Perception of Bankers toward Merger of ICICI and Bank of

Rajasthan.

Submitted to: Submitted by:

Nidhi Mam SHANCHECHANI
Swati Mam

Poornima group Institution

Introduction of the Industry
Bank
A bank is licensed by a government. Its primary activity is to lend money. Many other financial
activities were allowed over time. For example banks are important players in financial markets
and offer financial services such as investment funds. In some countries such as Germany,
banks have historically owned major stakes in industrial corporations while in other countries
such as the United States banks are prohibited from owning non-financial companies. In
Japan, banks are usually the nexus of a cross-share holding entity known as the zaibatsu. In
France, bancassurance is prevalent, as most banks offer insurance services (and now real
estate services) to their clients.
The level of government regulation of the banking industry varies widely, with counties such as
Iceland, the United Kingdom and the United States having relatively light regulation of the
banking sector, and countries such as China having relatively heavier regulation (including
stricter regulations regarding the level of reserves).
History
Banks have influenced economies and politics for centuries. Historically, the primary purpose
of a bank was to provide loans to trading companies. Banks provided funds to allow
businesses to purchase inventory, and collected those funds back with interest when the
goods were sold. For centuries, the banking industry only dealt with businesses, not
consumers. Banking services have expanded to include services directed at individuals, and
risk in these much smaller transactions are pooled.
The first state deposit bank, Banco di San Giorgio (Bank of St. George), was founded in 1407
at Genoa, Italy.

Origin of the word

Silver drachm coin from Trapezus, 4th century BC

The name bank derives from the Italian word banco "desk/bench", used during the
Renaissance by Florentine bankers, who used to make their transactions above a desk
covered by a green tablecloth.[2] However, there are traces of banking activity even in ancient
times.
In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders
would set up their stalls in the middle of enclosed courtyards called macella on a long bench
called a bancu, from which the words banco and bank are derived. As a moneychanger, the
merchant at the bancu did not so much invest money as merely convert the foreign currency
into the only legal tender in Rome—that of the Imperial Mint.
The earlierst evidence of money-changing activity is depicted on a silver drachm coin from
ancient hellenic colony Trapezus on the Black Sea, modern Trabzon, c. 350-325 BC,
presented in the British Museum in London. The coin shows a banker's table (trapeza) laden
with coins, a pun on the name of the city.
In fact, even today in Modern Greek the word Trapeza (Τράπεζα) means both a table and a
bank.

Traditional banking activities

Large door to an old bank vault.

Banks act as payment agents by conducting checking or current accounts for customers,
paying cheques drawn by customers on the bank, and collecting cheques deposited to
customers' current accounts. Banks also enable customer payments via other payment
methods such as telegraphic transfer, EFTPOS, and ATM.
Banks borrow money by accepting funds deposited on current accounts, by accepting term
deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by
making advances to customers on current accounts, by making installment loans, and by
investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered indispensable
by most businesses, individuals and governments. Non-banks that provide payment services
such as remittance companies are not normally considered an adequate substitute for having
a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most funds
to households and non-financial businesses, but non-bank lenders provide a significant and in
 many cases adequate substitute for bank loans, and money market funds, cash management
trusts and other non-bank financial institutions in many cases provide an adequate substitute
to banks for lending savings to.

