MERGER AND ACQUISITION IN INDIA

INTRODUCTION
We h a v e b e e n l e a r n i n g a b o u t t h e c o mp a n i e s c o m i n g t o g e t h er t o
f r o m a n o t h e r company and companies taking over the existing companies to
expand their business. With recession taking toll of many Indian businesses and the
feeling of insecurity s u rgi n g o v e r o ur b u s i n e s s m e n , i t i s n o t s u r p r i s i n g
w h e n w e h e a r a b o u t t h e i m me n s e numbers of corporate restructurings
taking place, especially in the last couple of years.
Several companies have been taken over and several
h a v e u n d e r g o n e i n t e r n a l r e s t r u c t ur i n g , w h e r e a s c e r t a i n
c o m p a n i e s i n t h e s a me f i e l d o f b u s i n e s s h a v e f o u n d i t beneficial to
merge together into one company.
In this context, it would be essential for us to
u n d e r s t a n d w h a t c o r p o r a t e restructuring and mergers and acquisitions
are all about.
All our daily newspapers are filled with cases of mergers, acquisitions,
spin-offs, tender offers, & other forms of corporate restructuring. Thus
important issues both for business decision and public policy formulation
have been raised. No firm is regarded safe from a takeover possibility. On the
more positive side Mergers & Acquisitions may be critical for the healthy
expansion and growth of the firm. Successful entry into new product and
geographical markets may require Mergers & Acquisitions at some stage in the
firm's development. Successful competition in international markets may depend
on capabilities obtained in a timely and efficient fashion through Mergers
& Acquisition's. Many have argued that mergers increase value and efficiency
and move resources to their highest and best uses, thereby increasing shareholder
value.
To opt for a merger or not is a complex affair,
e s p e c i a l l y i n t e r m s o f t h e technicalities involved. We have
discussed almost all factors that the management may have to look into
before going for merger.
Considerable amount of brainstorming would be required by the managements to
reach a conclusion. E.g. A due diligence report would clearly identify the
status of the company in respect of the financial position along with the net worth
and pending legal matters and details about various contingent liabilities. Decision
 has to be taken after having discussed the pros & cons of the proposed merger &
the impact of the same on the business, administrative costs benefits,
addition to shareholders' value, tax implications including stamp duty and last
but not the least also on the employees of the Transferor or Transferee Company.
WHAT IS MERGER ?
Merger is defined as combination of two or more companies into a single
company where one survives and the others lose their corporate existence. The
survivor acquires all t h e a s s e t s a s w e l l a s l i a b i l i t i e s o f t h e m e r ge d
c o m p a n y or c o m p a n i e s . G e n e r a l l y, t h e surviving company is the buyer,
which retains its identity, and the extinguished company is the seller. M e r ge r i s
also defined as amalgamation.
M e rge r i s t h e f u s i o n o f t w o o r m o r e existing companies. All assets,
liabilities and the stock of one company stand transferred to Transferee Company
in consideration of payment in the form of:
Equity shares in the transferee company,
Debentures in the transferee company,
Cash, or
A mix of the above modes.
WHAT IS ACQUISITION ?
Acquisition in general sense is acquiring the ownership in the property.
In the context of business combinations, an acquisition is the purchase by
one company of a controlling interest in the share capital of another existing
company. Methods of Acquisition;
An acquisition may be affected by
Agreement with the persons holding majority interest in the company
management like members of the board or major shareholders
commanding majority of voting power;
Purchase of shares in open market;
To make takeover offer to the general body of shareholders;
Purchase of new shares by private treaty;
Acquisition of share capital through the following forms of
c o n s i d e r a t i o n s v i z . Means of cash, issuance of loan capital, or insurance of
share capital.

TAKEOVER :
 A takeover is acquisition and both the terms are used interchangeably. Takeover
differs from merger in approach to business combinations i.e. The process of
takeover, transaction involved in takeover, determination of share
exchange or cash price and the fulfillment of goals of combination all are
different in takeover about the maximum price. Time taken in completion
of transaction is less in takeover than in mergers, top management of the
offeree company being more co-operative.
De-merger or corporate splits or division:
De-merger or split or divisions of a company are the synonymous terms signifying
a movement in the company.
Purpose of Mergers & Acquisitions
T h e p u r p o s e f o r a n o ffe r o r c o mp a ny f o r a c q u i r i n g a n o t h e r
c o m p a n y s h a l l b e r e f l e c t e d i n t h e c o r p or a t e o b j e c t i v e s . I t h a s t o
d e c i d e t h e s p e c i f i c o b j e c t i v e s t o b e achieved through acquisition. The
basic purpose of merger or business combination is to a c h i e v e f a s t e r gr o w t h
o f t h e c o r p or a t e b u s i n e s s . F a s t e r g r o w t h m a y b e h a d
t h r o u g h product improvement and competitive position. Other possible purposes
for acquisition are short listed below: -
(1) Procurement of supplies:
To safeguard the source of supplies of raw materials or intermediary
product;
To obtain economies of purchase in the form of discount, savings in
transportation costs, overhead costs in buying department, etc.;
To share the benefits of suppliers economies by standardizing the
materials.
(2) Revamping production facilities:
To achieve economies of scale by amalgamating production facilities
through more intensive utilization of plant and resources;
To standardize product specifications, improvement of
q u a l i t y o f p r o d u c t , expanding.
Market and aiming at consumers satisfaction through strengthening after
sale Services;
To obt ai n i mp ro ve d pr od uc ti on t ec hn ol ogy an d k no w-h ow
f r o m t h e o f f e r e d company
 To reduce cost, improve quality and produce competitive products to
retain and Improve market share.
(3) Market expansion and strategy:
To eliminate competition and protect existing market;
To obtain a new market outlets in possession of the offeree;
To obtain new product for diversification or substitution of existing products and to
enhance the product range;
Strengthening retain outlets and sale the goods to rationalize distribution;
To reduce advertising cost and improve public image of the offeree
company;
Strategic control of patents and copyrights.
(4) Financial strength:
To improve liquidity and have direct access to cash resource;
To dispose of surplus and outdated assets for cash out of combined
enterprise;
To en ha nc e g ea ri ng c ap ac it y, b orr ow o n be tt er st re ng th an d
t h e g r e a t e r a s s e t s backing;
To av ai l ta x be ne fit s;
To i mp r o v e E P S ( E a r n i n g P er S h a r e) .
(5) General gains:
To i mp r o v e i t s o w n i ma g e a n d a t t r a c t s u p e r i o r m a n a g e r i a l t a l e n t s
t o m a n a g e i t s affairs;
To offer better satisfaction to consumers or users of the product.
6) Own developmental plans: The purpose of acquisition is backed by the offeror
companys own developmental plans. A c o m p a ny t h i n k s i n t er m s o f
a c q u i r i n g t h e o t h e r c o mp a ny o n l y w h e n i t h a s arrived at its own
development plan to expand its operation having examined its own
internal strength where it might not have any problem of taxation, accounting,
valuation, e t c . B u t m i g h t f e e l r e s o u r c e c o n s t r a i n t s w i t h l i mi t a t i o n s
of funds and lack of skill m a n a g e r i a l p e r s o n n e l s. I t h a s t o
a i m a t s u i t a b l e c o m b i n a t i o n w h e r e i t c o u l d h a v e opportunities
to supplement its funds by issuance of securities, secure additional financial
facilities, eliminate competition and strengthen its market position.
(7) Strategic purpose: The Acquirer Company view the merger to achieve
strategic objectives through alternative type of combinations which may
be horizontal, vertical, product expansion, market extensional or other
specified unrelated objectives depending upon the corporate strategies. Thus,
various types of combinations distinct with each other in nature are
adopted to pursue this objective like vertical or horizontal combination.

