BANK MERGERS:

Mergers and acquisitions are results of business strategies. While a merger is the result of a mutual decision between two organizations and Acquisitions is a takeover of one organization by another. A forced merger or a merger necessary for survival is normally is known as Amalgamation. Although Amalgamation, mergers and acquisitions are principal tools of corporate re-structuring, they bring with them uncertainty. Strategic transactions could fail or perform far below potential because of mistakes in post merger integration. They could, however, also be of extremely successful. The banking sector is going through a phase of consolidation and re-structuring in India Survival of the fittest has become the reality in the case of public sector commercial banks, with the new generations banks such as ICICI and HDFC opening branches allover India and implementing Customer Relationship Management (CRM) practices. In the era of Globalisation, banks will have to be

competitive in order to face challenges and leverage opportunities.

A bank merger could happen due to different reasons:

1. Lack of resources, both capital and labour required for competing with the big players, force the small banks to merge with the big banks. This could happen, if a bank finds it difficult to make profit due to increase in NonPerforming Assets or such reasons (This phenomenon is known as amalgamation. For example, GTBs amalgamation with Oriental Bank). 2. Banks Board of Directors can agree to a merger, if their shareholders get a better price in the form of Swap ratio. For example, Bank of Maduras merger with ICICI Bank. In the case of Bank of Maduras (BOM) merger with ICICI Bank, BOM shareholders got 1:2 Swap ratios The possible outcomes of M&As in the banking sector are downsizing, relocations, technological changes and

insecure feeling among the employees. In recent times there has been an upsurge in activities in banking sector around the world. HSBC has made a strategic move to open more branches in India . Mergers and acquisitions are not new to Indian banking. In the pre-nationalization as well as post- nationalization era the sector has witnessed a series of mergers and acquisitions and takeovers, the latest been the GTB merger with the OBC and the reverse merger of IDBI with IDBI Bank. The reason for mergers before 1969 was mostly failures of banks. Thus mergers and acquisitions have become the strategic alternative for corporate growth. Merger, the inorganic growth process, is nothing but submerging the individual corporate identities of two or more companies of similar size, strength to form a single entity in a friendly atmosphere. Inorganic growth process is a shortcut to corporate growth in lesser time and is of external nature.

BANK MERGERS AND ACQUISITIONS SINCE NATIONALISATION:

YEAR WITH 1971 Bank 1974 1976 Bank 1988 Baroda

BANK/ NBFC

MERGED

Eastern Bank Krishnaram Baldeo Bank Ltd. Belgaum Bank

Chartered SBI Union Bank of Allahabad

Traders Bank ltd.

1989 90 United Industrial Bank Bank 1989 90 1996 ICICI 1997 ITC Classic Bank of Tamilnad SCICI Indian Overseas Bank

ICICI

1997 1997 1998 1999 Bank 1999 2000

Bari Doab Bank Punjab co-operative Bank Anagram Finance

OBC OBC ICICI

20th Century Finance Corporation Centurion British Bank of Middle East Times Bank ICICI ICICI OBC HSBC

HDFC Bank 2001 2002 Bank 2004 Global Trust Bank Bank of Madura ICICI

OBC GTB Merger

"I do not maintain one-to-one contact with Mr. Parekh-I do not even remember meeting him other than may be at a social gathering. The bank has no means of knowing who buys or sells shares as the equity of the bank is in demat form. Through investigations we understand that

the holdings of the companies which the media states belong to Mr. Parekh are less than 2% today. There is no special advantage offered by GTB to Mr. Parekh or his companies." - Ramesh Gelli, chairman and managing director, Bank, The merged bank will be called UTI-Global Bank with a registered office at Secunderabad. With this contemplated merger, UTI-Global would become the largest bank in private sector and would derive lot of synergy and complement each other strengths. UTI Global Bank is expected to effectively combine the strengths and complementary features of the two banks. It will be strongly capitalized with a net worth likely to exceed Rs. 10 billion by the end of March 2001.On January 27, 2001 , the board of directors of GTB approved the amalgamation of GTB with UTI Bank. Global Trust

However, the proposed merger soon ran into problems. Before the merger was officially announced, the counters of UTI Bank and GTB at the Bombay Stock Exchange (BSE) witnessed huge volumes and a sizeable rise in prices. The sudden spurt in volumes raised eyebrows and sources watching the developments felt that this was an apparent case of informed buying and required a probe by the market regulator, Securities and Exchange Board of India (SEBI). The OBC GTB Merger was a hasty one with no due diligence exercise conducted. Analysts say that OBC was benefited from the merger rather, disproportionately. It seems that the era of good corporate governance and effective regulation by the regulator has not really dawned on the Indian banking industry. Recent proposed merger in Private sector bank
IDBI-United Western Bank merger Advantage, branch and rural roots

The deal may provide a leg-up to valuations of old private sector banks.

