Rahul Emparical Study

8/6/2019 Rahul Emparical Study

1/88

A

PROJECT REPORT

ON

An Evaluation of the MERGER AND CONSOLIDATION OF

ICICI LTD. AND ICICI BANK

A Report Submitted In Partial Fulfillment of the Requirements

For The Award of the Degree of

MASTER OF BUSINESS ADMINISTRATION

(Collaborative program of M.S.Ramaiah Management Institute with PRIST

University)

By

Rahul Kumar

REG NO :- Cm2091860060

Under the Guidance of

Prof Savitha Rani

PRIST UNIVERSITYVallam, Thanjavur, 2011

MERGER AND CONSOLIDATION OF ICICI LTD. AND ICICI BANK Page 1


2/88

STUDENTS DECLARATION

I hereby declare that the Project Report conducted MERGER AND

CONSOLIDATION OF ICICI LTD.AND ICICI BANK under the guidance

ofProf Savitha Rani submitted in Partial fulfilment of the requirements

for the Degree ofMASTER OF BUSINESS ADMINISTRATION Collaborative

program with PRIST University to M.S.RAMAIAH MANAGEMENT NSTITUTE.

It is my original work and the same has not been submitted for the award

of my other Degree.

Place: Bangalore Rahul Kumar

Date: Reg. No:

CM2091860060



3/88

CERTIFICATE

This is to certify that the Project Report on MERGER AND

CONSOLIDATION OF ICICI LTD. AND ICICI BANK submitted in partial

fulfilment of the requirements for the award of the degree ofMASTER OF

BUSINESS DMINISTRATIONOf PRIST UNIVERSITYIn collaboration

with M.S.RAMAIAH MANAGEMENT INSTITUTEUnder my supervision and

guidance and that no part of this report has been submitted for the award

of any other degree/diploma/fellowship or similar titles or prizes.

FACULTY GUIDE

Signature:

Name: Savitha Rani

Qualifications:



4/88

ACKNOWLEDGEMENT

I extend my special gratitude to our beloved director Shri. ANANDARAM,

Our DEAN, & our Co-coordinator Muralidharan Harikrishnan for

inspiring me to take up this project.

I would like to use this opportunity to thank my institution guide Prof.

Savitha Rani, faculty ofM.S Ramaiah Management Institute for her

constant guidance and support.

.

Last but not the least; I would like to thank all others who directly or

indirectly helped me in this regard

STUDENT NAME

Rahul kumar

Registration No. CM2091860060



5/88

Table of ContentsSl. No Particulars Page

No1. Chapter 1 7-8

Introduction 8

2. Chapter 2 9-10

Objective of The Study 10

3. Chapter 3 11-24

Introduction of Corporate Restructure 11

Corporate Restructuring 12

Types Of Corporate Restructuring 13-17

Common Motivations For Merger And Acquisitions 18

Merger and Consolidation Procedure 19

Merger and Consolidation Shareholders right 20

Advantage of Merger 21-22

. Purpose of Merger And Consolidation 22-24

4. Chapter 4 25-27

Procedure of Merger And Consolidation 26

Procedure of Bank Merger 26- 27

RBI Guidelines on Merger And Consolidation Of

Banks

27

5. Chapter 5 28- 32 Introduction Of Bank 29

Competitors 29

. Product And Services 30-31

6. Chapter 6 34-50

Merger Of ICICI And ICICI Bank 34-35

Boards of ICICI and ICICI Bank Approve Merger 36-38

IMPACT OF MERGER OF ICICI BANK WITH ICICI

LIMITED

38-49

Merger process of ICICI Bank Ltd- highlights 50

7. Chapter 7 Research design 51-54

Tables 55-67

Graphs 68-77

Limitation Of Study 79

Findings 80

Conclusions 81

Bibliography 82



6/88

C

HA

P 1T

E

R



7/88

Introduction:-

The financial year 2007-08 witnessed a slew of acquisitions across

diverse sectors of the economy in India. Unlike in the past, such activity

was not limited to acquisitions within India or of Indian companies. Of allsectors, steel was the most dominant in terms of stake sales as deals

valuing $ 3.862 billion took place in Q1 of 2007-08 by the Indian

companies in the global arena. Energy ranked second, with automotive

and auto components close on its heels.1 In the domestic segment, iron

ore, aviation and steel were the most prolific in terms of mergers and

acquisitions.

With Indian corporate houses showing sustained growth over the last

decade, many have shown an interest in growing globally by choosing to

acquire or merge with other companies outside India. One such examplewould be the acquisition of Britains Corus by Tata an Indian conglomerate

by way of a leveraged buy-out. The Tatas also acquired Jaguar and Land

Rover in a significant cross border transaction. Whereas both transactions

involved the acquisition of assets in a foreign jurisdiction, both

transactions were also governed by Indian domestic law.

Whether a merger or an acquisition is that of an Indian entity or it is

an Indian entity acquiring a foreign entity, such a transaction would be

governed by Indian domestic law. In the sections which follow, we touch

up on different laws with a view to educate the reader of the broader

areas of law which would be of significance.

Mergers and acquisitions are methods by which distinct businesses

may combine. Joint ventures are another way for two businesses to work

together to achieve growth as partners in progress, though a joint venture

is more of a contractual arrangement between two or more businesses.



8/88

CH

A

P 2T

E

R



9/88

OBJECTIVE OF THE STUDY

1. To study about merger and consolidation of bank.

2. To know about services provided by the ICICI bank limited after

merging.

3. Analysis of impact of merger on ICICI bank.

4. Study about working of the bank after merge.



10/88

C

HA

P 3T

ER



11/88

Introduction of CorporateRestructureCorporate restructuring

It can be defined as any change in the business capacity or

portfolios that is carried out by an inorganic route or a change in the

capital structure of a company that is not a part of its ordinary course of

business or any change in ownership of control over the management of

the company or a combination of there off.

Action taken to expand or contract a firms basic operations or

fundamentally change is asset or financial structure are referred to as

Corporate restructuring activities. Corporate Restructuring is a catchall

term that refers to a broad array of activities, ranging from reorganizing

business units to take overs and joint ventures to divestitures and spin offs

and equity carve outs. While focus in this project is on corporate

restructuring involving M & A.

Reasons of Corporate restructuring

Any company undergo change on a continual basis. Change is the order of

the day corporate sector cannot be an exception to his pro-active

organization translate problems into opportunities and there by growth.

There are many reasons why change is forced upon a company.

Change in external environment due to:

Increase in competition

Advent of new & more efficient technology

Emergence of new competitive product.

Emergence of new market

Emergence of new classes of consumers

Demographic changes

Business cycle



12/88

Some companies undertake changes to increase their cutting edge over

the competition and enhance there leadership position, so as to make it

impossible for other competitors to catch up with them.

Types of Corporate restructuring

1. Merger

2. Consolidation

3. Acquisition

4. Divestiture

5. Demergers

6. Carve Out

7. Joint Ventures

8. Reduction of Capital

9. Buy Back Of Securities

10. Delisting Of Shares or Company.

11. Merger and Amalgamations

The term merger is not defined under the Companies Act, 1956

(the Companies Act), the Income Tax Act, 1961 (the ITA) or any other

Indian law. Simply put, a merger is a combination of two or more distinct

entities into one; the desired effect being not just the accumulation of

assets and liabilities of the distinct entities, but to achieve several other

benefits such as, economies of scale, acquisition of cutting edge

technologies, obtaining access into sectors / markets with established

players etc. Generally, in a merger, the merging entities would cease to be

in existence and would merge into a single surviving entity.

