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A Case Study of Merger of Icici Bank and Bank of Rajasthan ZENITH International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780 STRATEGIC MOVE OF ICICI BANK: A CASE STUDY OF MERGER OF ICICI BANK AND BANK OF RAJASTHAN DR. ABHINN BAXI BHATNAGAR*; MS. NITU SINHA** *Associate Professor, Galgotias Business School, Greater Noida. **Research Associate, Galgotias Business School, Greater Noida. ____________________________________________________________________________________ ABSTRACT Changing is the regulation of nature. Any business organization undergoes change on a continuous basis, technically termed as Corporate Restructuring. It can be defined as a strategy to achieve faster growth, desired capital structure and change in the ownership and control of company. The reasons behind change may be external or internal factors. In the present scenario, business organization undertakes changes to increase their cutting edge over the competition and enhance their leadership positions. It is a fundamental fact of finance that growth and capital employed are two basic drivers of the value of an organization. On the other hand neither growth nor improvement in ROCE is possible unless the company is under the control of competent, progressive and visionary management. The present paper is an attempt to understand the strategic move of ICICI bank. The case study will reveal the motives behind and synergies from such M&A activities. An attempt has been made to analyze, “Is corporate restructuring a tool to enhance the shareholders value”. Why ICICI Bank has taken such a strategic move and many more questions will be solved from the case study. ______________________________________________________________________________ INTRODUCTION Mergers and acquisitions in banking sector has become admired trend throughout the country. A large number of public sector, private sector and other banks are engaged in mergers and acquisitions activities in India. One of the prominent motives behind Mergers and Acquisitions in the banking sector is to harvest the benefit of economies of scales. With the help of mergers and acquisitions in the banking sector, the banks can achieve significant growth in their operations and minimize their expenses to a considerable extent say for example installation expenses for setting up new branches will be saved. Secondly, the most significant vantage is that it eliminates competition from the banking industry. Proven to be an act of corporate action, mergers and acquisitions in the banking sector has ensured efficiency, profitability and synergy from past many years. It also assists in shaping up and maximizing shareholder‟s value. The driving force behind the growing trend of mergers and acquisitions in the banking sector other than efficiency, profitability and synergy can be deregulation in the financial market, market www.zenithresearch.org.in liberalization, economic reforms and many more. After all, RBI has the only authority to regulate 192 ZENITH International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780 all merger and acquisition related activities pertaining to banking sector in recent proposed amendments in the Banking Regulations. PROFILE OF ICICI BANK HISTORY In 1955, ICICI Limited was incorporated with the collective efforts of the major 3, named World Bank, Government of India and Indian Industry‟s representatives. The establishment has been taken place with a view to aid Indian businesses by acting as a source of finance to medium and long term projects. In 1990‟s, the ICICI institution started diversifying its operations, and end up at the wholly owned subsidiary called ICICI Bank. The Bank was established in 1994 and became the first bank listed on NYSE (New York Stock Exchange). Few merger related details:- Years Particulars 2001 Bank of Madura (est. 1943) was acquired by ICICI , an all-stock amalgamation 2002 Integration of banking operations and group‟s financing of ICICI in to individual entity, consisting both wholesale and retail. 2007 ICICI amalgamated Sangli Bank, the deal costing Rs. 302 crores CORPORATE PROFILE ICICI bank with the asset base of Rs. 363,399.71 crore (US $ 81 Billion) and net profit after tax Rs. 4,024.98 crore (US $ 896 million) turned out to be the second largest bank in Indian Territory for the year ended 31st Mach 2010. The Bank has its spread over 19 countries with 2530 branches and approx 6102 ATMs in India. An extensive range of Product and services offered by ICICI though diverse delivery channels are personal banking, corporate banking, NRI banking, finance and insurance, retail banking, commercial banking, mortgages, credit cards, asset management, investment banking PROFILE OF BANK OF RAJASTHAN HISTORY The bank of Rajasthan was established as Joint Stock Bank by Mansingka brothers at Udaipur on 8th May, 1943.The Bank served The Government of Rajasthan as Scheduled bank for more than 14 years starting from 1948. The founder Chairman of Bank of Rajasthan was an industrialist