(8) Corporate friendliness: Although it is rare but it is true that business houses
exhibit degrees of cooperative spirit despite competitiveness in providing
rescues to each other from hostile takeovers a n d c u l t i v a t e s i t u a t i o n s o f
c o l l a b o r a t i o n s s h a r i n g g o o d w i l l o f e a c h o t h er t o
a c h i e v e performance heights through business combinations. The
combining corporate aim at circular combinations by pursuing this objective.

(9) Desired level of integration: M e rge r s a n d a c q u i s i t i o n a r e p ur s u e d t o

o b t a i n t h e d e s i r e d l e v e l o f i n t e g r a t i o n between the two combining
business houses. Such integration could be operational or f i n a n c i a l .
This gives birth to conglomerate combinations. The
p u r p o s e a n d t h e requirements of the offeror company go a long way
in selecting a suitable partner for merger or acquisition in business
combinations.

Types of Mergers
Merger or acquisition depends upon the purpose of the offeror company it wants to
a c h i e v e . B a s e d o n t h e o ffe r o r s o b j e c t i v e s pr o f i l e , c o mb i n a t i o n s
c o u l d b e v er t i c a l , horizontal, circular and conglomeratic as precisely
described below with reference to the purpose in view of the offeror company.
(A) Vertical combination:
A company would like to takeover another company or seek its merger
with that company to expand espousing backward integration to assimilate the
resources of supply and forward integration towards market outlets. The acquiring
company through merger of another unit attempts on reduction of
inventories of raw material and finished goods, implements its production
plans as per the objectives and economizes on working capital investments. In
other words, in vertical combinations, the merging undertaking would be either a
supplier or a buyer using its product as intermediary material for final production.
The following main benefits accrue from the vertical combination to the
acquirer company i.e.
1.It gains a strong position because of imperfect market of the
intermediary products, scarcity of resources and purchased products;
2.Has control over products specifications.
(B) Horizontal combination:
I t i s a m e r ge r o f t w o c o mp e t i n g f i r m s w h i c h a r e a t t h e s a m e s t a g e
o f i n d u s t r i a l process. The acquiring firm belongs to the same industry as the
target company. The mail purpose of such mergers is to obtain economies of
scale in production by eliminating duplication of facilities and the operations
and broadening the product line, reduction in i n v e s t me n t i n w o r k i n g
capital, elimination in competition concentration in product,
reduction in advertising costs, increase in market segments and exercise better
control on market.
(C) Circular combination:
Companies producing distinct products seek amalgamation to
share common d i s t r i b u t i o n a n d r e s e a r c h f a c i l i t i e s t o o b t a i n
e c o n o m i e s b y e l i m i n a t i o n o f c o s t o n duplication and promoting
market enlargement. The acquiring company obtains benefits in the form of
economies of resource sharing and diversification.
(D) Conglomerate combination:
It is amalgamation of two companies engaged in unrelated industries like
DCM and Modi Industries. The basic purpose of such amalgamations
remains utilization of f i n a n c i a l r e s o u r c e s a n d e n l a rge s d e b t c a p a c i t y
t h r o u g h r e- o r ga n i z i n g t h e i r f i n a n c i a l structure so as to service the
shareholders by increased leveraging and EPS, lowering a v e r a g e c o s t o f
c a p i t a l a n d t h er e b y r a i s i n g pr e s e n t w o r t h o f t h e o u t s t a n d i n g
s h a r e s . Merger enhances the overall stability of the acquirer company and creates
balance in the companys total portfolio of diverse products and production
processes.
Advantages of Mergers
Mergers and takeovers are permanent form of combinations
w h i c h v e s t i n m a n a g e me n t c o m p l e t e c o n t r o l a n d p r o v i d e
c e n t r a l i z e d a d m i n i s t r a t i o n w h i c h ar e n o t a v a i l a b l e i n
combinations of holding company and its partly owned
s u b s i d i a r y . Shareholders in the selling company gain from the merger and
takeovers as the premium offered to induce acceptance of the merger or
takeover offers much more price than the book value of shares.
Shareholders in the buying company gain in the long run with the growth
of the company not only due to synergy but also due to boots trapping earnings.
Mergers and acquisitions are caused with the support of shareholders,
managers ad promoters of the combing companies. The factors, which
motivate the shareholders and managers to lend support to these combinations
and the resultant consequences they have to bear, are briefly noted below
based on the research work by various scholars globally.
(1) From the standpoint of shareholders
Investment made by shareholders in the companies subject to merger should
enhance in value. The sale of shares from one companys shareholders to
another and holding investment in shares should give rise to greater values
i.e. The opportunity gains in alternative investments. Shareholders may
gain from merger in different ways viz. From the gains and achievements of
the company i.e. Through( a ) R e a l i z a t i o n o f m o n o p o l y
profits;( b ) E c o n o m i e s o f s c a l e s ;
(c)Diversification of product line;
(d)Acquisition of human assets and other resources not
available otherwise;( e ) B e t t e r i n v e s t m e n t o p p o r t u n i t y
in combinations.
One or more features would generally be available in each merger where
shareholders may have attraction and favour merger.
(2)From the standpoint of managers
Managers are concerned with improving operations of the company, managing the
affairs of the company effectively for all round gains and growth of the company
which will provide them better deals in raising their status, perks and
fringe benefits. Mergers where all these things are the guaranteed outcome get
support from the managers. At the same time, where managers have fear of
displacement at the hands of new management in amalgamated company
and also resultant depreciation from the merger then support from them
becomes difficult.

(3) Promoters gains

 Mergers do offer to company promoters the advantage of increasing the
size of their company and the financial structure and strength. They can
convert a closely held and private limited company into a public
company without contributing much wealth and without losing control.
(4) Benefits to general public
I mp a c t o f m e r ge r s o n g e n e r a l p u b l i c c o u l d b e v i e w e d a s a s p e c t o f
b e n e f i t s a n d costs to:
Consumer of the product or services;
Workers of the companies under combination;
General public affected in general having not been user or
c o n s u m e r or the worker in the companies under merger plan.
(a) Consumers
The economic gains realized from mergers are passed on to consumers in the form
of lower prices and better quality of the product which directly raise their
standard of living and quality of life. The balance of benefits in favour of
consumers will depend upon the fact whether or not the mergers increase or
decrease competitive economic and productive activity which directly affects the
degree of welfare of the consumers through changes in price level, quality of
products, after sales service, etc.
(b) Workers community
T h e m e rge r o r a c q u i s i t i o n o f a c o mp a ny b y a c o n g l o m e r a t e o r
o t h e r a c q u i r i n g company may have the effect on both the sides of
increasing the welfare in the form of purchasing power and other miseries of
life. Two sides of the impact as discussed by there searchers and academicians
are:
Firstly - mergers with cash payment to shareholders p r o v i d e
o p p o r t u n i t i e s f o r t h e m t o i n v e s t t h i s m o n ey i n o t h e r c o mp a n i e s
w h i c h w i l l generate further employment and growth to uplift of the
economy in general.
Secondly - any restrictions placed on such mergers will decrease the growth and
investment activity with corresponding decrease in employment. Both workers and
communities will suffer on lessening job Opportunities, preventing the distribution
of benefits resulting from diversification of production activity.