Very often, the two expressions "merger" and "amalgamation" are

used synonymously. But there is, in fact, a difference. Merger generallyrefers to a circumstance in which the assets and liabilities of a company



13/88

(merging company) are vested in another company (the merged

company). The merging entity loses its identity and its shareholders

become shareholders of the merged company. On the other hand, an

amalgamation is an arrangement, whereby the assets and liabilities of two

or more companies (amalgamating companies) become vested in anothercompany (the amalgamated company). The amalgamating companies all

lose their identity and emerge as the amalgamated company; though in

certain transaction structures the amalgamated company may or may not

be one of the original companies. The shareholders of the amalgamating

companies become shareholders of the amalgamated company.

While the Companies Act does not define a merger or

amalgamation, Sections 390 to 394 of the Companies Act deal with the

analogous concept of schemes of arrangement or compromise between a

company, it shareholders and/or its creditors. A merger of a company A

with another company B would involve two schemes of arrangements,

one between A and its shareholders and the other between B and its

shareholders.

The ITA defines the analogous term amalgamation as the merger of

one or more companies with another company, or the merger of two or

more companies to form one company. The ITA goes on to specify certain

other conditions that must be satisfied for the merger to be an

amalgamation.

Mergers may be of several types, depending on the requirementsof the merging entities:

Horizontal Mergers.

Also referred to as a horizontal integration, this kind of merger

takes place between entities engaged in competing businesses which are

at the same stage of the industrial process. A horizontal merger takes a

company a step closer towards monopoly by eliminating a competitor and

establishing a stronger presence in the market. The other benefits of thisform of merger are the advantages of economies of scale and economies

of scope.

Vertical Mergers.

Vertical mergers refer to the combination of two entities at different

stages of the industrial or production process. For example, the merger of

a company engaged in the construction business with a company engaged

in production of brick or steel would lead to vertical integration.Companies stand to gain on account of lower transaction costs and



14/88

synchronization of demand and supply. Moreover, vertical integration

helps a company move towards greater independence and self-sufficiency.

The downside of a vertical merger involves large investments in

technology in order to compete effectively.

Co generic Mergers.

These are mergers between entities engaged in the same general

industry and somewhat interrelated, but having no common customer-

supplier relationship. A company uses this type of merger in order to use

the resulting ability to use the same sales and distribution channels to

reach the customers of both businesses.

Conglomerate Mergers.

A conglomerate merger is a merger between two entities in

unrelated industries. The principal reason for a conglomerate merger is

utilization of financial resources, enlargement of debt capacity, and

increase in the value of outstanding shares by increased leverage and

earnings per share, and by lowering the average cost of capital.4 A merger

with a diverse business also helps the company to foray into varied

businesses without having to incur large start-up costs normally

associated with a new business.

Cash Merger.

In a typical merger, the merged entity combines the assets of the

two companies and grants the shareholders of each original company

shares in the new company based on the relative valuations of the two

original companies. However, in the case of a cash merger, also known

as a cash-out merger, the shareholders of one entity receive cash in

place of shares in the merged entity. This is a common practice in cases

where the shareholders of one of the merging entities do not want to be a

part of the merged entity.

Triangular Merger

A triangular merger is often resorted to for regulatory and tax

reasons. As the name suggests, it is a tripartite arrangement in which the

target merges with a subsidiary of the acquirer. Based on which entity is

the survivor after such merger, a triangular merger may be forward (when

the target merges into the subsidiary and the subsidiary survives), or



15/88

reverse (when the subsidiary merges into the target and the target

survives).

Consolidation

A contractual and statutory process by which

(1) Two or more corporations join to become a completely new

corporation (the successor corporation),

(2) The original corporations cease to exist and to do business,

and

(3) The successor corporation acquires all of the assets and

liabilities of the original (now defunct) corporations.

ACQUISITIONS.

An acquisition or takeover is the purchase by one company of

controlling interest in the share capital, or all or substantially all of the

assets and/or liabilities, of another company. A takeover may be friendly

or hostile, depending on the offer or companys approach, and may be

effected through agreements between the offer or and the majority

shareholders, purchase of shares from the open market, or by making an

offer for acquisition of the offerees shares to the entire body of

shareholders.

Friendly takeover

Also commonly referred to as negotiated takeover, a friendly

takeover involves an acquisition of the target company through

negotiations between the existing promoters and prospective investors.

This kind of takeover is resorted to further some common objectives of

both the parties.

Hostile Takeover.

A hostile takeover can happen by way of any of the following

actions: if the board rejects the offer, but the bidder continues to pursue it

or the bidder makes the offer without informing the board beforehand.



16/88

Leveraged Buyouts.

These are a form of takeovers where the acquisition is funded by

borrowed money. Often the assets of the target company are used ascollateral for the loan. This is a common structure when acquirers wish to

make large acquisitions without having to commit too much capital, and

hope to make the acquired business service the debt so raised.

Bailout Takeovers.

Another form of takeover is a bail out takeover in which a profit

making company acquires a sick company. This kind of takeover is usually

pursuant to a scheme of reconstruction/rehabilitation with the approval oflender banks/financial institutions. One of the primary motives for a profit

making company to acquire a sick/loss making company would be to set

off of the losses of the sick company against the profits of the acquirer,

thereby reducing the tax payable by the acquirer. This would be true in

the case of a merger between such companies as well.

Acquisitions may be by way of acquisition of shares of the target, or

acquisition of assets and liabilities of the target. In the latter case it is

usual for the business of the target to be acquired by the acquirer on a

going concern basis, i.e. without attributing specific values to each asset /liability, but by arriving at a valuation for the business as a whole.

An acquirer may also acquire a target by other contractual means

without the acquisition of shares, such as agreements providing the

acquirer with voting rights or board rights. It is also possible for an

acquirer to acquire a greater degree of control in the target than what

would be associated with the acquirers stake in the target, e.g., the

acquirer may hold 26% of the shares of the target but may enjoy

disproportionate voting rights, management rights or veto rights in the

target.

Divestiture

It means an out and out sale of all or substantially all the assets of

the company or any of the business divisions. Usually for cash or a

combination of cash and debt and not against the equity shares. It means

sell of assets on a price meal manner. It is generally use to mobilise

resources for core business by selling assets of non- core business.

DEMERGERS.



17/88


18/88

1. Synergy

2. Diversification

3. Strategic realignment

4. Hubris

5. Buying undervalued assets( q ratio)

6. Management ( agency problem)

7. Managerialism

8. Tax consideration

9. Market power

10. Misevaluation

1. Synergy :-

Synergy is the simplistic notion that the combination of two business

creates greater shareholders value then if they are operated separately.

There are two types of synergy.

I) Operating synergy

II) Financial synergy

i) Operation Synergy :

It consist of both economies of scale and economies of scope.

Economies of scale refers to the spreading of fixed costs over increasing

production levels. Scale is defined by such fixed costs as depreciation of

equipment and amortization of capitalized software, normal maintenance

spending obligations such as interest expense, lease payments, and

unions customers, and vendor contracts and taxes.

