ICICI Bank Accquired Bank of Rajasthan

8/12/2019 ICICI Bank Accquired Bank of Rajasthan

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ACQUISITION

OFBANKOFRAJASTHANBYICICI BANK


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ICICI BANK

ICICI bank is the India's second largest bank with

total asset of Rs.3,634.00 billion at march 31st

2010, and profit after tax of Rs. 40.25 billion for the

year ended march 31st2010

The bank has network of 2,035 branches and about

5,518 ATMs in India and presence in 18 countries,

ICICI bank offers a wide range of services to

corporate and retail customers through a variety of

delivery channels and through its specializedsubsidiaries in the area of Investments, Banking,

Life & Non-Life insurance, Venture capitalist and

Asset management.


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BANKOFRAJASTHAN

Bank of Rajasthan, with its strong hold in the state

of Rajasthan has a nationwide presence serving its

customers with a mission of Together we prosper,

Engaging actively in commercial banking, Merchant

banking, auxiliary services, customer banking, trust& custodian services, international banking.

At march 31st2009 BOR had 463branch and 111

ATMs, total asset of Rs. 172.24 billion, deposit of

Rs. 77.81 billion, it made a net profit of 1.18 billionin the year ended march 31,2009 and at a net loss

of 0.10 billion in the nine month ended December

31,2009


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WHYBANKOFRAJASTHAN ICICI bank Ltd, Indias largest private sector bank , said it

agreed to acquire smaller rival Bank of Rajasthan Ltd tostrengthen its presence in northern and western India .

Deal would substantially enhance its branch network and itwould combine Bank of Rajasthan branch franchise with itsstrong capital base .

The deal , which will give ICICI a sizeable presence in thenorthwestern desert state of Rajasthan , values the smallbank at about 2.9 times its book value, compared with anIndian Banking sector average of 1.84 .

ICICI Bank may be killing a two birds with one stone throughits proposed merger of the Bank of Rajasthan. Besides getting468 branches, Indias largest private sector bank will also getcontrol of 58 branches of a regional rural bank by BOR


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NEGATIVES

The negatives for the ICICI Bank are the potential risk

arising from BoR non-performing loans and the BoR is

trading at expensive valuations.

As on FY-10 the net worth of BOR was approximately Rs

760 crore and that of ICICI Bank of Rs 5,17,000. for the

December 2009 quarter, BOR reported a loss of Rs 44

crore on an income of Rs 373 crore.


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DEALVALUATION

ICICI BOR

Latest Markt Cap 99,125 1,471

Branches 2,035 4,63

ATM 5,518 111

No-of Employee 34,596 4,075

CAR 19.4% 11.3%

SWAP Ratio 25 share of ICICI bank for 118 share of BOR

Branch network of ICICI bank to cross 2500

BOR Mkt cap currently 1.55% of ICICI bankThird Acquisition for ICICI bank after Sangli bank & Madura bank.


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INFORMATION

The boards of both banks, have agreed in principle

approval for the acquisition in may 2010.

The productivity of ICICI bank is high compared to

Bank of Rajasthan. ICICI recorded a business per

branch of 3 billion rupee compared with 47 million

rupees of BOR for fiscal 2009

But the non-performing assets (NPA) record for

BOR is better than ICICI bank. For the quarter

ended Dec 2009, BOR recorded 1.05 % ofadvances as NPAs which is better than 2.1%

recorded by ICIC bank.


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TYPEOFACQUISITION

This is a Horizontal Acquisition in related functional

area in same industry (banking) in order to acquire

assets of a non performing company and turn it

around by better management achieving inorganic

growth for self by access to 3 million customers ofBOR and 463 branches


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ACQUISITIONMOTIVE-INORGANICGROWTH

Since 1997, ICICI Bank has acquired smaller banks

to increase its branch

1997-Acuired ITC classic finance

1998-Acuired Anagram finance 2000-Acuired the Bank of Madura

2005-Acuired Russias investitsionnokreditny Bank

2007-Acuired sangli Bank


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PROCESSOFACQUISITION

Haribhakti & Co was appointed jointly by

both the banks to access the valuation

SWAP ratio of 25:118 (25 shares of ICICI for

118 shares of bank of Rajasthan) i.e. oneICICI bank share for 4.72 BOR shares

Post-Acquisition, ICICI Banks branch

network would go up to 2,463 from 2000.


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PROCESSOFACQUISITION

The NPA recorded for BOR is better than ICICI

bank. For the quarter ended Dec 09, BOR recorded

1.05% of advances as NPAs, which is far better

than 2.1 % recorded by ICICI bank.

The deal, entered into after the due diligence by

Deloitte, was found satisfactory in maintenance of

accounts and no carry of bad loans.


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LEGALPROBLEM- EGM-KOLKATACIVIL

COURT

Extraordinary general meeting that was called to

approve the merger was first cancelled after a

Kolkata civil court restrained the management from

holding the EGM, This was based on a complaint

filed by a shareholder who was against the merger.


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LEGALPROBLEM-UNIONSTRIKE

Three major employee unions of BOR-All India

Bank of Rajasthan Employees Federation. All India

bank of Rajasthan Officers Association and Akhil

Bhartiya Bank of Rajasthan Karmachari Sangh, had

called the strike demanding the immediatetermination of the ICICI-BOR merger proposal

The United Forum of Bank of Rajasthan Unions had

opposed the merger of BOR with ICICI Bank, citing

cultural compatibility issues.


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LEGALISSUE

The Rajasthan High court issued notices to the

reserve bank of India, Bank of Rajasthan (BOR),

ICICI bank and others on a petition filed by an

employees union of the Udaipur-based BOR

against its proposed merger with ICICI bank.

The petition claims that BOR board on 18 May-

2010 to merge with ICICI Bank was illegal as the

securities and exchange board of India had found

out that the Toyalshad acquired 55.1% equity inthe bank in violation of its regulation.


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POSTMERGER

HR ISSUES

RISK OF DETERIORATION OF QUALITY OF

ASSET

LEVERAGE AND SYNERGY revenue enhancement

economies of scale

technological leverage

forward and backward integration.


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KEYRATIO

POST-MERGER

Total asset increased 11.8% from 3,634 31stMar

2010 to 4,062 31stMar 2011.

CASA increased from 842 billion to 1016.47 billion

Increase in NPA is due to from Acquisition of BOR

which contributes 4.11 billion

Year Ended Gross NPA

Mar 31, 2009 98.03

Mar 31,2010 96.27

Mar 31,2011 101.14


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Documents

ICICI Bank Accquired Bank of Rajasthan