Very often, the two expressions "merger" and "amalgamation" are
used synonymously. But there is, in fact, a difference. Merger generallyrefers to a circumstance in which the assets and liabilities of a company
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(merging company) are vested in another company (the merged
company). The merging entity loses its identity and its shareholders
become shareholders of the merged company. On the other hand, an
amalgamation is an arrangement, whereby the assets and liabilities of two
or more companies (amalgamating companies) become vested in anothercompany (the amalgamated company). The amalgamating companies all
lose their identity and emerge as the amalgamated company; though in
certain transaction structures the amalgamated company may or may not
be one of the original companies. The shareholders of the amalgamating
companies become shareholders of the amalgamated company.
While the Companies Act does not define a merger or
amalgamation, Sections 390 to 394 of the Companies Act deal with the
analogous concept of schemes of arrangement or compromise between a
company, it shareholders and/or its creditors. A merger of a company A
with another company B would involve two schemes of arrangements,
one between A and its shareholders and the other between B and its
shareholders.
The ITA defines the analogous term amalgamation as the merger of
one or more companies with another company, or the merger of two or
more companies to form one company. The ITA goes on to specify certain
other conditions that must be satisfied for the merger to be an
amalgamation.
Mergers may be of several types, depending on the requirementsof the merging entities:
Horizontal Mergers.
Also referred to as a horizontal integration, this kind of merger
takes place between entities engaged in competing businesses which are
at the same stage of the industrial process. A horizontal merger takes a
company a step closer towards monopoly by eliminating a competitor and
establishing a stronger presence in the market. The other benefits of thisform of merger are the advantages of economies of scale and economies
of scope.
Vertical Mergers.
Vertical mergers refer to the combination of two entities at different
stages of the industrial or production process. For example, the merger of
a company engaged in the construction business with a company engaged
in production of brick or steel would lead to vertical integration.Companies stand to gain on account of lower transaction costs and
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synchronization of demand and supply. Moreover, vertical integration
helps a company move towards greater independence and self-sufficiency.
The downside of a vertical merger involves large investments in
technology in order to compete effectively.
Co generic Mergers.
These are mergers between entities engaged in the same general
industry and somewhat interrelated, but having no common customer-
supplier relationship. A company uses this type of merger in order to use
the resulting ability to use the same sales and distribution channels to
reach the customers of both businesses.
Conglomerate Mergers.
A conglomerate merger is a merger between two entities in
unrelated industries. The principal reason for a conglomerate merger is
utilization of financial resources, enlargement of debt capacity, and
increase in the value of outstanding shares by increased leverage and
earnings per share, and by lowering the average cost of capital.4 A merger
with a diverse business also helps the company to foray into varied
businesses without having to incur large start-up costs normally
associated with a new business.
Cash Merger.
In a typical merger, the merged entity combines the assets of the
two companies and grants the shareholders of each original company
shares in the new company based on the relative valuations of the two
original companies. However, in the case of a cash merger, also known
as a cash-out merger, the shareholders of one entity receive cash in
place of shares in the merged entity. This is a common practice in cases
where the shareholders of one of the merging entities do not want to be a
part of the merged entity.
Triangular Merger
A triangular merger is often resorted to for regulatory and tax
reasons. As the name suggests, it is a tripartite arrangement in which the
target merges with a subsidiary of the acquirer. Based on which entity is
the survivor after such merger, a triangular merger may be forward (when
the target merges into the subsidiary and the subsidiary survives), or
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reverse (when the subsidiary merges into the target and the target
survives).
Consolidation
A contractual and statutory process by which
(1) Two or more corporations join to become a completely new
corporation (the successor corporation),
(2) The original corporations cease to exist and to do business,
and
(3) The successor corporation acquires all of the assets and
liabilities of the original (now defunct) corporations.
ACQUISITIONS.