(c) General public

Mergers result into centralized concentration of power. Economic power is to be
understood as the ability to control prices and industries output as
monopolists. Such monopolists affect social and political environment to tilt
everything in their favour to maintain their power ad expand their business
empire. These advances result into economic exploitation. But in a free
economy a monopolist does not stay for a longer period as other companies
enter into the field to reap the benefits of higher prices set in by the
monopolist. This enforces competition in the market a s c o n s u me r s a r e
f r e e t o s u b s t i t u t e t h e a l t er n a t i v e pr o d u c t s . Th e r e f o r e , i t i s difficult
to generalize that mergers affect the welfare of general public adversely or
favorably. Every merger of two or more companies has to be viewed from different
angles in the business practices which protects the interest of the shareholders in
the merging company and also serves the national purpose to add to the welfare
of the employees, consumers and does not create hindrance in administration of the
Government polices.

Change in scenario of Banking Sector

1.The first mega merger in the Indian banking sector that of the HDFC
Bank with Times Bank, has created an entity which is the largest private sector
bank in the country.
2.The merger of the city bank with Travelers Group and the merger of
Bank of America with Nation Bank have triggered the mergers and
acquisition market in the banking sector world wide.
3 . E ur o p e a n d J a p a n ar e a l s o o n t h e i r w ay t o r e s t r u c t ur e t h e i r
f i n a n c i a l s e c t o r t h o u g h t merger and acquisitions. Merger will help banks
with added money power, extended g e o g r a p h i c a l r e a c h w i t h d i v e r s i f i e d
b r a n c h N e t w o r k , i mp r o v e d pr o d u c t m i x , a n d e c o n o m i e s o f s c a l e
o f o p e r a t i o n s . M e rge r w i l l a l s o h e l p b a n k s t o r e d u c e d
t h e m borrowing cost and to spread total risk associated with the
individual banks over the combined entity. Revenues of the combine
entity are likely to shoot up due to more e f f e c t i v e a l l o c a t i o n o f
bank funds. ICICI Bank has initiated merger talks with
C e n t u r i a n B a n k b u t d u e t o d i ffe r e n c e a r i s i n g o v e r s w a p r a t i o n t h e
m e rge r d i d n t materialized. Now UTI Bank is egeing Centurian Bank. The
proposed merger of UTI Bank and Centurian Bank will make them third largest
private banks in terms of size and market Capitalization State Bank of India
has also planned to merge seven of its associates or part of its long-term
policies to regroup and consolidate its position. Some of the Indian
Financial Sector players are already on their way for mergers to strengthen
their existing base.
4.In India mergers especially of the PSBS may be subject to technology
and trade union related problem. The strong trade union may prove to be
big obstacle for the PSBS mergers. Technology of the merging banks to
should complement each other NPA management. Management of
efficiency, cost reduction, tough competition from the m a r k e t p l a y e r s
and strengthing of the capital base of the banks are some of
t h e problem which can be faced by the merge entities. Mergers for
private sector banks will be much smoother and easier as again that of PSBS.

THE BANKING SCENARIO HAS BEEN CHANGING AT FAST PLACE.

B a n k t r a d i t i o n a l l y j u s t b or r o w e r a n d l e n d e r s , h a s s t a r t e d
p r o v i d i n g c o mp l e t e corporate and retail financial services to its customers
1.Technology drive has benefited the customers in terms of faster
improve convenient banking services and Varity of financial products to
suit their requirement. Atms, Phone Banking, Net banking, Any time and Any
where banking are the services which bank have started offering following
the changing trend in sectors. In plastic money s e g m e n t c u s t o m e r h a v e
a l s o g o t a n e w o p t i o n o f d e b i t s c a r d s a g a i n s t t h e e a r l i e r popular
credit card. Earlier customers had to conduct their banking transaction within the
restricted time frame of banking hours. Now banking hours are extended.
2.Atms ,Phone banking and Net banking had enable the customer to
transact as per their convince customer can now without money at any
time and from any branch across country as certain their account transaction,
order statements of their account and give instruction using the tally banking or on
online banking services.
3.Bank traditionally involve working capital financing have started
offering consumer loans and housing loans. Some of the banks have started
offering travel loans, as well as many banks have started capitalizing on
recent capital market boom by providing IPO finance to the investors.
Procedure of Mergers & Acquisitions
 Public announcement:
To make a public announcement an acquirer shall follow the following procedure:
1.Appointment of merchant banker: The acquirer shall appoint a merchant
banker registered as category I with SEBI to advise him on the acquisition
and to make a public announcement of offer on his behalf.
2 . U s e o f m e d i a f o r a n n o u n c e m e n t : P u b l i c a n n o u n c e me n t s h a l l b e
m a d e a t l e a s t i n o n e n a t i o n a l E n g l i s h d a i l y o n e Hindi daily and one
regional language daily newspaper of that place where the shares of that company
are listed and traded.
3 . Tim i n g s o f a n n o u n c e me n t : P u b l i c a n n o u n c e m e n t s h o u l d b e
m a d e w i t h i n f o u r d a y s o f f i n a l i z a t i o n o f negotiations or
entering into any agreement or memorandum of understanding to acquire the
shares or the voting rights.
4 . C o n t e n t s o f a n n o u n c e me n t : P u b l i c a n n o u n c e m e n t o f o f f e r
i s m a n d a t o r y a s r e q u i r e d u n d e r t h e S E B I Regulations.

Procedure of Bank Merger

The procedure for merger either voluntary or otherwise is outlined in the respective
state statutes/ the Banking regulation Act. The Registrars, being the
authorities vested with the responsibility of administering the Acts, will
be ensuring that the due process prescribed in the Statutes has been complied
with before they seek the approval of the RBI. They would also be ensuring
compliance with the statutory procedures for notifying the amalgamation after
obtaining the sanction of the RBI.
Before deciding on the merger, the authorized officials of the acquiring bank and
the merging bank sit together and discuss the procedural modalities and
financial terms. After the conclusion of the discussions, a scheme is prepared
incorporating therein the all the details of both the banks and the area terms and
conditions.
Once the scheme is finalized, it is tabled in the meeting of Board of
directors of r e s p e c t i v e b a n k s . Th e b o a r d di s c u s s e s t h e s c h e m e
t h r e a d b a r e a n d a c c o r d s i t s approval if the proposal is found to be
financially viable and beneficial in long run.
 After the Board approval of the merger proposal, an extra ordinary general meeting
of the shareholders of the respective banks is convened to discuss the proposal and
seek their approval.
After the board approval of the merger proposal, a registered valuer is appointed to
v a l u a t e b o t h t h e b a n k s . Th e v a l u er v a l u a t e s t h e b a n k s o n t h e b a s i s
o f i t s s h a r e capital, market capital, assets and liabilities, its reach and
anticipated growth and sends its report to the respective banks.
Once the valuation is accepted by the respective banks , they send the
proposal along with all relevant documents such as Board approval, shareholders
approval, valuation report etc to Reserve Bank of India and other
regulatory bodies such Security & exchange board of India (SEBI) for their
approval.