Economy of scope refers to using a specific set of skills or an asset

certainly employed in producing a specific product or services to produce

related products or services. They are most often found when it is cheaper

to combine two or more product line in one firm then to produce then in

separate firms.

ii) Financial Synergy :

It refers to the impact of mergers and acquisitions on the cost of

capital of the acquiring firm or the newly formed firm, resulting fromthe merger or acquisition,. Theoretically the cost of capital could be



19/88

reduced if the merged firms have uncorrelated cash flow, realized

financial economies of scale from lower securities and transaction cost,

or result in a better matching of investment opportunities with

internally generated costs or result in a better matching of investment

opportunities with internally generated firms

2. Diversification :

It refers to the strategy of buying firms out of the companys current

primary line of business. There are two commonly used justifications

used in diversification. The first relates to the creation of financial

strategy, resulting in a reduce cost of capital. The second argument for

diversification is for firm to shift from their core product line or market

into product line or market that have higher growth prospects.

The investor do not benefit from unrelated diversification. The share

price of conglomerate often trade at a discount from share at a focused

firms or from or from their value if they were broken up and sold in

pieces by as much 10 -15%. This discount is called the conglomerate or

diversification discount.

MERGER & CONSOLIDATION: PROCEDURE

Any merger or consolidation is governed by the laws of one (or

more) of the states, each of which sets forth its own procedural

requirements. However, in general:

(1) The boards of directors of each (original) corporation

involved in the proposed transaction must approve the merger

or consolidation plan;

(2) The shareholders of each (original) corporation involved inthe proposed transaction must, thereafter, approve the

merger or little bit

consolidation plan by vote at a called or scheduled shareholders

meeting;

(3) The approved plan must be filed with the appropriate state

officials; and

(4) Once all state-law formalities have been satisfied, the state

will issue, as appropriate, a certificate of merger to the



20/88

surviving corporation or a certificate of consolidation to the

successor corporation.

Short-Form Merger: A merger between a parent and a subsidiary (at

least 90% owned by the parent) which can be accomplished without

shareholder approval.

MERGER & CONSOLIDATION: SHAREHOLDERS RIGHTS

While the day-to-day operations of a corporation, and even the

policies governing its on going operations, are generally left to the

corporations officers and directors, any extraordinary matter

such as a merger or consolidation must be approved by the

corporations shareholders.

If the necessary majority of the corporations shareholders

approve a merger or consolidation, it will go forward, and the

shareholders will be compensated as previously discussed.

However, no shareholder who votes against the transaction is

required to accept shares in the surviving or successor corporation.

Instead, he or she may exercise appraisal rights.

Appraisal Right: The right, created by state law, of a dissenting

shareholder who objects to an extraordinary transaction (such as a

merger or consolidation):

(1)To have his shares of the pre-merger or pre-consolidation

corporation appraised, and

(2) To be paid the fair market value of his shares by the pre-

merger or pre-consolidation corporation.

(3) It is amalgamation of two companies engaged in unrelated

industries like DCM and Modi Industries. The basic purpose

of such amalgamations remains utilization of financial



21/88

resources and enlarges debt capacity through re-organizing

their financial structure so as to service the shareholders by

increased leveraging and EPS, lowering average cost of

capital and thereby raising present worth of the

outstanding shares. Merger enhances the overall stability ofthe 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

ASSET PURCHASE

When a corporation acquires all or substantially all of the assets of

another corporation, by direct purchase, the purchasing (or acquiring)

corporation simply extends its ownership and control over the additional

assets.

The acquiring corporation does not need shareholder approval unless the

purchase is to be paid for with stock and the acquiring corporation must

issue additional shares to make the purchase, in which case its

shareholders must approve the additional shares.

Generally, the acquiring corporation only purchases the assets, not the

liabilities, of the other corporation. However, there are exceptions when:

(1) The acquiring corporation impliedly or expressly assumes the

sellers liabilities;

(2) The sale is a de facto merger or consolidation;



22/88

(3) The acquiring corporation continues the sellers business

andretains the same personnel; or

(4) The sale is fraudulently executed in an effort to avoid liability.

STOCK PURCHASE

Stock Purchase: The purchase of a sufficient number of voting

shares of a corporations stock, enabling the acquiring

corporation to exercise control over the target corporation.

A stock purchase is generally facilitated by a tender offerto the target

corporations shareholders. The tender offer is publicly advertised,

available to all shareholders, and offers to pay a higher-than-market price

for shares of the target corporation.

Exchange Tender Offer: An offer to give shares in the acquiring

corporation in exchange for shares in the target corporation.

Cash Tender Offer: An offer to pay cash in exchange for shares of the

target corporation.

A tender offer may be conditioned on receiving a specified number of

outstanding shares in the target corporation by a specified date.

The terms and duration of, and the circumstances underlying, a tender

offer are strictly regulated by federal securities laws. In addition, most

states impose additional regulations on tender offers.

TAKEOVER DEFENSES

Takeover Defences include various measures included in a corporations

articles and/or by-laws that automatically take effect in the event of

a proxy fight or unfriendly takeover attempt in order to make the

corporation a substantially less attractive target for the purchaser

(e.g., golden parachutes, poison pills), as well as conscious

efforts of management in response to a particular situation (e.g.,

crown jewels, white knights).

TERMINATION

Dissolution: The formal disbanding of a corporation, which may

occur by

(1) Unanimous action by all shareholders,

(2) Shareholder approval of a dissolution proposal submitted bythe directors,



23/88

(3) An act by the authorized officer of the state of

incorporation,

(4) Expiration of the time period set forth in the certificate of

incorporation, or

(5) Court order.

Liquidation: The process by which corporate assets are converted

into cash and distributed among creditors and shareholders

according to specific rules of preference.

Purpose of Mergers & Consolidation

The purpose for an offer or company for acquiring another company

shall be reflected in the corporate objectives. It has to decide the specific

objectives to be achieved through acquisition. The basic purpose of

merger or business combination is to achieve faster growth of the

corporate business. Faster growth may be had through product

improvement and competitive position.

Other possible purposes for acquisition are short listed below: -

1) Procurement of supplies:

I. To safeguard the source of supplies of raw materials or intermediary

Product;

II. To obtain economies of purchase in the form of discount, savings in

transportation costs, overhead costs in buying department, etc.;

III. To share the benefits of suppliers economies by standardizing the

materials

(2) Revamping production facilities:

I. To achieve economies of scale by amalgamating production facilities

through more intensive utilization of plant and resources;

II. To standardize product specifications, improvement of quality of

product, Expanding

III. Market and aiming at consumers satisfaction through strengthening

after sale Services;

IV. To obtain improved production technology and know-how from theoffered Company



24/88

V. To reduce cost, improve quality and produce competitive products to

retain and improve market share.

(3) Market expansion and strategy:

I. To eliminate competition and protect existing market;

II. To obtain a new market outlets in possession of the offered;

III. To obtain new product for diversification or substitution of existing

products and to enhance the product range;

IV. Strengthening retain outlets and sale the goods to rationalize

distribution;

V. To reduce advertising cost and improve public image of the offered

company;

VI. Strategic control of patents and copyrights

(4) Financial strength:

I. To improve liquidity and have direct access to cash resource;

II. To dispose of surplus and outdated assets for cash out of combined

enterprise;

III. To enhance gearing capacity, borrow on better strength and the

greater assets backing;

IV. To avail tax benefits;

V. To improve EPS (Earning per Share)

(5) General gains

I. To improve its own image and attract superior managerial talents tomanage its affairs;

II. To offer better satisfaction to consumers or users of the product.

(6) Own developmental plans

The purpose of acquisition is backed by the offered companys own

developmental plans.

