ICICI bank and its merchant banking arm, ICICI Securities (I-Sec), have entered into an agreement, whereby all M&A deals will be done out of ICICI Bank. The agreement goes on to define an M&A deal as one which involves change in management control.

This arrangement replaces the earlier practice of both I-Sec and ICICI Bank working together on M&A deals. Since a predominant number of people, who wish to be advised on M&A, also look for acquisition finance, it was decided that the business should be housed in the bank, I-Sec MD Madhabi Puri Buch told ET. Now, if a corporate is seeking a sell mandate or a buy mandate, where the transfer of controlling interest takes place, the deal will be done by ICICI Bank.

ICICI Bank had initially entered the investment banking space in 2006. Over the past couple of years, both the bank and its subsidiary have been vying for deals. The new deal has taken into effect between both the entities from April 1.

According to Ms Buch, acquisition funding has become one of the primary drivers of bagging M&A deals. How many investment banks can put their hand on their hearts and claim that they have done only pure advisory and are not linked to acquisition finance? All have provided some kind of funding, she said.

Many of the foreign banks have been using acquisition financing as a tool to enter the advisory space. I-Sec has decided to get out of most fund-based activities. I-Secs proprietary book is largely a result of arbitrage positions and not because of any view on markets. According to Ms Buch, one of the biggest learnings from the global financial crisis is that there should be a limit on leverage both on and off the balance sheet.

Earlier, the primary dealership business accounted for one of the biggest proprietary positions built by I-Sec. Now, with the PD business being farmed out into a separate subsidiary of ICICI Bank, most of I-Secs revenues are fee-based (brokerage). According to Ms Buch, each activity is housed in the institution, according to where the skill sets are. This is why private equity is with ICICI Ventures and funding is with the bank she added.

While the focus on fee-based income has left the banks earnings linked to the market, Ms Buch said I-sec is looking at entering new areas of business that are counter-cyclical.