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Chapter 6: Mergers in the Banking SectorICICI BankINTRODUCTIONI C I C I B a n k (formerly I n d u s t r i a l C r e d i t a n d

I n v e s t m e n t Corporation of India) is India 's largest private bank. ICICIBank has totalassets of about Rs.20.05bn (end-Mar 2005), a network of over 550

branchesand offices, and about 1900 atms . ICICI Bank offers a wide range ofbankingproducts and financial services to corporate and retail customersth rough ava r i e t y o f de l i ve r y channe l s and t h rough i t s spec ia l i zeds u b s i d i a r i e s a n d a f f i l i a t es i n t h e a r e a s o f i n v e s t m e n t b a n k i n g, l i f ea n d no n - l i f e i n su r an ce , venture capital and asset management. ICICI Bank'sequity shares are listedin India on stock exchanges atKolkataandVadodara, the StockExchange, Mumbai a n d t h e National Stock Exchange of India Limited andi t s adrsare listed on theNew York Stock Exchange(NYSE). During the year2005 ICICIbank w as i nvo l ved as a de fendan t i n cases o f a l l egedcriminalpractices in its debt collection operations and alleged fraudulenttact ics tosell its products.

The industrial Credit and Investment Corporation of India Limited now known asI C I C IL t d . W a s f o u n d e d b t h e W o r l d b a n k , t h e G o v e r n m e n t o fI n d i a a n d r e p r e s e n t a t i v e s o f p r i v a t e i n d u s t r y o n J a n u a r y 5 ,1 9 5 5 . T h e o b j e c t i v e w a s t o e n co u ra ge a n d a s si s t i n du st r ia ldeve lopm ent and inves tmen t i n I nd ia . Over the years, ICICI hasevolved into a diversif ied f inancial institution. ICICIs principal businessactivities include:Project FinanceInfrastructure FinanceCorporate FinanceSecuritizationLeasingDeferred CreditConsultancy servicesCustodial servicesThe ICICI Groups draws its strength from the core competencies of itsindividualcompanies. Today, top Indian Corporate look towers ICICI as a business partner forproviding solutions to their varied financial requirements. The Groupalsoo f f e r s a g a m u t o f p e r s o n a l f i n a n c e s o l u t i o n s t o i n d i v i d u a l s . T ol e ad t he financial services into the new millennium, the Group is now truly positionedas aVirtual Universal Bank. The liberalization of the Indian economy in the1990soffered ICICI an opportunity to provide a wide range of financialservices. For regulatory and strategic reasons, ICICI set up specialized subsidiariesin the areasof com me rc i a l ba nk i ng, inv est me nt ban k in g, n on - b ank ingf in an ce , i nv es to r s e r v i c i n g b r o o k i n g , v e n t u r e c a p i t a lf i n a n c i n g a n d s t a t e l e v e l i n f r a s t r u c t u r e financing.ICICI plans to focuson its retail finance business and expect the sameto c on t r i b u te u p to 1 5 -20 %of i t s tu rno ver in t he n ext f i ve ye ars . I t i s t ry i ng t o change the

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perception that it is a corporate oriented bank. The bank hard selling itsimage as a retailsegment bank has for the first time come up with an advertisementthat addresses itsproducts at the individual. This is to drive home the point that the ban k h asp r o d u c t a n d s e r v i c e s c a t e r i n g t o a l l i n d i v i d u a l s . F o r t h i s p u r p o s ethenetwork of ICICI Bank shall come into use. The parent plants to sell its

productsand also raise retail funds through the banking subsidiary.THE ICICI GROUP COMPRISES OF:ICICI Bank Limited,ICICI Securities and Finance Company Limited (ICICI Securities),ICICI Credit Corporation Limited( ICICI Credit),ICICI Investors Services Limited(ICICI Services),ICICI Venture Funds Management Limited(ICICI Venture),ICICI international Limited,

ICICI -KINFRA Limited(I-KIN),

Mr. K.V. Kamath, CEO of ICICI Limited, has recently voiced the intentionsof ICICILimited towards banking and ICICI Bank. ICICI Limited is endeavoringto forge a closerrelationship with ICICI bank. Mr. K V Kamath recently quoted ina leading dailyBanking is dead. Universal banking is in offering with a whole range offinancial products and services. The basic idea is for banks to do businessalong withbanking. Bankers will have to emerge as businessmen.ICICI Bank is a focusedbanking company coping with the changing timesof the banking industry. So itcan be a lucrative target for other player in the sameline of operations. However,when merged with ICICI Limited the attraction isreduced manifold consideringthe magnitude of operations of the ICICI limited.O f c o u r s e , o n e w o u l d s t i l ln e e d a b a n k t o o p e n l e t t e r s o f c r e d i t , o f f e r guarantees, handledocumentation, and maintain current account facilities etc. So banks will notsuperfluous. But nobody needs so many of them any more.Secondly, besidescredit, a customer may also want from a bank efficientcash management,advisory services and market research on his product. Thus theimportance of fee basedis increasing in comparison with the fund-based income.The pre--merger status of ICICIBank is as follows: it had liabilities of Rs.12,073crore, equity market capitalization ofRs.2,466 crore and equity volatility of 0.748.Working through options reasoning, we findthat this share price and volatility areconsistent with assets worth Rs.13,249 crore withvolatility 0.15. Thus, ICICI bank had assets which are 9.7% ahead of liabilities, which isroughly consistent with thespirit of the Basle Accord, and has leverage of 5.37 times

History of ICICI Bank

The World bank the Government of India and representatives of Indian industryformICICI Limited as a development finance institution to provide medium-termand long-termproject financing to Indian businesses in1955.

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1994 ICICI establishes ICICI Bank as a subsidiary.

1999 ICICI becomes the first Indian company and the first bank or financialinstitution from non-Japan Asia to list on theNYSE

2001 ICICI acquired Bank of Madura (est.1943). Bank of Madurawa s a Chettiarbank, and had acquiredChettinad MercantileBank(est.1933)andIllanjiBank(established1904) in the1960s.

2002The Boards of Directors of ICICI and ICICI Bank approve them er ge r o f I C I C I , ICICI Personal Financial Services LimitedandICICI Capital ServicesLimited with ICICI Bank. After receiving allnecessary regulatory approvals,ICICI integra tes the group's financing and banking operations, both wholesaleand retail, into a single.

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