A company thinks in terms of acquiring the other company only when it

has arrived at its own development plan to expand its operation havingexamined its own internal strength where it might not have any problem



25/88

of taxation, accounting, valuation, etc. But might feel resource constraints

with limitations of funds and lack of skill managerial personnels. It has to

aim at suitable combination where it could have 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 and cultivate situations of collaborations

sharing goodwill of each other to achieve performance heights through

business combinations. The combining corporate aim at circular

combinations by pursuing this objective.

(9) Desired level of integration:

Mergers and acquisition are pursued to obtain the desired level of

integration between the two combining business houses. Such integration

could be operational or financial. This gives birth to conglomerate

combinations. The purpose and the requirements of the offered company

go a long way in selecting a suitable partner for merger or acquisition in

business combinations. Other to achieve performance heights through

business combinations. The combining corporate aim at circular

combinations by pursuing this objective.



26/88

CH

A

P 4

TE

R

Procedure Of Merger And Consolidation

PROCEDURE OF MERGER s & CONSOLIDATION



27/88

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 Iwith SEBI to advise him on the acquisition and to make a public

announcement of offer on his behalf.

2. Use of media for announcement:

Public announcement shall be made at least in one national English daily

one Hindi daily and one regional language daily newspaper of that place

where the shares of that company are listed and traded.

3. Timings of announcement:

Public announcement should be made within four days of finalization of

negotiations or entering into any agreement or memorandum of

understanding to acquire the shares or the voting rights.

4. Contents of announcement:

Public announcement of offer is mandatory as required under the SEBI

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 acquiringbank 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 respective banks. The board discusses the scheme thread bare

and accords its approval if the proposal is found to be financially viable

and beneficial in long run.



28/88

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 value is

appointed to valuate both the banks. The value valuates the banks on thebasis of its share 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 & Consolidation of Banks

With a view to facilitating consolidation and emergence of strongentities and providing an avenue for non disruptive exit of weak/unviable

entities in the banking sector, it has been 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 State Governments have incorporated in their

respective Acts a provision for 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 Act or from banks registered under the Multi State Co-

operative Societies Act (Central Act) for takeover of a bank/s registered

under State Act. 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 the merger of a co-operative society under the State Acts with that

under the Central Act, it is felt that, if all concerned including



29/88

administrators of the concerned Acts are agreeable to order merger/

amalgamation, RBI may consider proposals on merits leaving the question

of compliance with relevant statutes to the administrators of the Acts. In

other words, Reserve Bank will confine its examination only to financial

aspects and to the interests of depositors as well as the stability of thefinancial system while considering such proposals

CH

A

P 5

TE

R



30/88


31/88

Yes Bank

Karur Vasya Bank

ING Vysya Bank

ICICI Bank started as a wholly owned subsidiary of ICICI Limited, anIndian financial institution, in 1994. Four years later, when the company

offered ICICI Bank's shares to the public, ICICI's shareholding was reduced

to 46%. In the year 2000, ICICI Bank offered made an equity offering in the

form of ADRs on the New York Stock Exchange (NYSE), thereby becoming

the first Indian company and the first bank or financial institution from

non-Japan Asia to be listed on the NYSE. In the next year, it acquired the

Bank of Madura Limited in an all-stock amalgamation. Later in the year

and the next fiscal year, the bank made secondary market sales to

institutional investors.

With a change in the corporate structure and the budding

competition in the Indian Banking industry, the management of both ICICI

and ICICI Bank were of the opinion that a merger between the two entities

would prove to be an essential step. It was in 2001 that the Boards of

Directors of ICICI and ICICI Bank sanctioned the amalgamation of ICICI and

two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial

Services Limited and ICICI Capital Services Limited, with ICICI Bank. In the

following year, the merger was approved by its shareholders, the High

Court of Gujarat at Ahmadabad as well as the High Court of Judicature atMumbai and the Reserve Bank of India

Present Scenario

ICICI Bank has its equity shares listed in India on Bombay Stock

Exchange and the National Stock Exchange of India Limited. Overseas, its

American Depositary Receipts (ADRs) are listed on the New York Stock

Exchange (NYSE). As of December 31, 2008, ICICI is India's second-largest

bank, boasting an asset value of Rs. 3,744.10 billion and profit after tax

Rs. 30.14 billion, for the nine months, that ended on December 31, 2008.Branches & ATMs

ICICI Bank has a wide network both in Indian and abroad. In India

alone, the bank has 1,420 branches and about 4,644 ATMs. Talking about

foreign countries, ICICI Bank has made its presence felt in 18 countries -

United States, Singapore, Bahrain, and Hong Kong, Sri Lanka, Qatar and

Dubai International Finance Centre and representative offices in United

Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and

Indonesia. The Bank proudly holds its subsidiaries in the United Kingdom,

Russia and Canada out of which, the UK subsidiary has established

branches in Belgium and Germany.



32/88


33/88

1,000

1,020

1,040

1,060

1,080

1,100

1,120

02-05-2011 03-05-2011 04-05-2011 05-05-2011 06-05-2011

Opening

Closing

ICICI Bank Limited (the Bank) is an India-based banking company

engaged in providing a range of banking products and services to

corporate and retail customers through a variety of delivery channels.During the fiscal year ended March 31, 2009 (fiscal 2009), the Bank had

total assets of Rs. 4,826.9 billion ($94.9 billion).

OVERALL

Beta: 1.48

Market Cap (Mil.): Rs939,926.12

Shares Outstanding (Mil.): 1,114.84

Annual Dividend: 12.00

Yield (%): 1.43

FINANCIALS

ICBK.BO Industry Sector

P/E 28.01 56.66 38.23

EPS -- -- --



34/88

ROI: -- 0.00 0.64

ROE: -- 2.29 2.66

C

H

A

P 6MERGER AND CONSOLIDATION OF ICICI LTD. AND ICICI BANK Page 34


35/88

T

E

R

Merger Of ICICI & ICICI Bank

MERGER OF ICICI WITH ICICI BANK

ICICI Bank and ICICI, along with other ICICI group companies, were

operating as a virtual universal bank, offering a wide range of financialproducts and services. The merger of ICICI and two of its subsidiaries with

ICICI Bank has combined two organizations with complementary strengths

and products and similar processes and operating architecture. The

merger has combined the large capital base of ICICI with the strong

deposit raising capability of ICICI Bank, giving ICICI Bank improved ability

to increase its market share in banking fees and commissions, while

lowering the overall cost of funding through access to lower-cost retail

deposits. ICICI Bank would now be able to fully leverage the strong

corporate relationships that ICICI has built, seamlessly providing the wholerange of financial products and services to corporate clients. The merger

has also resulted in the integration of the retail finance operations of ICICI,

and its two merging subsidiaries, and ICICI Bank into one entity, creating

an optimal structure for the retail business and allowing the full range of

asset and liability products to be offered to all retail customers.

The share exchange ratio approved for the merger was one fully

paid-up equity share of ICICI Bank for two fully paid-up equity shares of

ICICI. This was determined on the basis of a comprehensive valuation

process incorporating international best practices, carried out by twoseparate financial advisors and an independent accounting firm. The



36/88

equity shares of ICICI Bank held by ICICI have not been cancelled in the

merger. In accordance with the provisions of the Scheme of

Amalgamation, these shares have been transferred to a Trust to be

divested by appropriate placement. The proceeds of such divestment

would accrue to the merged entity. With the merger taking effect, thepaid-up share capital of the Bank has increased to Rs. 6.13 billion,

comprising 613 million shares of Rs.10 each.