The amalgamation of United Western Bank (UWB) with Industrial Development Bank of India is likely to change the rules of the game in the banking space on the issue of valuation of shares. The merger is markedly different from takeover of Global Trust Bank and Nedungadi Bank by healthier rivals. In both the cases, shareholders went away without any consideration for the shares surrendered. Apart from synergies to the participating banks, the IDBI-UWB merger is likely to be a positive for old private sector banks. As the wave of consolidation is likely to gather momentum over the next year or so, old private sector banks may see their valuations improve. Investment in the IDBI stock can be considered with a long-term perspective. The stock is available at a price-tobook multiple of 0.8 and a price-to-earnings multiple of about eight times its trailing 12 months earnings. Accepting the offer at Rs 28 per share appears an appropriate strategy for the UWB shareholders.

A good fit for IDBI

The amalgamation of UWB with IDBI is likely to add value to the latter over the long term. The merger is likely to help IDBI expand its retail presence, though its size may not increase substantially. Of the several benefits the deal brings, we believe access to the branch network is most significant. IDBI, with a balance-sheet size of Rs 81,700 crores, has a network of 181 branches now. It scores poorly on this parameter compared to like-size peers. The merger would give IDBI immediate access to the 230-branch network of UWB, thereby widening its deposit franchise.
Key challenges

On the face of it, an outflow of Rs 150 crores may appear inexpensive. But if one were to consider the hidden costs in the form of bad loans and the likely slippages in the quality of existing assets, the effective cost is likely to go up by another Rs 100 crores.

Considering IDBI's size, this may still be a small sum. Post-merger, its level of net non-performing assets is likely to increase to 1.4 per cent from about one per cent now. As such, managing and containing the level of bad loans remain a challenge for IDBI. Integration of UWB with itself is likely to be a key challenge for IDBI. UWB has an employee base of over 3,200, which is about 70 per cent of IDBI's.

Case Study on ICICI Bank of India ICICI BANK LIMITED

Company Background

ICICI Bank is the second-largest bank in India and the largest among the private sector banks. ICICI Bank was set up by The Industrial Credit and Investment Corporation of India Limited in 1994. By 2002, ICICI Limited, ICICI Capital Services Limited and ICICI Personal Financial Services Limited were merged to form ICICI Bank. The bank provides a wide range of banking products and financial services to corporate and retail customers. It provides services in the areas of investment banking, life and non-life insurance, venture capital and asset management. ICICI is a leading player in retail banking and has over 17 million retail customer accounts. It has a network of over 610 branches and extension counters and has 2200 ATMs. Its assets were worth US$ 56 billion as on March 31, 2006 . ICICI Bank had set up its international banking group in 2002 to meet the worldwide needs of its clients and to leverage its domestic banking strengths. Established in 1994, ICICI Bank is today the second largest bank in India and among the top 250 in the world. In less than a decade, the bank has become a universal bank offering a well-diversified portfolio of financial services.

Future Plans

ICICI bank has entered into mainland Europe by opening a branch in Antwerp , Belgium . The primary reason for opening this branch is to enter into diamond financing since the Belgian branch is located in the heart of the diamond district in Antwerp , which is a hub of diamond business. The bank plans to offer corporate banking products from this branch. ICICI bank also plans to enhance its services to Indian companies to invest in the UK . It plans to achieve this by assisting them in rising corporate and project finance for their investments abroad.
OVERVIEW

The Challenge Business growth by addressing the more lucrative and growing segment of middle-class consumers and emerging corporates. The Solution

Strategic adoption of technology to ensure that ICICI transforms into a universal bank, which will provide fast and efficient customer service besides offering the whole gamut of banking and financial services. The Benefit The bank has benefited in the form of lower Total Cost of Ownership (TCO), improved efficiency, easy management of volume growth, greater responsiveness to market opportunities and of course, numerous accolades from industry-watchers. KEY BUSINESS DRIVERS ICICI Bank was set up when the process of deregulation and liberalization had just begun in India , and the Reserve Bank of India ( India s central bank) had paved the way for private players in the banking sector, which at that time was dominated by state-owned and foreign banks. Serving a majority of the countrys populace, state-owned banks had a large branch network, with minimal or no automation and had little focus on service. Foreign banks, on the other

hand, deployed high-end technology, had innovative product offerings, but had a very small branch network that serviced only corporates and individuals with high networth. Sensing an untapped opportunity, ICICI Bank decided to target India s burgeoning middle class and corporate segment by offering a high level of customer service and efficiency that rivaled the foreign banks, on a much larger scale, at a lower cost. A crucial aspect of this strategy was the emphasis on technology. DIAGRAMATIC PRESENTATION OF TRANSFER DATA PROCEDURE THROUGH SOFTWARE USED BY ICICI BANK Core banking applications help provide complete front and backend automation of banks. These applications also help banks achieve centralized processing and provide 24-hour customer service. "Core banking applications provide anywhere, anytime 24 by 7 non-stop services, which is not possible with traditional localized branch automation systems that are available only between 10 am to 2 pm ," says V. Chandrasekhar.

