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ICICI Bank-Bank of Rajasthan swap ratio fixed at 1:4.72
May, 24th 2010

The boards of ICICI Bank and Bank of Rajasthan (BoR) today put their seal of approval on the share exchange formula arrived at last week, when Indias largest private sector lender announced the move to amalgamate BoR with itself.

The two had proposed a share swap ratio of 1:4.72, which means BoR shareholders will gain one share of ICICI Bank for every 4.72 shares of BoR. This exchange formula was recommended by Haribhakti & Co after due diligence and valuation of BoR.

Todays development has paved the way for shareholders of the two banks to discuss the merger at the Extraordinary General Meeting due to take place on June 21.

The move to merge BoR with ICICI Bank comes in the wake of regulatory pressure mounted on the Tayals, the main promoters of BoR. P K Tayal, the ousted chairman of BoR, had sought a better deal. I was expecting a better valuation because the bank is a gold mine. But as both boards have approved the valuation, I only respect the decision, he said.

With this merger, ICICI Bank is looking forward to an increased presence in the northern and western parts of India. The banks Managing Director and CEO, Chanda Kochhar, spoke to Business Standard soon after the board meeting. Excerpts:

What prompted ICICI Bank to look at BoR?
It offers a strategic fit, as it adds to our network in north and western India. It saves us about three years time to market. In the normal course, it takes about a year to set up 500 branches and then three years for the branches to come up to the kind of deposit levels.

Given BoRs history and the regulators discomfort, was there an element of prodding by RBI as well?
This is really a voluntary merger that we have initiated and not done under any pressure.

Did RBI broach the issue with you at any point of time?
No, as I said, its a voluntary merger, so it is we who came up with the thought.

Wouldnt some of the old-generation private banks have come cheaper?
First, in case of old private sector banks, market capitalisation per branch on an average is Rs 6.5 crore and thats what we have paid. Second, its not a question of any bank. It is where you want to add to your network.

In the past, we have done mergers and acquisitions in the South and added to our network there.

There are concerns about the bad debts that BoR may have on its books. So, are the concerns justified and will it affect ICICI Banks non-performing assets (NPA) reduction strategy?
Over the past few days, we have done due diligence on the bank's books and it has given us a pretty satisfactory report. I dont think our NPA percentages will go up on account of this merger.

Where do you see synergies?
The branch is the building block but it gives us synergies in the form of a larger customer base. It gives us the ability to offer other products to this customer base such as different loan products from ICICI Bank and other products. We have a high capital adequacy ratio, so the customer base that we are acquiring will help us in lending.

Which are the areas that will require attention given that its an old private bank?
No. There are no major areas. When you talk of integration, you have to basically look at all aspects and ensure that it integrates very well within the entity.

What about BoR employees given that they are covered by the industry-wide wage pact?
We have gone through two mergers earlier and we have sufficient experience and we think that we behave like a responsible and fair organisation. If you see the last two mergers, we have been very fair to the employees and we have kind of kept up with the commitments. We will behave in the same manner. I want to assuage any worries that anybody would have. There is no need to have any worry on this count.

Is the Securities and Exchange Board of India (Sebi) okay with the merger given the ban on the Tayals from dealing in securities?
This issue is directly with the promoters and the shareholders, its not really related to the bank. We are going to go to the shareholders first, which is the process, and then to RBI.

Do you need to approach the Foreign Investment Promotion Board (FIPB) for permission?
As per the legal advice that we have received, FIPB approval is not relevant in this case.

Does the acquisition mean that ICICI Bank is fully back on the growth path and branch-led strategy is here to stay?
Yes, clearly. Its not just the acquisition, we have been saying for the last one year that we are focusing on a branch-led strategy, we are focusing on being customer-centric and focusing on increasing the current and savings account. So, this clearly fits into our strategy.

If there are more acquisition opportunities that come your way, would you look at them?
Right now, its too early to talk about it. But, I would only say that branches are a very critical and integral part of our strategy.

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