The merger process was complex and posed significant challenges.

The merger of a financial institution with a commercial bank to create the

countrys first universal bank had significant implications for the entire

financial system. It therefore involved extensive dialogue with the

Government and Reserve Bank of India. The merger also posed the

challenge of compliance with regulatory norms applicable to banks in

respect of ICICIs assets and liabilities, particularly the reserverequirements. This required resources of about Rs. 210.00 billion to be

raised in less than six months for investment in Government securities and

cash reserves, in addition to normal resource mobilization for on-going

business requirements. We leveraged our strong retail franchise, including

the distribution network acquired in the merger of the erstwhile Bank of

Madura Limited with ICICI Bank in fiscal 2001, to grow our retail deposit

base. We also achieved significant success in securitizing loans and

developing a market for securitized debt in India. We also adopted

proactive strategies to minimize the duration of our Government securitiesportfolio, in order to mitigate the interest-rate risk arising from the

acquisition of a portfolio of about Rs. 180.00 billion in five months.

As both ICICI and ICICI Bank were listed in Indian and US markets,

effective communication to a wide range of investors was a critical part of

the merger process. It was equally important to communicate the

rationale for the merger to international and domestic institutional lenders

and to rating agencies. The merger process was required to satisfy legal

and regulatory procedures in India as well as to comply with United States

Securities and Exchange Commission requirements under US securitieslaws.The merger of Indias largest financial institution with its largest

private sector bank also involved significant accounting complexities. In

accordance with best practices in accounting, the merger has been

accounted for under the purchase method of accounting under Indian

GAAP. Consequently, ICICIs assets have been fair-valued for their

incorporation in the books of accounts. The fair value of ICICIs loan

portfolio was determined by an independent value, while ICICIs equity and

related investment portfolio was fair-valued by determining its markto-

market value. The total additional provisions & write-offs required toreflect the fair values of ICICIs assets determined at Rs. 37.80 billion have



37/88

de-risked the loan and investment portfolio and created a significant

cushion in the balance sheet, while maintaining healthy levels of capital

adequacy. The merger was approved by the shareholders of both

companies in January 2002, by the High Court of Gujarat at Ahmedabad in

March 2002, and by the High Court of Judicature at Mumbai and theReserve Bank of India (RBI) in April 2002. The challenge of mobilization of

resources for compliance with statutory reserve requirements applicable

to banks, on ICICIs outstanding liabilities on merger, was met successfully

within the target date of March 30, 2002. While the merger became

effective on May 3, 2002, in accordance with the provisions of the Scheme

of Amalgamation and the terms of approval of RBI, the Appointed Date for

the merger was March 30, 2002.

Boards of ICICI and ICICI Bank Approve Merger.

The Board of Directors of ICICI Limited (NYSE:IC) and the Board of

Directors of ICICI Bank Limited (NYSE:IBN) in separate meetings at

Mumbai, approved the merger of ICICI with ICICI Bank.

The merger of two wholly-owned subsidiaries of ICICI, ICICI Personal

Financial Services Limited and ICICI of two wholly-owned subsidiaries of

ICICI, ICICI Personal Financial Services Limited and ICICI Capital Services

Limited, with ICICI Bank was also approved by the respective Boards. The

proposal has been submitted to the Reserve Bank of India (RBI) for its

consideration and approval, and shall be subject to various other

approvals, including the approval of the shareholders of the respective

companies, the High Courts of Mumbai and Gujarat, and the Government

of India as may be required. Consequently, the Appointed Date of mergeris proposed to be March 31, 2002, or the date from which RBI's approval



38/88

becomes effective, whichever is later. The Scheme of Amalgamation ("the

Scheme") approved by the respective Boards envisages a share exchange

ratio of one domestic equity share of ICICI Bank for two domestic equity

shares of ICICI. As each American Depositary Share (ADS) of ICICI

represents five domestic equity shares while each ADS of ICICI Bankrepresents two domestic equity shares, the ADS holders of ICICI would be

issued five ADS of ICICI Bank in exchange for four ADS of ICICI.

The share exchange ratio approved by the Boards of the two entities

was based on a valuation process incorporating international best

practices in respect of a merger of two affiliate companies. JM Morgan

Stanley was appointed by ICICI to advise it on a fair exchange ratio, while

ICICI Bank appointed DSP Merrill Lynch for the same purpose. Thereafter,

ICICI and ICICI Bank jointly appointed the leading accounting firm, Deloitte,

Haskins & Sells to recommend the final share exchange ratio to the Boardsof the two entities. The share exchange ratio has been determined in

accordance with best practices in valuation, using the relative market

prices, discounted cash flows and book values. Davis Polk & Wardwell are

the international legal counsel and Amarchand & Mangaldas & Suresh A.

Shroff & Co. are the domestic legal counsel for the merger.

The Scheme will be filed before the High Courts of Mumbai and

Gujarat and subsequently placed for approval at the meetings of

shareholders of the respective companies. ICICI and ICICI Bank have

submitted to RBI the proposal for the merger and compliance withregulatory norms applicable to banks, and would adhere to RBI's decision

in the matter.

The merged entity would be the second largest bank in India with

total assets of about Rs. 95,000 crore (preform at September 30, 2001),

396 existing branches/ extension counters of ICICI Bank, 140 existing retail

finance offices and centres of ICICI, and 8,275 employees. The merged

entity would leverage on its large capital base, comprehensive suite of

products and services, extensive corporate and retail customer

relationships, technology-enabled distribution architecture, strong brand

franchise and vast talent pool. The retail segment will be a key driver of

growth for the merged entity, with respect to both assets and liabilities.

The merged entity's competitive edge in the financial system is reflected

in the combined cost-to-income ratio of 27 per cent (preform for the half-

year ended September 30, 2001), which compares favourably with that of

other Indian banks of comparable size and scale of operations.

The merger is expected to be beneficial to shareholders of both

entities. The merger would enhance value for shareholders of ICICI

through the merged entity's access to low-cost deposits, greater



39/88

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 shareholders of ICICI Bank through the

large capital base and scale of operations, access to ICICI's strong

corporate relationships built up over five decades, entry into new businesssegments, higher market share in various business segments, particularly

fee-based services, and access to the vast talent pool of ICICI and its

subsidiaries. The process of integration between ICICI Bank and ICICI is

expected to be smooth due to the strong synergies between the two

entities.

Consequent to the merger of ICICI with ICICI Bank, the Board of

Directors of ICICI Bank is proposed to be reconstituted in compliance with

the Banking Regulation Act, 1949 and in accordance with best practices in

corporate governance. It is proposed that the Board of Directors of themerged entity would be headed by Mr. N. Vaghul as the non-executive

Chairman. The executive management at the Board level would comprise

Mr. K. V. Kamath as Managing Director and Chief Executive Officer, Mr. H.

N. Sinor and Mrs. Lalita D. Gupte as Joint Managing Directors and Mrs.

Kalpana Morparia, Mr. S. Mukherji, Mrs. Chanda D. Kochhar and Dr.

Nachiket M. MOR as Executive Directors. The executive management at

the Board level would not constitute more than one-half of the total

strength of the Board.

ICICI currently holds 46% of the paid-up equity share capital of ICICIBank. This holding would not be cancelled under the scheme of

amalgamation. It is proposed to be held in trust for the benefit of the

merged entity, and divested through appropriate placement in fiscal 2003.