After obtaining approvals from all the concerned institutions, authorized officials
of both the banks sit together and discuss and finalize share allocation
proportion by the acquiring bank to the shareholders of the merging bank (SWAP
ratio)
After completion of the above procedures , a merger and acquisition agreement is
signed by the bank

RBI Guidelines on Mergers & Acquisitions of Banks

Wit h a v i e w t o f a c i l i t a t i n g c o n s o l i d a t i o n a n d e m e r ge n c e o f s t r o n g
e n t i t i e s a n d pr o v i d i n g a n a v e n u e f o r n o n d i s r u p t i v e e x i t o f
weak/unviable entities in the b a n k i n g s e c t o r , i t h a s b e e n
decided to frame guidelines to encourage
merger/amalgamation in the sector.
Although the Banking Regulation Act, 1949 (AACS) does not empower
Reserve Bank to formulate a scheme with regard to merger and amalgamation of
banks, the S t a t e G o v e r n m e n t s h a v e i n c o r p or a t e d i n t h e i r r e s p e c t i v e
A c t s a p r o v i s i o n f o r obtaining prior sanction in writing, of RBI for an order,
inter alia, for sanctioning a scheme of amalgamation or reconstruction.
The request for merger can emanate from banks registered under the same
State A c t o r f r o m b a n k s r e g i s t e r e d u n d e r t h e M u l t i S t a t e C o -
o p e r a t i v e S o c i e t i e s Ac t (Central Act) for takeover of a bank/s
registered under State Act. While the State A c t s s p e c i f i c a l l y pr o v i d e
 f o r m e r ge r o f c o - o p e r a t i v e s o c i e t i e s r e g i s t e r e d u n d e r them, the
position with regard to take over of a co-operative bank registered under the State
Act by a co-operative bank registered under the CENTRAL.
Although there are no specific provisions in the State Acts or the Central
Act for t h e m e r ge r o f a c o- o p e r a t i v e s o c i e t y u n d e r t h e S t a t e Ac t s
with that under the
Centr al Act, it is felt that, if all concer ned including
a d m i n i s t r a t o r s o f t h e concerned Acts are agreeable to order merger/
amalgamation, RBI may consider proposals on merits leaving the question of
compliance with relevant statutes to the a d m i n i s t r a t o r s o f t h e A c t s .

Information & Documents to be furnished by BY THE ACQUIRER OFBANKS

1.Draft scheme of amalgamation as approved by the Board of Directors of
the acquirer bank.
2.Copies of the reports of the valuers appointed for the determination of realizable
value of assets
(net of amount payable to creditors having precedence over depositors) of the
acquired bank.
3.Information which is considered relevant for the consideration of the scheme of
merger including in particular:-
A. Annual reports of each of the Banks for each of the three completed
financial years immediately preceding the proposed date for merger.
B. Financial results, if any, published by each of the Banks for any period
s u b s e q u e n t t o t h e f i n a n c i a l s t a t e me n t s pr e p a r e d f o r t h e f i n a n c i a l
y e ar i m me d i a t e l y preceding the proposed date of merger.
C. P r o - f o r ma c o m b i n e d b a l a n c e s h e e t o f t h e a c q u i r i n g b a n k a s i t
w i l l a p p e a r consequent on the merger.
D. Computation based on such pro-forma balance sheet of the following:
i. Tier I Capital
ii. Tier II Capital
iii. Risk-weighted Assets
iv. Gross and Net np as
v. Ratio of Tier I Capital to Risk-weighted Assets
vi. Ratio of Tier II Capital to Risk-weighted Assets
vii. Ratio of Total Capital to Risk-weighted Assets
viii. Tier I Capital to Total Assets
ix. Gross and Net np as to Advances
x. Cash Reserve Ratio
xi. Statutory Liquidity Ratio
4.I n f o r m a t i o n c e r t i f i e d by t h e v a l u e s a s i s c o n s i d e r e d r e l e v a n t t o
u n d e r s t a n d t h e n e t realizable value of assets of the acquired bank including in
particular:-
A. The method of valuation used by the values
B. T h e i n f o r ma t i o n a n d d o c u me n t s o n w h i c h t h e v a l u e s h a v e r el i e d
and the e x t e n t o f t h e v e r i f i c a t i o n , i f a n y, m a d e b y t h e v a l u e s
t o t e s t t h e a c c u r a c y o f s u c h information
C. If the values have relied upon projected information, the names and
designations of the persons who have provided such information and the
extent of verification, if any, made by the values in relation to such information
D. Details of the projected information on which the values have relied
E. Detailed computation of the realizable value of assets of the acquired bank.
5.Such other information and explanations as the Reserve Bank may require.