Key Core Banking project Benefits Realized to Date:-

Business Benefit Description

Technology

A large, scalable technology infrastructure for the future Standardization of platforms Improved IT governance.

Process

Streamlining of processes across the group and a significant reduction in manual

activities Broader range of products and faster time to market. For corporate customers, an interface to the ERP system and also direct interfaces to the SWIFT and RTGS systems (The system also provides the ability to view the online status of corporate transactions.) Improved customer response time and a Single-window concept within the branch.

Overall

Customers can build loyalty to

ICICI Bank as an integrated entity, as opposed to their branch. This anytime/anywhere banking makes ICICI Bank a formidable competitor because of its enormous domestic reach. ICICI Bank branches are now channels and focus on value-added activities around sales and customer service. Noncore tasks and processes have been removed, and

new services such as the Grahak Mithra metergreeter have been introduced to assist customers.

SWOT ANALYSIS OF ICICI BANK:Strengths Weaknesses _ Advanced Technology many subsidiaries _ Providing innovative products & Services cost of funds _ Leverage technology to satisfy customer demands. _ Add value to the shareholders _ High _ Too

Opportunities Threats _ Higher capital base from other industry Rivals like HDFC. _ First mover advantages NPA despite Provisioning _ Concern over _ Competition

New Product Development Some of the recent additions to ICICI Banks Trade Services suite are: Arranging for Forfaiting Services Co-acceptance Electronic Advising of Export Letters of Credit EEFC Checking Account

 Arranging for Non-Recourse Financing for Deferred Payment Exports Special Foreign Currency Account for Overseas Tour Operators Travelers Cheque Reimbursement Services Arranging for Forfaiting Services ICICI Bank can arrange Forfaiting services for its exporter customers. Forfaiting is the discounting of receivables, typically by negotiating bills drawn under a Letter of Credit (LC) or co-accepted bills of exchange. Generally, Forfaiting is applicable in cases where export of goods is on credit terms and the export receivables are guaranteed by the importers bank. This allows the Forfaiting bank to buy the risk without recourse to the exporter. The financing term mainly depends on country risk of the buyer, size of contract, financial standing of the LC opening bank/guarantor bank.

Co-acceptances Co-acceptance is a means of non-fund based import finance whereby a Bill of Exchange drawn by an exporter on the importer is co-accepted by ICICI Bank. By co-accepting the Bill of Exchange, ICICI Bank undertakes to make payment to the exporter even if the importer fails to make payment on due date. Electronic Advising of Export Letters of Credit In view of this, ICICI Bank has launched the service of Electronic Advising of Export Letters of Credit. This will add to the exporters convenience and enable him to plan logistics for the export consignment in advance on the basis of the email copy of the Letter of Credit (LC). EEFC Checking Account In order to aid our corporate customers with greater convenience and confidence in making payments through

their EEFC accounts, especially while traveling abroad, the EEFC Chequebooks Facility has been introduced. ICICI Bank maintains EEFC accounts in USD, GBP, JPY and Euro; therefore the chequebooks would also be issued currency wise pertaining to the relevant account. Travelers Cheque Reimbursement Services This service is targeted at Full Fledged Money Changers (FFMCs) & Restricted Money Changers (RMCs) who encash Travelers Cheques (TCs) and currencies presented by retail travelers and require a mechanism to collect the proceeds from TC issuing companies or agencies. A few foreign & private sector banks have already introduced customized banking products like Investment Advisory Services, SGL II accounts, Photo-credit cards, Cash Management services, Investment products and Tax Advisory services.

Collections Products Local Cheque Collection This product involves collection of local instruments from more than 625 locations and providing funds on guaranteed basis on a specified day or realisation basis. Upcountry Cheque Collection This product involves collection of instruments payable at upcountry locations and providing funds on guaranteed basis on a specified day or realisation basis. Only bank in the country to offer online real-time collection information to customers across 315 ICICI Bank locations Largest technology enabled collections network in the country offering over 4500 locations Technology capabilities to provide customised MIS.

FUTURE OUTLOOK

BPR:

Business process reengineering is part and parcel banking project and will drive further process

of the core changes. BPR will likely extend beyond the life of the core project and will complement the technology overhaul. New solutions: As part of the project, ICICI Bank is implementing a new trade finance solution. Going forward, the bank has indicated interest in HRMS, a payment gateway, and data Warehousing. International branches: ICICI Bank is in the process of rolling out an

international branch banking solution to its overseas network. This is an Infosys solution and will help the bank further its interests.