The proceeds from the divestment will accrue to the merged entity.

At the time of the merger, ICICI Bank would align the Indian GAAP

accounting policies of ICICI to those of ICICI Bank, including a higher

general provision against standard assets. Further, in accordance with

international best practices in accounting, ICICI Bank has decided to adopt

the "purchase method" of accounting, which is mandatory under US GAAP,

to account for the merger under Indian GAAP as well. ICICI's assets and

liabilities will therefore be fair valued for the purpose of incorporation in

the accounts of ICICI Bank on the Appointed Date.

Full compliance with the prudential norms applicable to banks on all

of ICICI's existing liabilities is likely to have some adverse impact on the

overall profitability of both entities in fiscal 2002.

In 1998, ICICI had set up the Special Asset Management Group for

focus on recovery and resolution of credit exposures, where the operationsof the borrower companies had been adversely impacted due to systemic



40/88

or other factors. This initiative has yielded significant benefits, due to the

creation of a focused team of professionals and development of the

specialized skill sets essential for asset resolution. ICICI is exploring

several options for the creation of an asset reconstruction company, which

would own and manage non-performing loans. ICICI proposes to workactively with the Government of India, RBI and other institutions and

banks to create an enabling framework for an industry-wide mechanism

that would maximize the economic value of distressed assets in the

financial system.

IMPACT OF MERGER OF ICICI BANK WITH ICICI

LIMITED

Retail Banking

Wholesale Banking

Project Finance & Special Assets Management

International Business

Corporate Centre

The Project Finance Group comprises our project finance operationsfor infrastructure, oil &gas, manufacturing and shipping sectors. The

Special Assets Management Group is responsible for large non-performing

loans and accounts under watch. The International Business Group is

responsible for ICICI Banks international operations as well as

coordinating the international strategies and alliances of its subsidiaries

and affiliates

The Corporate Centre comprises all shared services and corporate

functions, including finance and secretarial, investor relations, risk

management, legal, human resources and corporate branding andcommunications.

Retail Banking

The retail business is the key driver of ICICI Banks growth strategy,

with the objective of diversifying the asset portfolio and building a low-cost

stable resource base. With a complete product suite across both asset and

liability products as well as a wide range of banking services, ICICI Bank is

today a retail financial supermarket with the ability to cross-sell the entire

range of credit and investment products and other banking services to ourcustomers. The key dimensions of our retail strategy are products,



41/88


42/88


43/88


44/88

structuring and advisory services. We focused strongly on transaction

banking services such as cash management and non-fund-based facilities

such as letters of credit and bank guarantees to increase our market share

in banking fees and commissions. We have already achieved significant

success in cash management services, with total volumes of Rs.1.72trillion for fiscal 2002. We also targeted high value current accounts to

reduce our cost of funding. We implemented a customer-level profitability-

based pricing model. As the pioneers of securitization in India, we were

successful in creating a market for securitized corporate debt, which would

help to expand and deepen the debt markets .During the year we

enhanced our technology-based delivery platforms and expanded the

scope of our web-based services. ICICI Bank provides Internet banking

services to its wholesale banking clients through ICICImarkets.com, a

finance portal that is the single point web-based interface for all our

corporate clients. The Corporate Internet Banking (CIB) platform of ICICI

markets allows clients to conduct banking business online in a secure

environment. Clients can view accounts online, transfer funds between

their own accounts or to other accounts, and avail of other such services.

ICICI Bank offers forex trading through the Internet on FX Online and

Government of India securities trading through Debt Online. The corporate

banking business is organized into special relationship groups for the

Government and public sector, large corporate, emerging corporate and

agri-business. ICICI Bank has strong linkages with several large public

sector companies, and is leveraging

CORPORATE STRATEGY

These relationships to expand the range of services that it offers to

them. ICICI Bank has also established relationships with several state

governments, having financed state-level enterprises. Besides, ICICI Bank

has been empanelled in eight states for collection of sales tax. ICICI Bank

is also involved with several other state government initiatives. In the

corporate client segment, ICICI Bank is focusing on increasing its share of

banking business with its corporate clients. In the emerging corporate

segment, ICICI Banks focus is on establishing structured financing

arrangements and implementing a liability-led business strategy, providing

sophisticated banking services to its clients. ICICI Bank has also developed

several innovative structures for agri-business, including dairy farming.

ICICI Bank is working with state governments and agri-based corporate to

evolve viable and sustainable systems for financing agriculture. ICICI

Banks dedicated Structured Products & Portfolio Management Group, with

access to expertise in financial structuring and related legal, accounting

and tax issues, actively supports the business groups in designing financial



45/88

products and solutions. This Group is also responsible for managing the

asset portfolio by structuring portfolio buyouts and sell-downs.

The enhanced capital base consequent to the merger will

significantly increase ICICI Banks ability to leverage its strong corporate

relationships and provide non-fund-based facilities and trade financeservices to its corporate clients. ICICI Bank is leveraging technology to set

up centralized processing facilities to process large transaction volumes,

thereby benefiting from economies of scale. A dedicated Corporate

Operations & Technology Group has been set up for developing and

managing back-office processing and delivery capabilities.

Treasury

The principal responsibilities of the Treasury include management of

liquidity and exposure to market risks, mobilization of resources from

domestic and international financial institutions and banks, and

proprietary trading. Additionally, the Treasury is leveraging its strong

relationships with financial sector players to provide a wide range of

banking services in addition to its liability products. The Treasury is also

responsible for ICICI Banks capital markets and custodial services

operations.

During fiscal 2002, the focus was on the challenge of meeting

regulatory reserve requirements on ICICIs liabilities prior to the merger formeeting the reserve requirements and managing the interest-rate risk

arising from the acquisition of Government securities aggregating about

Rs. 180.00 billion in an environment of low interest rates. Yields on

Government securities reached historic lows during 2001-2002 as a

consequence of the easy liquidity environment and RBIs soft-interest-rate

policy. To minimize the risk of adverse mark-to-market impact on any rise

in interest rates, ICICI Bank adopted a strategy of acquiring securities of

lower duration. A significant portion of the requirement of Government

securities was acquired through active participation in primary auctions offloating-rate bonds and short-maturity Treasury bills. \Prior to the merger,

in addition to its resource mobilization from the wholesale segment, ICICI

had raised a foreign currency loan of USD 75 million at LIBOR + 70 basis

points, setting a new benchmark for a five-year borrowing by an Indian

entity in the international markets after the Asian currency crisis. ICICI had

also borrowed USD 50 million from Kreditanstalt fur Wiederaufbau (KfW), a

German financial institution, for twelve-and-a-half years.

This was the first borrowing by ICICI from KfW without a Government

of India guarantee. ICICI also entered into an agreement with AsianDevelopment Bank (ADB) for availing a 25-year USD 80 million loan for



46/88

housing finance, and with DEG, Germany for an 8-year USD 25 million

loan. The focus of trading operations was active, broad-based market-

making in key markets including corporate bonds, Government securities

and interest-rate swap markets. Substantial reduction in interest rates

provided an opportunity to capture gains in the fixed-income market byactive churning of the trading portfolio.

Project Finance and Special Assets

ICICI BANK project finance activities include financing new projects

as well as capacity additions in the manufacturing sector and structured

finance to the infrastructure and oil, gas and petrochemicals sectors. Over

the years, we have developed considerable expertise in financing complex

project finance transactions and effectively allocating the associated risks.