An acquisition or takeover is the purchase by one company of
controlling interest in the share capital, or all or substantially all of the
assets and/or liabilities, of another company. A takeover may be friendly
or hostile, depending on the offer or companys approach, and may be
effected through agreements between the offer or and the majority
shareholders, purchase of shares from the open market, or by making an
offer for acquisition of the offerees shares to the entire body of
shareholders.
Friendly takeover
Also commonly referred to as negotiated takeover, a friendly
takeover involves an acquisition of the target company through
negotiations between the existing promoters and prospective investors.
This kind of takeover is resorted to further some common objectives of
both the parties.
Hostile Takeover.
A hostile takeover can happen by way of any of the following
actions: if the board rejects the offer, but the bidder continues to pursue it
or the bidder makes the offer without informing the board beforehand.
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Leveraged Buyouts.
These are a form of takeovers where the acquisition is funded by
borrowed money. Often the assets of the target company are used ascollateral for the loan. This is a common structure when acquirers wish to
make large acquisitions without having to commit too much capital, and
hope to make the acquired business service the debt so raised.
Bailout Takeovers.
Another form of takeover is a bail out takeover in which a profit
making company acquires a sick company. This kind of takeover is usually
pursuant to a scheme of reconstruction/rehabilitation with the approval oflender banks/financial institutions. One of the primary motives for a profit
making company to acquire a sick/loss making company would be to set
off of the losses of the sick company against the profits of the acquirer,
thereby reducing the tax payable by the acquirer. This would be true in
the case of a merger between such companies as well.
Acquisitions may be by way of acquisition of shares of the target, or
acquisition of assets and liabilities of the target. In the latter case it is
usual for the business of the target to be acquired by the acquirer on a
going concern basis, i.e. without attributing specific values to each asset /liability, but by arriving at a valuation for the business as a whole.
An acquirer may also acquire a target by other contractual means
without the acquisition of shares, such as agreements providing the
acquirer with voting rights or board rights. It is also possible for an
acquirer to acquire a greater degree of control in the target than what
would be associated with the acquirers stake in the target, e.g., the
acquirer may hold 26% of the shares of the target but may enjoy
disproportionate voting rights, management rights or veto rights in the
target.
Divestiture
It means an out and out sale of all or substantially all the assets of
the company or any of the business divisions. Usually for cash or a
combination of cash and debt and not against the equity shares. It means
sell of assets on a price meal manner. It is generally use to mobilise
resources for core business by selling assets of non- core business.
DEMERGERS.
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1. Synergy
2. Diversification
3. Strategic realignment
4. Hubris
5. Buying undervalued assets( q ratio)
6. Management ( agency problem)
7. Managerialism
8. Tax consideration
9. Market power
10. Misevaluation
1. Synergy :-
Synergy is the simplistic notion that the combination of two business
creates greater shareholders value then if they are operated separately.
There are two types of synergy.
I) Operating synergy
II) Financial synergy
i) Operation Synergy :
It consist of both economies of scale and economies of scope.
Economies of scale refers to the spreading of fixed costs over increasing
production levels. Scale is defined by such fixed costs as depreciation of
equipment and amortization of capitalized software, normal maintenance
spending obligations such as interest expense, lease payments, and
unions customers, and vendor contracts and taxes.
Economy of scope refers to using a specific set of skills or an asset
certainly employed in producing a specific product or services to produce
related products or services. They are most often found when it is cheaper
to combine two or more product line in one firm then to produce then in
separate firms.
ii) Financial Synergy :
It refers to the impact of mergers and acquisitions on the cost of
capital of the acquiring firm or the newly formed firm, resulting fromthe merger or acquisition,. Theoretically the cost of capital could be
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reduced if the merged firms have uncorrelated cash flow, realized
financial economies of scale from lower securities and transaction cost,
or result in a better matching of investment opportunities with
internally generated costs or result in a better matching of investment
opportunities with internally generated firms
2. Diversification :
It refers to the strategy of buying firms out of the companys current
primary line of business. There are two commonly used justifications
used in diversification. The first relates to the creation of financial
strategy, resulting in a reduce cost of capital. The second argument for
diversification is for firm to shift from their core product line or market
into product line or market that have higher growth prospects.
