Bank of Rajasthan to merge with ICICI Bank

Collected & Compiled by: Sameer Kulkarni*

Shareholders of the troubled Bank of Rajasthan Ltd (BoR) are set to get 25 shares of ICICI
Bank Ltd for 118 shares of BoR in the ratio of 4.72:1, after the boards of the two banks
decided to go ahead with a merger.
“This is based on an internal analysis of the strategic value of the proposed amalgamation,
average market capitalization per branch of old private sector banks and relevant precedent
transactions,“ an ICICI Bank release said, after its board gave its in-principle approval to
the proposal.
BoR promoter Pravin Kumar Tayal termed the proposed merger as a “win-win“situation for
all--the banks, their employees and investors.
In a day of high drama, BoR stock rose 19.95% on the Bombay Stock Exchange to close at
Rs99.50, its year high, and after trading hours, the bank sent a re- lease to the stock
exchanges saying its board will meet in the evening to discuss a proposal of merging the
bank with ICICI Bank.
Boards of both banks met in the evening separately, and after the meeting ICICI Bank sent
a re- lease, saying, it “has entered into an agreement with certain share- holders of Bank of
Rajasthan agreeing to effect the amalgamation of Bank of Rajasthan“ with itself.
ICICI Bank stock was down 1.45% to Rs889.35.
Audit firm Haribhakti and Co. and Deloitte Haskins and Sells will assess the valuation of
Bank of Rajasthan and the boards of both banks will meet on 23 May to seal the deal.
“The final determination of the share exchange ratio is subject to due diligence, independent
valuation, “ICICI Bank said.
A HISTORY OF MERGERS:

Most banking analysts said the currently proposed swap ratio is highly favorable to Bank of
Rajasthan shareholders.
A back-of-the-envelope calculation by analysts values the deal at more than Rs3,000 crore
and per branch acquisition cost at Rs7 crore for ICICI Bank, almost equivalent to ICICI's per
branch opening cost.

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* Is working as Associate professor, at Chanakya Institute Mumbai-India; can be contacted at sakulkarni@cimsr.org

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BoR has a network of 463 branches and 111 ATMs. About 60% of its branches are in
Rajasthan. ICICI Bank, India's largest private sector lender, has a net- work of 2,009
branches and 5,219 ATMs.
ICICI Bank has an asset base of Rs3.63 trillion and posted a net profit of Rs 4,025 crore in
2010. BoR's asset base is Rs17, 224 crore and in first nine months of fiscal 2010, its net
loss was Rs9.82 crore. It posted a net loss of Rs44.70 crore for the December quarter and
has not announced March quarter earnings.

(Source: The Hindu, dated Jan, 22, 2010)

BoR's net non-performing as- sets as a percentage of total loans in December was 1.05%.
The comparable figure for ICICI Bank for the year-end is 1.55%.

“The proposed amalgamation would substantially enhance ICICI Bank's branch network,
already the largest among Indian private sector banks, and especially strengthen its
presence in northern and western India. It would combine Bank of Rajasthan's branch
franchise with ICICI Bank's strong capital base,“ the ICICI Bank release said.
India's capital markets regulator in March banned BoR promoter Tayal and about 100
companies and people associated with his family from trading in securities for improper
disclosure about their holdings in the bank.
According to the Securities and Exchange Board of India, the Tayal family owned 55.01% of
the bank in December, even though Tayal claimed his group stake was 28.06%.
BoR has also been under the scanner of the Reserve Bank of India (RBI) for alleged
violation of banking regulations, including those on corporate governance.
G. Padmanabhan, BoR managing director and chief executive officer, was appointed by RBI
in November for two years with a mandate to improve corporate governance practices at the
bank.
RBI has also ordered two major audits of the bank.