Mergers in the Banking Sector

ICICI Bank
INTRODUCTION
ICICI Bank (formerly Industrial Credit and Investment Corporation of India) is
India' s l a r g e s t p r i v a t e b a n k . I C I C I B a n k h a s t o t a l a s s e t s
o f a b o u t Rs.20.05bn (end-Mar 2005), a network of over 550 branches and
offices, and about1900 atms. I C I C I B a n k o f f e r s a w i d e r a n g e o f
b a n k i n g p r o d u c t s a n d f i n a n c i a l 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 asset management. ICICI
Bank's equity shares are listed in India on stock exchanges
a t Kolkata and Vadodara, the Stock Exchange, Mumbai a n d t h e
National Stock Exchange of India Limited and its adrs are listed on the
New York Stock Exchange(NYSE). During the y e a r 2 0 0 5 I CI C I b a n k w a s
i n v o l v e d a s a d e f e n d a n t i n c a s e s o f a l l e g e d cr i m i n a l practices in its
 debt collection operations and alleged fraudulent tactics to sell its
products.
The industrial Credit and Investment Corporation of India Limited now known as
ICICI Ltd. Was founded b the World bank, the Government of India and
representatives of private industry on January 5, 1955. The objective was
to encourage and assist industrial development and investment in India. Over
the years, ICICI has evolved into a diversified financial institution. ICICIs
principal business activities include:
Project Finance
Infrastructure Finance
Corporate Finance
Securitization
Leasing
Deferred Credit
Consultancy services
Custodial services
The ICICI Groups draws its strength from the core
c o m p e t e n c i e s o f i t s i n d i v i d u a l c o m p a n i e s . Tod a y, t o p I n d i a n
C o r p o r a t e l o o k t o w e r s I C I C I a s a b u s i n e s s partner for providing
solutions to their varied financial requirements. The Group also offers a
gamut of personal finance solutions to individuals. To lead the financial services
into the new millennium, the Group is now truly positioned as a Virtual Universal
Bank. The liberalization of the Indian economy in the 1990s offered ICICI
an opportunity to provide a wide range of financial services. For regulatory and
strategic reasons, ICICI setup specialized subsidiaries in the areas of commercial
banking, investment banking, non- banking finance, investor servicing
brooking, venture capital financing and state level infrastructure financing.
ICICI plans to focus on its retail finance business and expect the
s a m e t o contribute upto 15-20 % of its turnover in the next five years. It
is trying to change the perception that it is a corporate oriented bank. The bank
hard selling its image as a retails e g me n t b a n k h a s f o r t h e f i r s t t i m e
c o m e u p w i t h a n a d v e r t i s e me n t t h a t a d d r e s s e s i t s products at the
individual. This is to drive home the point that the bank has product and services
catering to all individuals. For this purpose the network of ICICI Bank
 shall come into use. The parent plants to sell its products and 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
intentions of ICICI Limited towards banking and ICICI Bank. ICICI Limited is
endeavoring to forge acloser relationship with ICICI bank. Mr. K V Kamath
recently quoted in a leading daily B a n k i n g i s d e a d . U n i v e r s a l b a n k i n g i s
i n o ffe r i n g w i t h a w h o l e r a n g e o f f i n a n c i a l products and services.
The basic idea is for banks to do business along with banking. Bankers
will have to emerge as businessmen.ICICI Bank is a focused banking
company coping with the changing times of the b a n k i n g i n d u s t r y. S o i t
c a n b e a l u c r a t i v e t a rge t f o r o t h e r p l ay e r i n t h e s a m e l i n e
o f operations. However, when merged with ICICI Limited the attraction is
reduced manifold considering the magnitude of operations of the ICICI limited. Of
course, one would still need a bank to open letters of credit, offer
guarantees, h a n d l e d o c u m e n t a t i o n , a n d m a i n t a i n c u r r e n t a c c o u n t
f a c i l i t i e s e t c . S o b a n k s w i l l n o t superfluous. But nobody needs so many of
them any more. S e c o n d l y, b e s i d e s cr e d i t , a c u s t o me r m a y a l s o w a n t
f r o m a b a n k e ffi c i e n t c a s h management, advisory services and market
research on his product. Thus the importance of fee based is increasing in
comparison with the fund-based income.
The pre--merger status of ICICI Bank is as follows: it had liabilities of Rs.12,073
crore, equity market capitalization of Rs.2,466 crore and equity volatility
of 0.748. Working through options reasoning, we find that this share price and
volatility are consistent with assets worth Rs.13,249 crore with volatility
0.15.Thus, ICICI bank had assets which are9.7% ahead of liabilities, which is
roughly consistent with the spirit 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 industry
form ICICI Limited as a development finance institution to provide
medium-term and long-term project financing to Indian businesses in 1955.
1994 ICICI establishes ICICI Bank as a subsidiary.
1 9 9 9 I C I C I b e c o me s t h e f i r s t I n d i a n c o m p a ny a n d t h e f i r s t b a n k
o r f i n a n c i a l institution from non-Japan Asia to list on the NYSE.
2001 ICICI acquired Bank of Madura (est.1943). Bank of Madura was
aChettiar bank, and had acquired Chettinad Mercantile Bank (est.1933)
a n d Illanji Bank (established1904) in the1960s.
2002T h e B o a r d s o f D i r e c t o r s o f I C I C I a n d I CI C I B a n k a p p r o v e t h e
m e rge r o f ICICI,I C I C I P er s o n a l F i n a n c i a l S e r v i c e s L i mi t e d and
ICICI Capital Services Limited, w i t h I C I C I B a n k . Af t e r r e c e i v i n g a l l
n e c e s s a r y r e g u l a t o r y a p p r o v a l s , ICICI integrates the group's financing and
banking operations, both wholesale and retail, into a single.

