MERGER OF ICICI BANK WITH ICICI LTD. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian Industry. The principal objective was to create a development financial institution for providing medium–term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to diversified financial services group offering a wide variety of products and services, both directly and though a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI became the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. It is India’s second-largest bank with total assets of about Rs. 146,214 crore at December 31, 2004 and profit after tax of Rs. 1,391 crore in the nine months ended December 31, 2004 (Rs.1,637 crore in fiscal 2004). ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and assets management. ICICI Bank set up its international banking group in fiscal 2002 to cater to the cross border needs of clients and leverage on its domestic banking strengths to offer products internationally, ICICI Bank currently has subsidiaries in the United kingdom and Canada, branches in Singapore and Bahrain and representative offices in the United States, China, United Arab Emirates, Bangladesh and South Africa. ICICI Bank’s equity shares are listed in India on the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depository Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). ICICI Bank was originally promoted in 1994 by ICICI Limited an Indian financial institution and was its wholly–owned subsidiary. Purpose of Strategic Move After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group’s universal banking strategy. The ICICI universal bank will control assets of Rs. 940 billion surpassed only by SBI’s Rs. 3.16 trillion and ahead of their-placed state-run Industrial Development Bank of India with Rs.718 billion. For ICICI, it is a great benefit as it would have access to the low-cost funds of the bank. FIs, especially ICICI, have been trying to become universal banks with an eye on cheap funds. At present they do not have access to low–cost saving and current account funds, the mainstay of banks. The merger would enhance value for ICICI through the merged entity’s access to lowcost deposits, great 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 ICICI bank through a large capital base and scale of operations, seamless access to ICICI’s strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. Circumstance Leading to Strategic Action Analysts say ICICI wants to merge with its banking subsidiary to obtain access to cheaper funds for lending, and to increase its appeal to investors so that it can raise capital needed to write off bad loans. “This is basically a survival move from ICICI, as their core business doesn’t look too good and they need some kind of a bank because only a bank has access to...
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