Our presence has been viewed by most sponsors as critical to the successof their projects, on account of our proficiency in developing enforceable

contract models, syndicating requisite funds and working out complex

issues related to Government regulations. Our project finance business is

focused on structuring and syndication of financing for large projects by

leveraging our expertise in project financing, and churning our project

finance portfolio to prevent portfolio concentration and to manage

portfolio risk. We view our role not only as providers of project finance but

as arrangers and facilitators, creating appropriate financing structures that

may serve as financing and investment vehicles for a wider range of

market participants.

Infrastructure Sector

The infrastructure sector has not witnessed the anticipated growth,

mainly due to policy-level is sues and delay in closure of various projects.

While there were few opportunities in the power sector, the telecom and

road sectors witnessed considerable activity. Guarantees to Department of

Telecommunications on behalf of various telecom companies for basic,

cellular and national and international long-distance licenses presented asignificant non-fund based business opportunity. We have also capitalized

on opportunities in the road sector, in both annuity and toll-based projects,

including lead arranger mandates for four road projects of National

Highway Authority of India (NHAI). The pace of growth in the road sector is

expected to increase both due to NHAIs National Highway Development

Programme and the larger state-level projects. Going forward, we expect

ports and urban infrastructure sectors, in addition to telecom and roads, to

provide significant business opportunities. Corporatization has already

been initiated for five out of twelve major ports. Ports would also require

significant expansion and modernization of facilities. We were appointed



47/88

lead arrangers for a chemical port terminal project. The power sector is

also expected to pick up with opportunities in the privatization of

distribution, financial closure of select private projects with competitive

tariffs, capacity additions in the public sector and its own reform and

restructuring. We provided advisory services to the Ministry of Power,developing a comprehensive blueprint for private sector participation in

hydropower. The Managing Director & CEO was a member of the

Distribution Policy committee which submitted a report improving

efficiency in power distribution in the country.

Manufacturing Sector

Fiscal 2002 saw few new projects in the manufacturing sector on

account of lower economic growth and existing over-capacities in several

commodities. Our focus in this sector is on projects sponsored by entitiesthat have proven ability to commit the required financial resources and

implement projects successfully within planned time-frames. We are also

implementing tighter security measures, such as security interests in

project contracts and escrow accounts to capture cash flows. We also

believe that there is significant scope for consolidation in several

segments in the manufacturing sector, which presents opportunities for

structuring and syndicating acquisition financing.

Special Assets Management

Liberalization and integration with the global economy have posed

major competitive challenges for Indian industry. Cyclical downturns in

commodity demand and prices have adversely affected the performance

of several sectors. This has impacted asset quality in the financial system.

ICICI Banks efforts at asset resolution are driven by the Special Assets

Management Group (SAMG), set up to manage large non-performing loans

and large accounts under watch that require close monitoring. In case of

exposures to essentially viable companies. SAMGs approach includes

operational and financial restructuring, completion of projects underimplementation, sale of unproductive assets and catalyzing consolidation.

In respect of exposures to unviable and essentially uneconomical projects,

we adopt an aggressive approach aimed at out-of-court settlements,

enforcing collateral and driving consolidation. The accent is on time-value

of recovery and a pragmatic approach towards settlements. During fiscal

2002, SAMG was strengthened by the induction of some of our highest-

rated performers into the group.

International Business



48/88

ICICI BANK have already established a presence in the international

markets, primarily in the areas of information technology, investment

banking and banking products and services for the This posed the dual

challenge of raising resources for meeting the reserve requirements and

managing the interest-rate risk arising from the acquisition of Governmentsecurities aggregating about Rs. 180.00 billion in an environment of low

interest rates. Yields on Government securities reached historic lows

during 2001-2002 as a consequence of the easy liquidity environment and

RBIs soft-interest-rate policy. To minimize the risk of adverse mark-to-

market impact on any rise in interest rates, ICICI Bank adopted a strategy

of acquiring securities of lower duration. A significant portion of the

requirement of Government securities was acquired through active

participation in primary auctions of floating-rate bonds and short-maturity

Treasury bills. Prior to the merger, in addition to its resource mobilization

from the wholesale segment, ICICI had raised a foreign currency loan of

USD 75 million at LIBOR + 70 basis points, setting a new benchmark for a

five-year borrowing by an Indian entity in the international markets after

the Asian currency crisis. ICICI had also borrowed USD 50 million from

Kreditanstalt fur Wiederaufbau (KfW), a German financial institution, for

twelve-and-a-half years. This was the first borrowing by ICICI from KfW

without a Government of India guarantee. ICICI also entered into an

agreement with Asian Development Bank (ADB) for availing a 25-year USD

80 million loan for housing finance, and with DEG, Germany for an 8-year

USD 25 million loan. The focus of trading operations was active, broad-based market-making in key markets including corporate bonds,

Government securities and interest-rate swap markets. Substantial

reduction in interest rates provided an opportunity to capture gains in the

fixed income market by active churning of the trading portfolio.

CREDIT RATING

During the year, ICICI became the first Indian company to be rated

higher than the sovereign rating for India by Moodys Investor Service,

when its senior and subordinated long term foreign currency debt was

rated Ba1 i.e. one notch above the sovereign rating for India. The same

rating has been assigned to ICICI Bank post-merger. ICICI Banks credit

ratings as per various credit rating agencies (including ratings assigned to

debt instruments issued by ICICI now transferred to ICICI Bank on merger)

are given below:



49/88

Agency Rating

Foreign currency debt Ba1

Foreign currency deposits Ba3

Standard & Poors (S&P) BB

Credit Analysis & Research Limited (CARE) CARE AAA

Investment Information and Credit Rating Agency

(ICRA)

LAAA

HUMAN RESOURCES

ICICI Bank views its human capital as a key source of competitive

advantage. Consequently the development and management of human

capital is an essential element of our strategy and a key management

activity .Human resources management in fiscal 2002 focused on smooth

integration of the employee sand human resource management systems

in the context of the merger, as well as on continuous improvement of

recruitment, training and performance management processes. The

process of integration involved defining the organizational structure of the

merged entity people placement in various positions across the business

and corporate groups, and integration of the grade and remuneration

structure for the employees of the four entities. The organizational

structure was announced in February 2002 and became effective on May

3, 2002. The people placement process was based on appropriate

competency profiling tools and matching employee profiles to job

specifications. The grade integration process has also been success fully

completed, using job evaluation techniques. While ICICI Bank is Indias

second-largest bank, it had just over 7,700 employees at March 31, 2002,

demonstrating our unique technology-driven, productivity-focusedbusiness model.

The recruitment process has been streamlined and a uniform

recruitment policy and process implemented across the merged

organization. Robust ability-testing and competency -profiling tools are

being used to strengthen the campus recruitment process and match the

profiles of employees to the needs of the organization. ICICI Bank

continues to be a preferred employer at leading business schools and

higher education institutions across the country, offering a wide range ofcareer opportunities across the entire spectrum of financial services. In



50/88

addition to campus recruitment, ICICI Bank also undertakes lateral

recruitment to bring new skills, competencies and experience into the

organization and meet the requirements of rapidly growing businesses. A

Six Sigma initiative has been undertaken for the lateral recruitment

process to improve capabilities in this area. ICICI Bank encourages cross-functional movement, enriching employees knowledge and experience

and giving them a holistic view of the organization while ensuring that the

bank leverages its human capital optimally. The rapidly changing business

environment and the constant challenges it poses to organizations and

businesses make it imperative to continuously enhance knowledge and

skill sets across the organization. ICICI Bank believes that building a

learning organization is critical for being competitive in products and

services and meeting customer expectations. ICICI Bank has built strong

capabilities in training and development to build competencies. Training

on products and operations is imparted through web-based training

modules. Special programmes on functional training and leadership

development to build knowledge as well as management ability are

conducted at a dedicated training facility. ICICI Bank also draws from the

best available training programmes and faculty, both international and

domestic; to meet its training and development needs and build globally

benchmarked skills and capabilities.