INTRODUCTION OF BANK OF MADURA

The pre-merger status of Bank of Madura is as follows: it
h a d l i a b i l i t i e s o f Rs.4,444 crore, equity market capitalization of Rs.100
crore and equity volatility of 0.69.Working through options reasoning, we
may say that the stock market thinks that its assets are worth Rs.4, 095
crore with a volatility of 0.02. Hence, BOM is bankrupt (with assets
which are Rs.350 crore behind liabilities) and has a leverage of 41 times.
If web needed to bring BOM up to a point where its assets were 10% ahead of
liabilities, which is broadly consistent with the Basle Accord, this would require an
infusion of Rs.800 crore of equity capital. H o w d o w e c o mb i n e t h e s e t o
t h i n k o f t h e m e r ge d e n t i t y? As s e t s a n d l i a b i l i t i e s ar e additive, so
the total assets of the merged entity would prove to be roughly Rs.17,345
crore and the liabilities would prove to be Rs.16,517 crore. The merged
entity would hence need roughly Rs.800 crore of fresh equity capital in
order to come up to a point where assets were atleast 10% ahead of liabilities.
How can we estimate the market capitalization of the merged entity? The value
of equity is the value of a call option on the assets of the merged entity.
Pricing the call requires an estimate of the volatility of the merged assets, i.e. It
requires knowledge of the extent to which the assets of the two banks are
uncorrelated. We find that using values of t h e c o r r e l a t i o n c o e ffi c i e n t
r a n g i n g f r o m 8 0 % t o 9 5% , t h e v o l a t i l i t y o f a s s e t s o f t h e merged
entity proves to be around 0.12. In this case, the valuation of the call option, i.e.
A n e s t i ma t e o f t h e m a r k e t c a p i t a l i z a t i o n o f t h e m e r ge d e n t i t y,
p r o v e s t o b e r o u g h l y Rs.2,500 crore. This number is not far from the
pre--merger market capitalisation of ICICI Bank, which was Rs.2,466
crore. Hence, we can say that on purely financial arguments, the m e r ge r
i s r o u g h l y n e u t r a l t o I C I C I B a n k s h a r e h o l d e r s i f B O M w a s m e rge d
i n t o I C I C I Bank for free. Indeed, if banking regulators took their jobs
more seriously, they would force the shareholders of BOM to walk into such a
merger at a zero share price as a way of reducing. T h e n u m b e r o f b a n k r u p t
banks in India by one. Such a forced-merger would be
a politically easier alternative for the RBI when compared with closing down
BOM. The shareholders of ICICI Bank have paid a non-zero fee for BOM.
This reflects a hope that the products and processes of ICICI Bank will
rapidly improve the value of assets of BOM in order to compensate. In
addition, the merged entity will have to rapidly raise roughly Rs.800 crore of
equity capital to obtain a 10% buffer between assets and liabilities.
Hence, this proposed merger is a godsend for BOM, which
w a s o t h e r w i s e a bankrupt entity which was headed for closure given
the low probability that it would manage to raise Rs.800 crore of equity on a
base of Rs.100 crore of market capitalisation.I t i s u s e f u l t o o b s e r v e t h a t
BOM probably did not see things in this way, given the
w i l l i n g n e s s o f I n d i a ' s b a n k i n g r e g u l a t o r s t o i n t e r mi n a b l y t o l er a t e
t h e e x i s t e n c e o f bankrupt banks. Closure of BOM would normally involve
pain for BOM's shareholders and w o r k e r s ; i n s t e a d b o t h gr o u p s w i l l g e t
a n e x t r e m e l y p l e a s a n t r i d e i f t h e m e r ge r g o e s through. The proposed
merger is a daunting problem for ICICI Bank. It will need to rapidly f i n d
r o u g h l y R s . 8 0 0 c r or e i n e q u i t y. I f I n d i a ' s b a n k i n g r e g u l a t or s w e r e
s e r i o u s a b o u t capital adequacy, ICICI Bank should have to pay roughly
zero to merge with BOM (it is doing a favour to BOM and to India's
banking system); instead ICICI Bank has paid a positive price for BOM. The
key question that will be answered in the next two/three years is: Will ICICI Bank's
superior knowledge of products and processes revitalize the assets and employees
of BOM, and generate shareholder value in the merged entity? ICICI's top
management clearly thinks so, and it would be a very happy outcome if
this did indeed happen. The proposed merger is a good thing for India's
economy, since the headcount of bankrupt banks will go down by one, and
there is a possibility of obtaining higher value added out of the poorly utilized
assets and employees of BOM. If the merger goes through, then it will reduce the
say of the management team of BOM in India's resource allocation, which is a
good thing.
Merger of ICICI Bank with Bank of Madura
The proposed merger between ICICI Bank and Bank of
M a d u r a ( B O M ) i s a r e m a r k a b l e o n e . Th e pr e - - m e r ge r m a r k e t
c a p i t a l i z a t i o n o f I C I C I B a n k w a s r o u g h l y Rs.2500 crore while BOM
was at roughly Rs.100 crore. BOM is known to have a poor asset portfolio.
What will the merged entity be worth? The key rationale underlying every
merger is the question of synergy. Can ICICI Bank's products and
technology bring new life to the 263 branches of BOM? Will ICICI Bank
(which has 1,700 employees) be able to overcome the 2,600 employees
that BOM c a r r i e s , g i v e n t h a t I n d i a n l a b o u r l a w m a k e s i t
t r o u b l e s o m e a n d e x p e n s i v e t o s a c k workers? In applying these ideas
to ICICI Bank and to BOM, we need to believe that the stock market effectively
processes information to produce estimates of the price and volatility of the
shares of both these banks. This assumption is suspect, because both
securities h a v e p o o r s t o c k m a r k e t l i q u i d i t y. H e n c e , w e s h o u l d b e
c a u t i o u s i n i n t er p r e t i n g t h e n u m b e r s s h o w n h e r e . Th e r e a r e m a n y
o t h e r a s p e c t s i n w h i c h t h i s r e a s o n i n g l e a n s o n models, which are
innately imperfect depictions of reality. However, these models are
powerful tools for understanding the basic factors at work, and they probably
convey the broad picture quite effectively. T h e s t o c k o f I C I C I B a n k m a y b e
i n t h e l i m e l i g h t o n t h e b a c k o f t h e p r o p o s e d acquisition of Bank of
Madura. Though the stock has gained sharply in the last two months after
hitting a recent low of Rs 110, some upside may be left as the bank could
get re-rated on account of the merger. Existing shareholders could hold their
exposures in ICICI Bank while investors with an appetite for risk could
contemplate exposures despite the impressive gains of the past few months.
ICICI Bank continues to be one of the better options in the banking sector
at the moment and the possible merger with ICICI may well be on the backburner.
The merger would pitchfork ICICI Bank as the leading private sector
bank. The m e r ge r m a y b e v i e w e d f a v o r a b l y s i n c e B a n k o f M a d u r a
h a s f o c u s e d s t r e n g t h s a n d a reasonably good quality balance sheet. The
board of directors is to meet on December 11to consider the merger. It is quite
likely that the swap ratio may be fixed in a manner that holds out a good deal for
the shareholders of Bank of Madura. This may also be influenced by the fact that
the Bank of Madura stock has gained sharply by around 70 per cent in the past
fortnight in the homestretch to the deal. As the acquisition is to be financed by
issuance of stock, the rise in the market capitalization of Bank of Madura
may mean a higher degree of equity issuance by ICICI Bank. But the price may
well be worth paying as this is the only way that ICICI Bank may be able
to get control over banks with reasonable quality balance sheets that
could make a difference in the medium to long-term.
Bank of Madura has assets of Rs 3,988 crore and deposits of Rs 3,395
crore as of M a r c h 2 0 0 0 . T h e f a c t t h a t t h e b a n k h a s a c a p i t a l
a d e q u a c y o f 1 5 . 8 p e r c e n t w i t h shareholder funds of Rs 263 crore
may mean that ICICI Bank (post-merger phase) will have more leeway to
pursue growth without expanding the equity base (other than paying for the
acquisition).S t r o n g c a p i t a l a d e q u a c y, a s t r o n g b e a c h h e a d o n t h e
I n t e r n e t ar e n a , a r e v a mp e d I T a r c h i t e c t u r e , a g r o w i n g r e t a i l
c l i e n t b a s e t h r o u g h a b r i c k - a n d - c l i c k s t r a t e g y , a n d improving
asset quality and earnings growth are positive features as far as ICICI Bank is
concerned. Despite these factors, the share had been on a downtrend from after
touching a high of Rs 271, eight months ago. The uptrend then was on the back of
the announcement of its ADR issue and new technology initiatives. The subsequent
downtrend was triggered by the possibility of the merger with its parent.
There is continuing concern on asset q u a l i t y o f I C I C I . I t h a s b e e n a
s t a t e d g o a l o f t h e I CI C I g r o u p t o g o i n f o r u n i v e r s a l banking. It is
clear that once regulatory hurdles are removed, such a possibility becomes
distinctly feasible. But Given the battering that bank stock took, ICICI may
now hesitate to pursue this path. A l s o I C I C I B a n k i s t h e m o s t v i s i b l e
i n v e s t o r -f r i e n d l y f a c e f o r t h e g r o u p i n t e r m s o f r e t u r n s t o
shareholders and it may well be maintained as a separate
e n t i t y . I n t h i s backdrop, the stock may hold scope for improvement in the
valuation of the stock.
The Generation Gap:-
the merger of 57 year old BOM sooth bared old generation bank with a fast
growing technology say new Generation bank will help the latter and the start
merger is likely to bring cheer to shareholder and bank employees of
BOM and some amount of discomfort and anxiety to those of ICICI bank. T h e
s c h e me o f a ma l g a ma t i o n w i l l i n c r e a s e t h e e q u i t y b a n k o f I CI C I
B a n k t o R S 220.36 CR. ICICI Bank will issue 235.4-lakh share of RS 10
each to the shareholder of BOM. The merger entity will have an increase of a
net base over RS 160 bn and deposit base of RS 131 bn. The merged entity will
have 360 branches and a similar number of ATMs across the country and
also enable the ICICI to serve a large customer bone of 1.2 million customers of
BOM through a wider network, adding to the an to ma bare to 2.7 million.
Managing rural branches:
ICICI major branches are in major and cities, where as BOM spreads its
wings mostly in semi urban and city segments of south India. There in a task
ahead lying for the merged entity to increase dramatically the business mix of rural
branches of BOM. O n t h e o t h e r h a n d d u e t o G e o g r a p h i c a l
l o c a t i o n o f i t s b r a n c h e s a n d l e v e l o f competition. ICICI Bank
will have a tough time to cope with.
Managing software:
Another task which stand on the way is technology while ICICI bank
which is fully automatic.
Quality of assets - The nature of assets a bank is holding would signify its
operational efficiency. Usually the level of Non performing Assets ( NPAS)
judges the quality of assets. The lower the NAPS to total advances or total assets
the better the quality is and vice versa.
Staff productivity - O n e o f t h e k ey a r e a w h e r e b a n k s c a n d e v e l o p
c o m p e t i t i o n advantage. The measurement of staff productivity becomes one of
the essential factors while measuring the performance of the banks.
Liquidity- While assessing the liquidity of a bank the most sought ratio is
net loans to total assets. A rise in the net loans to total assets may be considered as
a fall in the liquidity of the bank.
Book Value per share - It is simply the net worth of the company (which is equal to
the paid up equity capital plus resource and surplus)
d i v i d e d b y t h e n u m b e r o f outstanding equity shares.
Earning per share- Specific valuation per unit of investment given by Net
income after income taxes and after dividends on preferred stock of the company.
Net work- B o o k v a l u e o f a c o mp a ny i s c o m m o n s t o c k , s u r p l u s ,
r e s o u r c e s a n d retained earnings.
Profitability -The most crucial ratio in measuring the profitability is net profit of
the bank. The ratio such as Net Interest Income (NIL) and Net Interest
Margin (NIM)m e a s u r e s u s t e n a n c e a b i l i t y o f t h e b a n k b a s e d o n
the spread. Entity is using the package, Banks 2000, BOM
c o m p u t e r i z e d 9 0 p e r c e n t o f i t s b u s i n e s s a n d w a s converted with
ISBS software. The BOM branches are supposed to switch over to Banks
2000. Though it is not a difficult task, with 80% computer literate staff would
need effective retraining which involves a cost. The ICICI Bank need to invest RS
50 core for upgrading BOMs 263 branches.
Managing Human Resources One of the greatest challenges before ICICI
Banks is managing human resources. When the head count of ICICI Bank is
taken it in less than 1500 employees on the other hand BOM has over 2500.T h e
m e rge d e n t i t y w i l l h a v e b o u t 4 0 0 0 e mp l o y e e s w h i c h w i l l m a k e i t
o n e o f t h e largest banks among the new generation private sector banks. The
staff of ICICI Banks are dr a w n f r o m 7 5 v a r i o u s b a n k s m o s t l y y o u n g
q u a l i f i e d p r o f e s s i o n a l s w i t h c o mp u t e r background and prefer to work in
metro or by either with good remuneration packages. W h i l e u n d e r t h e
i n f l u e n c e o f t r e a d u n i o n s m o s t o f t h e B O M e m p l oy e e s h a v e l o w
career aspiration. The announcement by H.N. signor, CEO and MD of
ICICI, that three would be no VRS or retrenchment, creates a new hope amongst
the BOM employees. It is a tough task ahead to manage. On the other hand their
pay would be revised up wards. It is not a Herevlean task to integrate two work
welters?