The investor do not benefit from unrelated diversification. The share
price of conglomerate often trade at a discount from share at a focused
firms or from or from their value if they were broken up and sold in
pieces by as much 10 -15%. This discount is called the conglomerate or
diversification discount.
MERGER & CONSOLIDATION: PROCEDURE
Any merger or consolidation is governed by the laws of one (or
more) of the states, each of which sets forth its own procedural
requirements. However, in general:
(1) The boards of directors of each (original) corporation
involved in the proposed transaction must approve the merger
or consolidation plan;
(2) The shareholders of each (original) corporation involved inthe proposed transaction must, thereafter, approve the
merger or little bit
consolidation plan by vote at a called or scheduled shareholders
meeting;
(3) The approved plan must be filed with the appropriate state
officials; and
(4) Once all state-law formalities have been satisfied, the state
will issue, as appropriate, a certificate of merger to the
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surviving corporation or a certificate of consolidation to the
successor corporation.
Short-Form Merger: A merger between a parent and a subsidiary (at
least 90% owned by the parent) which can be accomplished without
shareholder approval.
MERGER & CONSOLIDATION: SHAREHOLDERS RIGHTS
While the day-to-day operations of a corporation, and even the
policies governing its on going operations, are generally left to the
corporations officers and directors, any extraordinary matter
such as a merger or consolidation must be approved by the
corporations shareholders.
If the necessary majority of the corporations shareholders
approve a merger or consolidation, it will go forward, and the
shareholders will be compensated as previously discussed.
However, no shareholder who votes against the transaction is
required to accept shares in the surviving or successor corporation.
Instead, he or she may exercise appraisal rights.
Appraisal Right: The right, created by state law, of a dissenting
shareholder who objects to an extraordinary transaction (such as a
merger or consolidation):
(1)To have his shares of the pre-merger or pre-consolidation
corporation appraised, and
(2) To be paid the fair market value of his shares by the pre-
merger or pre-consolidation corporation.
(3) It is amalgamation of two companies engaged in unrelated
industries like DCM and Modi Industries. The basic purpose
of such amalgamations remains utilization of financial
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resources and enlarges debt capacity through re-organizing
their financial structure so as to service the shareholders by
increased leveraging and EPS, lowering average cost of
capital and thereby raising present worth of the
outstanding shares. Merger enhances the overall stability ofthe acquirer company and creates balance in the
companys total portfolio of diverse products and
production processes.
Advantages of Mergers
Mergers and takeovers are permanent form of
ASSET PURCHASE
When a corporation acquires all or substantially all of the assets of
another corporation, by direct purchase, the purchasing (or acquiring)
corporation simply extends its ownership and control over the additional
assets.
The acquiring corporation does not need shareholder approval unless the
purchase is to be paid for with stock and the acquiring corporation must
issue additional shares to make the purchase, in which case its
shareholders must approve the additional shares.
Generally, the acquiring corporation only purchases the assets, not the
liabilities, of the other corporation. However, there are exceptions when:
(1) The acquiring corporation impliedly or expressly assumes the
sellers liabilities;
(2) The sale is a de facto merger or consolidation;
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(3) The acquiring corporation continues the sellers business
andretains the same personnel; or
(4) The sale is fraudulently executed in an effort to avoid liability.
STOCK PURCHASE
Stock Purchase: The purchase of a sufficient number of voting
shares of a corporations stock, enabling the acquiring
corporation to exercise control over the target corporation.
A stock purchase is generally facilitated by a tender offerto the target
corporations shareholders. The tender offer is publicly advertised,
available to all shareholders, and offers to pay a higher-than-market price
for shares of the target corporation.