www.zenithresearch.org.in 193 ZENITH International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780 named Late Seth Shri Govind Ram Seksaria who started the bank with initial investment of Rs. 10 lacs. Ties up Details:- Year Particulars 2000 Bind off with Infosys Technology in order to get fully automated 2002 MoU signed by Bank of Rajasthan with Bajaj Allianz General Insurance Company and Birla Sun Life Insurance 2003 MoU signed with Bank of Baroda to issue co-branded international Visa Electron Debit Card 2005-06 Termination of ties up with Bajaj Allianz General Insurance Company and Birla Sun Life Insurance 2008 The Bank signed an MoU with ICRA Ltd. in September CORPORATE PROFILE The Bank of Rajasthan with the asset base of Rs. 17,300.06 crores incurred the net loss after provisions and taxes remained at Rs. 102.13 crores for the year ended 31st Mar 2010. The bank operates through all over India as a private sector bank with 463 branches works as network. It includes 67 onsite and 29 offsite ATMs in 230 cities along with specialized Industrial and forex branches. The bank provided a broad range of products and services includes commercial banking, Personal banking ,merchant banking, auxiliary services, consumer banking, deposit and money placement services, trusts and custodial services, international banking, private sector banking and depository, Credit facilities to SMEs ,gold facilities internet banking mobile banking, life insurance, mutual fund services, western union money transfer services and many more. The above mentioned products and services can be divided into 3 segments called treasury operations, Banking operations and residuals. www.zenithresearch.org.in 194 ZENITH International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780 A GLIMPSE OF THE BANKS S. No. Key Rationale ICICI Bank Bank of Rajasthan 1 Type Private sector Private sector 2 Industry Banking financial services Banking, Loan, Capital market and allied industries 3 Year of Incorporation 1994 (promoted by ICICI) 1943, Udaipur 4 Traded as NSE: ICICIBANK NSE: BANKRAJAS BSE: 532174 NYSE: IBN BSE: 500019 NASDAQ: IBN 5 Products Finance and insurance Corporate or wholesale banking, Retail Banking Personal banking , Commercial Banking Commercial banking, Mortgages Retail banking, Credit Cards Finance and Private Banking insurance, Asset Management Investment Banking, Investment Banking Auxiliary services, Merchant banking, Trust and custodial services, 6 Business presence 19 countries All over India 7 Number of offices 1717* 478* www.zenithresearch.org.in 195 ZENITH International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780 8 Number of employees 35256* 3983* 9 Total Income 32,999.36** 1,489.48** 10 Profit 4,024.98** (102.13)** 11 Total Assets 363,399.71** 17,300.06** 12 CRAR (Capital to Risk Asset 19.41* 7.52* Ratio) 13 Net NPA Ratio 2.12* 1.60* * http://www.rbi.org.in/scripts/AnnualPublications.aspx ** Source: Asian CERC (Amount in Crores) FINANCIAL ANALYSIS OF ICICI BANK ICICI Bank, one of the fastest growing bank in India bearing the position of India's second- largest bank with total asset base of Rs. 3,634.00 billion (US$ 81 billion) as at March 31, 2010 and profit after tax of Rs. 40.25 billion (US$ 896 million) for the year ended March 31, 2010. The Bank has its spread over India and has wings in 19 other countries. It consist a wide network of 2,530 branches and about 6,102 ATMs in India. ICICI Bank has offered a wide range of products and financial services to retail and corporate customers by various means of delivery comprises Investment Banking, life and non-life insurance, venture capital and asset management. The ICICI Bank has major subsidiaries in Canada, Russia and United Kingdom (UK), branches in many areas like Bahrain, Bangladesh, China, Dubai International Finance Centre, Hong Kong, Indonesia, Malaysia etc. and having representative offices in Singapore, South Africa, Sri Lanka, Thailand, United Arab Emirates and United States. Belgium and Germany act as established branches of UK subsidiary. The Listing of ICICI Bank's equity shares has in India on The Bombay Stock Exchange and the National Stock Exchange and also its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). Estimations and assumptions related to assets and liabilities (including contingent liabilities) have to be made while preparing financial statement. A financial statement performs a vital role for any company to ascertain the financial position which acts as an indicator of business soundness. For financial overview past five years data has been used in this study. KEY HIGHLIGHTS I. 7.1% increase in profit after tax to Rs 4,024.98 crore for the year ended March 31, 2010 from Rs. 3,758.13 crore for the year ended March 31, 2009. II. Net non-performing asset decreased to Rs. 3,841.11 crore at March 31, 2010 from Rs. www.zenithresearch.org.in 4,553.94 crore at March 31, 2009. 196 ZENITH International Journal of Multidisciplinary Research Vol.2 Issue 5, May 2012, ISSN 2231 5780 III.
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