Managing Client Base:-

The clients base of ICICI Bank after merger, will be as 2.7 Million from it past
0.5Million, as accumulation of 2.2 Million from BOM. The nature and
quality of clients is not of uniform quality. The BOM had built up it client base
for a long time, in a hard way, on the basis of personalized services. In order
to deal with the BOM clientele, the ICICI Bank needs to redefine its
strategies to suit to the new clientele. The sentiments or a relationship
 of s m a l l a n d m e d i u m b o r r o w e r i s h u r t i t m a y b e d i f f i c u l t f o r
t h e m t o r e e s t a b l i s h t h e relationship which could also hamper the image of
the bank.
Given the situation, we need to wait and view, as to how
t h e I C I C I w i l l f a c e t h i s challenge.

Recommendation of Narasimham Committee on banking sector reforms

Globally, the banking and financial systems have

a d o p t e d i n f o r m a t i o n a n d c o m m u n i c a t i o n s t e c h n o l o g y. Th i s
p h e n o m e n o n h a s l a r ge l y by p a s s e d t h e I n d i a n banking system, and the
committee feels that requisite success needs to be achieved in the following areas:-

-Banking automation
-Planning, Standardization of electronic payment systems
-Telecom infrastructure
-Data were
Merger between banks and dfls and nbfcs need to be based on synergies
and should make a sound commercial sense. Committee also opines that
merger between strong banks / fls would make for greater economic and
commercial sense and would be a case where the whole is greater than
the sum of its party and have a force multiplier effect. It also have merger
should not be seen as a means of bailing out weak banks.
A weak bank could be nurtured into healthy units. Merger could also be a solution
to a after cleaning up their balances sheets it only say if these is no Voltaire
response to a takeover of such bank, a restructuring commission for such
PSB, can consider other options such as restructuring , merger and
amalgamations to it not closure.
The committee also options that while licensing new private sector
banks, the initial capital requirement need to be review. It also emphasized on a
transparent mechanism for deciding the ability of promoter to professionally
manage the bank. The committee a l s o f e e l s t h a t a m i n i mu m t h r e s h o l d
c a p i t a l f o r o l d pr i v a t e b a n k s a l s o d e s e r v e d threshold capitals. The
committee also opined that a promoter group couldn't hold more that 40
percent of the equity of a bank. The Narasimham Committee also suggested
that the merger could be a solution to Weak banks Coney after clearing
up the balance sheets) with a strong public sector bank.
Source:
Narasimham Committee report on banking sector reforms.