Exchange Tender Offer: An offer to give shares in the acquiring
corporation in exchange for shares in the target corporation.
Cash Tender Offer: An offer to pay cash in exchange for shares of the
target corporation.
A tender offer may be conditioned on receiving a specified number of
outstanding shares in the target corporation by a specified date.
The terms and duration of, and the circumstances underlying, a tender
offer are strictly regulated by federal securities laws. In addition, most
states impose additional regulations on tender offers.
TAKEOVER DEFENSES
Takeover Defences include various measures included in a corporations
articles and/or by-laws that automatically take effect in the event of
a proxy fight or unfriendly takeover attempt in order to make the
corporation a substantially less attractive target for the purchaser
(e.g., golden parachutes, poison pills), as well as conscious
efforts of management in response to a particular situation (e.g.,
crown jewels, white knights).
TERMINATION
Dissolution: The formal disbanding of a corporation, which may
occur by
(1) Unanimous action by all shareholders,
(2) Shareholder approval of a dissolution proposal submitted bythe directors,
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(3) An act by the authorized officer of the state of
incorporation,
(4) Expiration of the time period set forth in the certificate of
incorporation, or
(5) Court order.
Liquidation: The process by which corporate assets are converted
into cash and distributed among creditors and shareholders
according to specific rules of preference.
Purpose of Mergers & Consolidation
The purpose for an offer or company for acquiring another company
shall be reflected in the corporate objectives. It has to decide the specific
objectives to be achieved through acquisition. The basic purpose of
merger or business combination is to achieve faster growth of the
corporate business. Faster growth may be had through product
improvement and competitive position.
Other possible purposes for acquisition are short listed below: -
1) Procurement of supplies:
I. To safeguard the source of supplies of raw materials or intermediary
Product;
II. To obtain economies of purchase in the form of discount, savings in
transportation costs, overhead costs in buying department, etc.;
III. To share the benefits of suppliers economies by standardizing the
materials
(2) Revamping production facilities:
I. To achieve economies of scale by amalgamating production facilities
through more intensive utilization of plant and resources;
II. To standardize product specifications, improvement of quality of
product, Expanding
III. Market and aiming at consumers satisfaction through strengthening
after sale Services;
IV. To obtain improved production technology and know-how from theoffered Company
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V. To reduce cost, improve quality and produce competitive products to
retain and improve market share.
(3) Market expansion and strategy:
I. To eliminate competition and protect existing market;
II. To obtain a new market outlets in possession of the offered;
III. To obtain new product for diversification or substitution of existing
products and to enhance the product range;
IV. Strengthening retain outlets and sale the goods to rationalize
distribution;
V. To reduce advertising cost and improve public image of the offered
company;
VI. Strategic control of patents and copyrights
(4) Financial strength:
I. To improve liquidity and have direct access to cash resource;
II. To dispose of surplus and outdated assets for cash out of combined
enterprise;
III. To enhance gearing capacity, borrow on better strength and the
greater assets backing;
IV. To avail tax benefits;
V. To improve EPS (Earning per Share)
(5) General gains
I. To improve its own image and attract superior managerial talents tomanage its affairs;
II. To offer better satisfaction to consumers or users of the product.
(6) Own developmental plans
The purpose of acquisition is backed by the offered companys own
developmental plans.
A company thinks in terms of acquiring the other company only when it
has arrived at its own development plan to expand its operation havingexamined its own internal strength where it might not have any problem
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of taxation, accounting, valuation, etc. But might feel resource constraints
with limitations of funds and lack of skill managerial personnels. It has to
aim at suitable combination where it could have opportunities to
supplement its funds by issuance of securities; secure additional financial
facilities eliminate competition and strengthen its market position.7) Strategic purpose
The Acquirer Company view the merger to achieve strategic
objectives through alternative type of combinations which may be
horizontal, vertical, product expansion, market extensional or other
specified unrelated objectives depending upon the corporate strategies.