ICICI Bank seeks to build in all its employees a total commitment

towards exceptional standards of performance and productivity,adaptability to changing organizational needs and the demands of the

business environment and a willingness to learn and acquire new

capabilities. ICICI Bank believes in defining clear performance parameters

for employees and empowering them to achieve their goals. This has

helped to create a culture of high performance across the organization.

ICICI Bank also has a structured process of identifying and developing

leadership potential the focus on human resources management as a key

organizational activity has resulted in the creation of an exceptional pool

of talent, a performance-oriented organizational culture and has imparted

agility and flexibility to the organization, enabling it to capitalize on

opportunities and deliver value to its stakeholders.

ORGANIZATIONAL EXCELLENCE

ICICI Bank recognizes the importance of organizational excellence in

its business. Developing and deploying world-class skills in a variety of

areas such as technology, financial engineering, transaction processing

and portfolio management, credit evaluation, customer segmentation and

product design, and building and maintaining deep and enduring

relationships of trust with our retail and wholesale customers are essential



51/88

elements of our strategy. Different businesses across the ICICI group have

over the past few months used successfully the Six Sigma methodology to

focus on customer satisfaction and enhanced efficiency in operations.

Application of Six Sigma techniques in regional processing centres, branch

layout and design, and the home finance and demat services businesseshave reduced turnaround time and significantly improved operational

efficiency. In recognition of the critical importance of excellence in internal

processes and delivery to customers, we have set up an Organizational

Excellence Group headed by a Senior General Manager reporting to the

Managing Director & CEO. This group will be responsible for

institutionalization of quality initiatives, including Six Sigma, and for

building the skills necessary for implementing and accelerating quality

initiatives, reporting to the management the progress and value

generated from these initiatives and replicating the successes across ICICI

Bank as well as group companies.

Strong complementary organizations

Having similar operating architecture, people and processes. This

merged entity is consequently well-positioned to harness synergistic

advantages and thereby provide benefits to both ICICI and ICICI Bank

Benefits of merger

Forward leap in the hierarchy of Indian banks

A discontinuous jump in size and scale

Achieve size and scale of operations

Leverage ICICIs capital and client base to increase fee

income



52/88

Higher profitability by leveraging on technology and low

cost structure

Offer a complete product suite with immense cross-selling

opportunities

ICICIs presence in retail finance, insurance, investment

banking and venture capital

Access to the ICICI groups talent pool improved ability to

further diversify asset portfolio and business revenues

Lower funding costs

Ability to accept/ offer checking accounts

Availability of float money due to active participation in the

payments system Diversified fund raising due to access to retail funds

Increased fee income opportunities

Ability to offer all banking products

Competitive advantages of the merged entity



53/88

After the merger, the combined entity would be the second-largest bank in

India, with an asset base of over Rs. 1 trillion

Merger process of ICICI BANK AND ICICI LIMITED -

highlights

1. Valuation

Independently appointed investment bankers

ICICI - JM Morgan Stanley

ICICI Bank - DSP Merrill Lynch

Jointly appointed independent accountant to recommend the

final exchange ratio

Deloitte, Haskins & Sells appointed

Recommended one share of ICICI Bank for two shares of

ICICI, which was approved by the respective Boards

2. Transfer of ICICIs shareholding in ICICI Bank to an SPVprior to the merger

Divestment in FY2003 by way of appropriate placement

3. Consolidation of retail operations

Merger of ICICI PFS and ICICI Capital Services with ICICI Bank



54/88

Merger process - regulatory issues

Merger effective on

March 31, 2002 or the date of RBI approval, whichever

is later

Shareholders approval

High court approval

Accounting for the merger in line with international best

practices

Purchase method, mandatory under US GAAP, to be adoptedunder Indian GAAP as well

C

H

A

P 7

T

E

R



55/88

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research

problem. Research methodology constitutes of research methods,

selection criterion of research methods, used in context of research study

and explanation of using of a particular method or technique so thatresearch results are capable of being evaluated either by researcher

himself or by others. Why a research study has been undertaken, how the

research problem has been formulated, why data have been collected and

what particular technique of analysing data has been used and a best of

similar other question are usually answered when we talk of Research

methodology concerning a research problem or study. The main aim of

research is to find out the truth which is hidden and which has not been

discovered as yet

The research methodology that I undertook for the purpose of this study is

enumerated below-

SCOPE OF THE STUDY

Each and every project study along with its certain objectives also

has scope for future. And this scope in future gives to new researches a

new need to research a new project with a new scope. Scope of the study

not only consist one or two future business plan but sometime it also gives

idea about a new business which becomes much more profitable for the

researches then the older one.



56/88

Scope of the study could give the projected scenario merger and

consolidation of ICICI bank and ICICI limited.

Whatever scope I observed in my project are not exactly having all

the features of the scope which I described above but also not lacking all

the features.

We highlight the major themes to emerge from the study. We looked

the key findings from the areas of production, survey of executive opinion

in global organizations, within which we examined major operation,

including staffing, performance management, rewards, development, and

career management and knowledge and learning.

- Factors which I observed while doing project study are following-

Working management

Quality of services provided by the bank.

Satisfaction of the bank customer.

Strategy of bank after merging.

RESEARCH DESIGN: DESCRIPTIVE

Descriptive studies are well structured, they tend to be rigid and its

approach can not be changed every now and then. Descriptive study can

be divided in two categories:

(A) Cross sectional

(B) Longitudinal

Descriptive study is undertaken in many circumstances:

1. When the researcher is interested in knowing the characteristics ofcertain groups such as age, profession.

2. When the researcher is interested in knowing the proportion of

people in given population who have behaved in a particular

manner, making projection of certain things.

I have taken descriptive because my research includes the knowing

the merger and consolidation of ICICI bank and ICICI limited.

Comparative Study



57/88

It is based on the comparative study of the performance of ICICI Bank

before and after the merger. The comparison of bank is also with their

current competitive banks in the market. The basis of measuring of the

performance is evaluating the performance of bank through their differentfinancial statements, like profit and loss account, Balance sheet, Cash flow

statements etc.

The comparison of the assets and liabilities of different banks with ICICI

bank shows the performance of ICICI bank in the current market. Also on

the basis of the service provided by the banks and the services by the

ICICI banks.

TOOLS AND TECHNIQUES

As no study could be successfully completed without proper tools

and techniques, same with my project. For the better presentation and

right explanation I used tools of statistics and computer very frequently.

And I am very thankful to all those tools for helping me a lot. Basic tools

which I used for project from statistics are-

- Bar Charts

- Pie charts

- Tables

Bar charts and pie charts are really useful tools for every research to

show the result in a well clear, ease and simple way. Because I used bar

charts and pie charts in project for showing data in a systematic way, so it

need not necessary for any observer to read all the theoretical detail,

simple on seeing the charts any body could know that what is being said.

T

Documents

Rahul Emparical Study