The Indian Banking Sector

Phase I (1786- 1969) - Initial phase of banking in India

when many small banks were set up
Phase II (1969- 1991) - Nationalization, regularization
and growth
Phase III (1991 onwards) - Liberalization and its
aftermath

M&A since 2000

Source : The Times of

India

Need for consolidation

Merging weak banks
Generating economies of scale
Managerial efficiency
Over-banked but underserviced
Synergy
Tax shields and financial safeguards

Impact
Diversification
Efficiency improvement
Improved consumer portfolio
Increased risk management
Creation of world class banks

RISKS IN BANK MERGERS AND ACQUISITIONS

1) Big size
2) no immediate profits
3) employee demotivation
4) different cultures
5) brand projection

CASE STUDY
Bank of Rajasthan Acquisition by ICICI Bank

ICICI Background
Industrial Credit and Investment Corporation of India
(ICICI) is the second largest bank.
It was incorporated in Baroda on 5th jan1994
The chairman of the company is Mr. M. K. Sharma and
the MD & CEO is Chanda D. Kochhar.
In 2000, ICICI Bank became the first Indian bank to list
on the New York Stock Exchange and it is listed on BSE
& NSE .

PROFILE OF ICICI BANK

Type
: Public
Founded : 1995
Headquarter : Mumbai, Maharashtra, India
Industry
: Banking, Financial service
Net revenue : 90216.24 Cr. (2015)
Net Profit : 12942.30 Cr. (2015)
Employees : 67857 (2015)
Website : www.icicibank.com

Bank of Rajasthan Background

It was set up atUdaipurin 1943 with an initial capital of Rs.10.00 lacs.
IndustrialistLate Seth Shri Govind Ram Seksariawas the founder
chairman.
The Bank also established a rural (Gramin) bankMewarAnchlik
Gramin Bank inUdaipurDistrict inRajasthanon 26 January 1983.
Net Income : 1177.119 million(US$18million) (March 2009)
RBI was critical of BOR's promoters not reducing their holdings in the
company.
BOR has been merged withICICI Bank.
ICICI paid Rs.30billion for it. Each 118 shares of BOR was converted
into 25 shares ofICICI Bank.

Why this
merger
? bank , agreed to acquire
ICICI Bank, Indias largest
private sector
smaller rival Bank of Rajasthan Ltd. To strengthen its presence in
northern and western India.
Besides getting 468 branches, Indias largest private sector bank will
also get control of 58 branches of a regional rural bank sponsored by
BOR.
According to banking circles, the Tayals, who acquired BoR a decade
ago, have been under pressure to sell the old private bank which is
grappling with directives from Sebi and RBI.
In March 2010, Sebi banned 100 entities allegedly holding BoR shares
on behalf of the promoters from all stock market activities.

Pre and post merger financials

ICICI
Pre

Post

2008

2009

2010

2011

2012

2013

2014

Current Ratio

0.1

0.11

0.11

0.07

0.07

0.08

0.08

Quick Ratio

3.9

3.71

3.5

3.26

3.45

3.29

3.56

Total Debt/Equity Ratio

6.2

5.61

4.71

4.69

4.6

4.58

4.7

7.73

8.05

12.05

20.25

20.11

21.39

22.31

93.96 107.13 105.04 103.58

99.55

Net Profit Margin

Return on long term
funds
Return on Net Worth
EPS

102.07 108.67
7.59

7.64

9.1

11.01

14.44

13.96

12.47

28

30.36

43.44

54.86

68.86

87.81 101.12

Pre merger challenges

Regulatory Concerns
Asset Quality Management
Legal Issues related to EGM
Union Strike and violation of Company Law

Post merger challenges

HR issues
Corporate governance
Risk of asset quality deterioration
Justify operations or leverage synergy

THANK YOU