Thus, various types of combinations distinct with each other in nature are
adopted to pursue this objective like vertical or horizontal combination.
8) Corporate friendliness:
Although it is rare but it is true that business houses exhibit degrees
of cooperative spirit despite competitiveness in providing rescues to each
other from hostile takeovers and cultivate situations of collaborations
sharing goodwill of each other to achieve performance heights through
business combinations. The combining corporate aim at circular
combinations by pursuing this objective.
(9) Desired level of integration:
Mergers and acquisition are pursued to obtain the desired level of
integration between the two combining business houses. Such integration
could be operational or financial. This gives birth to conglomerate
combinations. The purpose and the requirements of the offered company
go a long way in selecting a suitable partner for merger or acquisition in
business combinations. Other to achieve performance heights through
business combinations. The combining corporate aim at circular
combinations by pursuing this objective.
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Procedure Of Merger And Consolidation
PROCEDURE OF MERGER s & CONSOLIDATION
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To make a public announcement an acquirer shall follow the following
procedure:
1. Appointment of merchant banker:
The acquirer shall appoint a merchant banker registered as category Iwith SEBI to advise him on the acquisition and to make a public
announcement of offer on his behalf.
2. Use of media for announcement:
Public announcement shall be made at least in one national English daily
one Hindi daily and one regional language daily newspaper of that place
where the shares of that company are listed and traded.
3. Timings of announcement:
Public announcement should be made within four days of finalization of
negotiations or entering into any agreement or memorandum of
understanding to acquire the shares or the voting rights.
4. Contents of announcement:
Public announcement of offer is mandatory as required under the SEBI
Regulations.
Procedure of Bank Merger
The procedure for merger either voluntary or otherwise is outlined in the
respective state statutes/ the Banking regulation Act. The Registrars,
being the authorities vested with the responsibility of administering the
Acts, will be ensuring that the due process prescribed in the Statutes has
been complied with before they seek the approval of the RBI. They would
also be ensuring compliance with the statutory procedures for notifying
the amalgamation after obtaining the sanction of the RBI.
Before deciding on the merger, the authorized officials of the acquiringbank and the merging bank sit together and discuss the procedural
modalities and financial terms. After the conclusion of the discussions, a
scheme is prepared incorporating therein the all the details of both the
banks and the area terms and conditions.
Once the scheme is finalized, it is tabled in the meeting of Board of
directors of respective banks. The board discusses the scheme thread bare
and accords its approval if the proposal is found to be financially viable
and beneficial in long run.
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After the Board approval of the merger proposal, an extra ordinary
general meeting of the shareholders of the respective banks is convened
to discuss the proposal and seek their approval.
After the board approval of the merger proposal, a registered value is
appointed to valuate both the banks. The value valuates the banks on thebasis of its share capital, market capital, assets and liabilities, its reach
and anticipated growth and sends its report to the respective banks.
Once the valuation is accepted by the respective banks , they send the
proposal along with all relevant documents such as Board approval,
shareholders approval, valuation report etc to Reserve Bank of India and
other regulatory bodies such Security & exchange board of India(SEBI) for
their approval.
After obtaining approvals from all the concerned institutions, authorized
officials of both the banks sit together and discuss and finalize share
allocation proportion by the acquiring bank to the shareholders of the
merging bank SWAP ratio
After completion of the above procedures, a merger and acquisition
agreement is signed by the bank
RBI Guidelines on Mergers & Consolidation of Banks
With a view to facilitating consolidation and emergence of strongentities and providing an avenue for non disruptive exit of weak/unviable
entities in the banking sector, it has been decided to frame guidelines to
encourage merger/amalgamation in the sector
. Although the Banking Regulation Act, 1949 (AACS) does not empower
Reserve Bank to formulate a scheme with regard to merger and
amalgamation of banks, the State Governments have incorporated in their
respective Acts a provision for obtaining prior sanction in writing, of RBI for
an order, inter alia, for sanctioning a scheme of amalgamation or
reconstruction.