Changes after the merger:-

W h i l e , B O M h a d a n a t t r a c t i v e b u s i n e s s p e r e mp l o y e e f i g u r e o f
R s . 2 0 2 l a k h s , a better technological edge and had a vast base in southern India
when compared to Federal bank. While all these factors sound good, a
cultural integration would be a tough task ahead for ICICI Bank. ICICI
Bank has announced a merger with 57-year-old Bank of Madure, with
263 branches, out of which 82 of them are in rural areas, with most of them in
southern India. A s o n t h e d a y o f a n n o u n c e m e n t o f m e r g e r ) 0 9 -
1 2 - 0 0 ) , K o t a k m a h i n d r a g r o u p w a s holding about 12 percent stake
in BOM, the Chairman BOM, Mr. K.M. Thaiagarajan, along with his
associates was holding about 26 percent stake, Spic groups has about 4.7 percent,
while LIC and UTI were having marginal holdings. The merger will give ICICI
Bank a hold on South India market, which has high rate of economic development.
The board of Director at ICICI has contemplated the following synergies emerging
from the merger:
Financial Capability: The amalgamation will enable them to have a stronger
financial and operational structure, which is supposed to be capable of
greater resourger/deposit m o b i l i z a t i o n . An d I C I C I w i l l e me rge a o n e
o f t h e l a r ge s t pr i v a t e s e c t o r b a n k s i n t h e country.
Branch network: The ICICIs branch network would not only 264, but also
increases geographic coverage as well as convenience to its customers.
Customer base: The emerged largest customer base will enable the ICICI
bank to offer banking financial services and products and also facilitate
cross-selling of products and services of the ICICI groups.
Tech edge: T h e m e rge r w i l l e n a b l e I C I C I t o pr o v i d e a t m s , P h o n e
a n d t h e I n t e r n e t banking and finical services and products and also facilitate
cross-selling of products and services of the ICICI group.
Focus on Priority Sector: The enhanced branch network will enable the Bank to focus
on micro-finance activities through self-help groups, in its priority sector initiatives
through its acquired 87 rural and 88 semi-urban branches.
 Source: Report submitted at EGM on January 19, 2001.

THE SWAP RATIO:

The swap ratio has been approved in the ratio of 1:2 two shares of ICICI Bank
for everyone share of Bank of Madera.The deal with Bank of Madera is likely
to dilute the current equity capital by around 12 percent. And the merger is
expected to bring 20 percent gains in EPS of bank. And also the banks
comfortable capital Adequacy Ratio (CAR) of 19.64 percent has declined
to 17.6 percent.
Reasons behind the recent trend of merger in Banking Sector
The question on top everybodys mind is
Are banks and bankers on the road to redundancy?
First consider the reasons who one does not need banks in large numbers any more
A depositor today can open a cheque account with a money market
mutual fund and obtain both higher returns and greater and greater flexibility.
Indian mutual funds are queuing up to offer this facility.
After can be drawn or a telephone bill paid easily through credit cards.
E v e n i f a b a n k i s j u s t a s a f e p l a c e t o p u t a w ay y ou r s a v i n g s , y o u
n e e d n o t g o t o i t . There is always an ATM you can do business with.
If you are solvent and want to borrow money, you can do so on your credit card-
with far fewer hassles.
A AAA corporate can directly borrow from the market through
commercial papers and get better rates in the bargain. In fact the banks may
indeed be left with dad credit risk or those that cannot access the capital
market. This once again makes a shift to non-fund based the activities all the
more important.

Case Studies
Case study- I
IDBI UNITED WESTERN MERGER BANK (Merger )
The merger that was announced on , 2006 between Deutsche Bank and
Dresdner B a n k , G e r m a ny s l a rge s t a n d t h e t hi r d l a r ge s t b a n k
r e s p e c t i v e l y w a s c o n s i d e r e d a s Germanys response to increasingly tough
competition markets. The merger was to create the most powerful banking
group in the world with the b a l a n c e s h e e t t o t a l o f n e a r l y 2 . 5 t r i l l i o n
m a r k s a n d a s t o c k m a r k e t v a l u e a r o u n d 1 5 0 billion marks. This
would put the merged bank for ahead of the second largest banking group,
U.S. based citi group, with a balance sheet total amounting to 1.2 trillion marks
and also in front of the planned Japanese book mergers of Sumitomo and
Sukura Bank with1.7 trillion marks as the balance sheet total. T h e n e w
b a n k i n g g r o u p i n t e n d e d t o s p i n o ff i t s r e t a i l b a n k i n g w h i c h w a s
n o t making much profit in both the banks and costly, extensive network
of bank branches associated with it. The merged bank was to retain the name
Deutsche Bank but adopted the Dresdner Banks green corporate color in its logo.
The future core business lines of the new merged Bank included investment
Banking, asset management, where the new banking group was hoped to
outside the traditionally dominant Swiss Bank, Security and loan banking and
finally financially corporate clients ranging from major industrial corporation to
the mid-scale companies. With this kind of merger, the new bank would have
reached the no.1 position of the US and create new dimensions of aggressiveness
in the international mergers.
But barely 2 months after announcing their agreement to form the largest
bank in the world, had negotiations for a merger between Deutsche and
Dresdner Bank failed on April 5, 2000.T h e m a i n i s s u e o f t h e f a i l u r e
w a s D r e s d n e r B a n k s i n v e s t m e n t a r m , K l e i n w o r t Benson, which the
executive committee of the bank did not want to relinquish under any
circumstances. In the preliminary negotiations it had been agreed that Kleinwort
Benson would be integrated into the merged bank. But from the outset
these considerations encountered resistance from the asset management
division, which was Deutsche Banks investment arm. Deutsche Banks asset
management had only integrated with Londons investment group Morgan Grenfell
and the American Bankers trust. This division alone contributed over 60% of
Deutsche Banks profit. The top people at the asset management were not
ready to undertake a new process of integration with Kleinwort Benson.
So there was only one option left with the Dresdner Bank i.e. To sell
Kleinwort Benson completely. However Walter, the chairman of the Dresdner
Bank was not prepared for this. This led to the withdrawal of the
Dresdner Bank from the merger negotiations. In economic and political circles, the
planned merger was celebrated as Germanys advance into the premier league of
the international financial markets. But the failure of the merger led to the disaster
of Germany as the financial center.

Case study- II
MERGER OF ICICI BANK WITH SANGLI BANK
T h e m e rge r t h a t w a s a n n o u n c e d o n AP R I L 1 8 , 2 0 0 7 b e t w e e n I C I C I
B a n k a n d S A N G L I B a n k . Al l branches of Sangli Bank functions as branches
of ICICI Bank from April 19, said the Reserve Bank of India. Sangli Bank is an
unlisted private bank headquartered at Sangli in Maharashtra. As on March 31,
2006,Sangli Bank had deposits of Rs. 2,004 crore, advances of Rs. 888
crore, net NPA (non-performing assets) ratio of 2.3 per cent and capital
adequacy of 1.6 per cent. Its loss at the end of 2005-06 amounted to Rs. 29 crore.It
has 198 branches and extension counters, including 158 branches in
Maharashtra and 31 branches in Karnataka. About 50 per cent of the total
branches are located in rural and semi-urban areas and 50 per cent in
metropolitan and urban centres. The bank has about 1,850 employees. ICICI Bank
is the second largest bank in India and the biggest in terms of market capitalisation.
As on September 30, 2006, ICICI Bank had total assets of Rs. 282,373
crore. In the six months ended September 30, 2006, it made a net profit of Rs.
1,375 crore.
It had 632 branches and extension counters and 2,336 ATMs as on that
date, and is in the process of setting up additional branches and ATMs
pursuant to authorizations granted by the RBI. It has about 31,500
employees. ICICI Bank offers a wide range of financial products and
services directly and through subsidiaries in the areas of life and general
insurance, asset management and investment banking. Its shares are listed on the
Bombay Stock Exchange Limited and the National Stock Exchange of India
Limited and its American Depositary Shares are listed on the New York Stock
Exchange