The request for merger can emanate from banks registered under the
same State Act or from banks registered under the Multi State Co-
operative Societies Act (Central Act) for takeover of a bank/s registered
under State Act. over of a co-operative bank registered under the State
Act by a co-operative bank registered under the CENTRAL
Although there are no specific provisions in the State Acts or the Central
Act for the merger of a co-operative society under the State Acts with that
under the Central Act, it is felt that, if all concerned including
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administrators of the concerned Acts are agreeable to order merger/
amalgamation, RBI may consider proposals on merits leaving the question
of compliance with relevant statutes to the administrators of the Acts. In
other words, Reserve Bank will confine its examination only to financial
aspects and to the interests of depositors as well as the stability of thefinancial system while considering such proposals
CH
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Yes Bank
Karur Vasya Bank
ING Vysya Bank
ICICI Bank started as a wholly owned subsidiary of ICICI Limited, anIndian financial institution, in 1994. Four years later, when the company
offered ICICI Bank's shares to the public, ICICI's shareholding was reduced
to 46%. In the year 2000, ICICI Bank offered made an equity offering in the
form of ADRs on the New York Stock Exchange (NYSE), thereby becoming
the first Indian company and the first bank or financial institution from
non-Japan Asia to be listed on the NYSE. In the next year, it acquired the
Bank of Madura Limited in an all-stock amalgamation. Later in the year
and the next fiscal year, the bank made secondary market sales to
institutional investors.
With a change in the corporate structure and the budding
competition in the Indian Banking industry, the management of both ICICI
and ICICI Bank were of the opinion that a merger between the two entities
would prove to be an essential step. It was in 2001 that the Boards of
Directors of ICICI and ICICI Bank sanctioned the amalgamation of ICICI and
two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial
Services Limited and ICICI Capital Services Limited, with ICICI Bank. In the
following year, the merger was approved by its shareholders, the High
Court of Gujarat at Ahmadabad as well as the High Court of Judicature atMumbai 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.
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1,000
1,020
1,040
1,060
1,080
1,100
1,120
02-05-2011 03-05-2011 04-05-2011 05-05-2011 06-05-2011
Opening
Closing
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).
OVERALL
Beta: 1.48
Market Cap (Mil.): Rs939,926.12
Shares Outstanding (Mil.): 1,114.84
Annual Dividend: 12.00
Yield (%): 1.43
FINANCIALS
ICBK.BO Industry Sector
P/E 28.01 56.66 38.23
EPS -- -- --
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ROI: -- 0.00 0.64
ROE: -- 2.29 2.66
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T
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Merger Of ICICI & ICICI Bank
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 financialproducts 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 wholerange 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 twoseparate financial advisors and an independent accounting firm. The
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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 appropriate placement. The proceeds of such divestment
would accrue to the merged entity. With the merger taking effect, thepaid-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
countrys 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 ICICIs assets and liabilities, particularly the reserverequirements. 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 on-going
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 securitiesportfolio, 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 securitieslaws.The merger of Indias largest financial institution with its 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, ICICIs assets have been fair-valued for their
incorporation in the books of accounts. The fair value of ICICIs loan
portfolio was determined by an independent value, while ICICIs equity and
related investment portfolio was fair-valued by determining its markto-
market value. The total additional provisions & write-offs required toreflect the fair values of ICICIs assets determined at Rs. 37.80 billion have
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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 theReserve Bank of India (RBI) in April 2002. The challenge of mobilization of
resources for compliance with statutory reserve requirements applicable
to banks, on ICICIs outstanding liabilities on merger, was met successfully
within the target date of March 30, 2002. While the merger became
effective on May 3, 2002, in accordance with the provisions of the Scheme
of Amalgamation and the terms of approval of RBI, the Appointed Date for
the merger was March 30, 2002.
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 mergeris proposed to be March 31, 2002, or the date from which RBI's approval
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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 Bankrepresents 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 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 Boardsof 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 withregulatory 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 (preform 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 (preform 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 access to low-cost deposits, greater
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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 businesssegments, 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 themerged 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 ICICIBank. 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.
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 operationsof the borrower companies had been adversely impacted due to systemic
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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 workactively 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.
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 operationsfor 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 Banks 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 andcommunications.
Retail Banking
The retail business is the key driver of ICICI Banks 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 ourcustomers. The key dimensions of our retail strategy are products,
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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 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 Banks 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
Banks 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
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products and solutions. This Group is 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 Banks ability to leverage its strong corporate
relationships and provide non-fund-based facilities and trade financeservices 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 Banks capital markets and custodial services
operations.
During fiscal 2002, the focus was on the challenge of meeting
regulatory reserve requirements on ICICIs liabilities prior to the merger formeeting 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 RBIs 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 offloating-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 AsianDevelopment Bank (ADB) for availing a 25-year USD 80 million loan for
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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 byactive 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 successof 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
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-level is 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 asignificant 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 NHAIs 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
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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 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 entitiesthat 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 Banks 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. SAMGs approach includes
operational and financial restructuring, completion of projects underimplementation, sale of unproductive assets and catalyzing 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
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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 Governmentsecurities 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
RBIs 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 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 Moodys 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 Banks 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:
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Agency Rating
Foreign currency debt Ba1
Foreign currency deposits Ba3
Standard & Poors (S&P) BB
Credit Analysis & Research Limited (CARE) CARE AAA
Investment Information and Credit Rating Agency
(ICRA)
LAAA
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 Indias
second-largest bank, it had just over 7,700 employees at March 31, 2002,
demonstrating our unique technology-driven, productivity-focusedbusiness 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 ofcareer opportunities across the entire spectrum of financial services. In
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addition 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 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
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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 businesseshave reduced turnaround time and significantly improved operational
efficiency. In recognition of the critical importance of excellence in internal
processes and delivery to customers, we have set up an Organizational
Excellence Group headed by a Senior General Manager reporting to the
Managing Director & CEO. This group will be responsible for
institutionalization of quality initiatives, including Six Sigma, and for
building the skills necessary for implementing and accelerating quality
initiatives, reporting to the management the progress and value
generated from these initiatives and replicating the successes across ICICI
Bank as well as group companies.
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 ICICIs capital and client base to increase fee
income
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Higher profitability by leveraging on technology and low
cost structure
Offer a complete product suite with immense cross-selling
opportunities
ICICIs presence in retail finance, insurance, investment
banking and venture capital
Access to the ICICI groups talent pool improved ability to
further diversify asset portfolio and business revenues
Lower funding costs
Ability to accept/ offer checking accounts
Availability of float money due to active participation in the
payments system Diversified fund raising due to access to retail funds
Increased fee income opportunities
Ability to offer all banking products
Competitive advantages of the merged entity
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After the merger, the combined entity would be the second-largest bank in
India, with an asset base of over Rs. 1 trillion
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 ICICIs shareholding in ICICI Bank to an SPVprior 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
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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 adoptedunder Indian GAAP as well
C
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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 thatresearch 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 analysing data has been used and a best of
similar other question are usually answered when we talk of Research
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-
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.
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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.
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 ofcertain 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.
Comparative Study
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It is based on the comparative study of the performance of ICICI Bank
before and after the merger. The comparison of bank is also with their
current competitive banks in the market. The basis of measuring of the
performance is evaluating the performance of bank through their differentfinancial statements, like profit and loss account, Balance sheet, Cash flow
statements etc.
The comparison of the assets and liabilities of different banks with ICICI
bank shows the performance of ICICI bank in the current market. Also on
the basis of the service provided by the banks and the services by the
ICICI banks.
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.
T