Definition
The definition of a bank varies from country to country.
Under English common law, a banker is defined as a person who carries on the business of
banking, which is specified as:
 conducting current accounts for his customers
 paying cheques drawn on him, and
 collecting cheques for his customers.
In most English common law jurisdictions there is a Bills of Exchange Act that codifies the law
in relation to negotiable instruments, including cheques, and this Act contains a statutory
definition of the term banker: banker includes a body of persons, whether incorporated or not,
who carry on the business of banking' (Section 2, Interpretation). Although this definition
seems circular, it is actually functional, because it ensures that the legal basis for bank
transactions such as cheques do not depend on how the bank is organised or regulated.
The business of banking is in many English common law countries not defined by statute but
by common law, the definition above. In other English common law jurisdictions there are
statutory definitions of the business of banking or banking business. When looking at these
definitions it is important to keep in mind that they are defining the business of banking for the
purposes of the legislation, and not necessarily in general. In particular, most of the definitions
are from legislation that has the purposes of entry regulating and supervising banks rather than
regulating the actual business of banking. However, in many cases the statutory definition
closely mirrors the common law one. Examples of statutory definitions:
 "banking business" means the business of receiving money on current or deposit account, paying and
collecting cheques drawn by or paid in by customers, the making of advances to customers, and
includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act
(Singapore), Section 2, Interpretation)
 "banking business" means the business of either or both of the following:

1. receiving from the general public money on current, deposit, savings or other similar account
repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that
period;
2. paying or collecting cheques drawn by or paid in by customers[5]
Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct
debit and internet banking, the cheque has lost its primacy in most banking systems as a
payment instrument. This has led legal theorists to suggest that the cheque based definition
should be broadened to include financial institutions that conduct current accounts for
 customers and enable customers to pay and be paid by third parties, even if they do not pay
and collect cheques.
Accounting for bank accounts
Bank statements are accounting records produced by banks under the various accounting
standards of the world. Under GAAP and IFRS there are two kinds of accounts: debit and
credit. Credit accounts are Revenue, Equity and Liabilities. Debit Accounts are Assets and
Expenses. This means you credit a credit account to increase its balance, and you debit a
debit account to increase its balance.[7]
This also means you debit your savings account every time you deposit money into it (and the
account is normally in deficit), while you credit your credit card account every time you spend
money from it (and the account is normally in credit).
However, if you read your bank statement, it will say the opposite—that you credit your
account when you deposit money, and you debit it when you withdraw funds. If you have cash
in your account, you have a positive (or credit) balance; if you are overdrawn, you have a
negative (or deficit) balance.
The reason for this is that the bank, and not you, has produced the bank statement. Your
savings might be your assets, but the bank's liability, so they are credit accounts (which should
have a positive balance). Conversely, your loans are your liabilities but the bank's assets, so
they are debit accounts (which should have a also have a positive balance).
Where bank transactions, balances, credits and debits are discussed below, they are done so
from the viewpoint of the account holder—which is traditionally what most people are used to
seeing.

Wider commercial role

The commercial role of banks is not limited to banking, and includes:
 issue of banknotes (promissory notes issued by a banker and payable to bearer on demand)
 processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means
 issuing bank drafts and bank cheques
 accepting money on term deposit
 lending money by way of overdraft, installment loan or otherwise
 providing documentary and standby letters of credit (trade finance), guarantees, performance bonds,
securities underwriting commitments and other forms of off-balance sheet exposures
 safekeeping of documents and other items in safe deposit boxes
 currency exchange
 acting as a 'financial supermarket' for the sale, distribution or brokerage, with or without advice, of
insurance, unit trusts and similar financial products

Economic functions
The economic functions of banks include:
1. issue of money, in the form of banknotes and current accounts subject to cheque or payment at
the customer's order. These claims on banks can act as money because they are negotiable and/or
repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in
the case of banknotes, or by drawing a cheque that the payee may bank or cash.
2. netting and settlement of payments – banks act as both collection and paying agents for
customers, participating in interbank clearing and settlement systems to collect, present, be presented
with, and pay payment instruments. This enables banks to economise on reserves held for settlement
of payments, since inward and outward payments offset each other. It also enables the offsetting of
payment flows between geographical areas, reducing the cost of settlement between them.
3. credit intermediation – banks borrow and lend back-to-back on their own account as middle men
credit quality improvement – banks lend money to ordinary commercial and personal borrowers
(ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of
the bank's assets and capital which provides a buffer to absorb losses without defaulting on its
obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty
and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note
holders and depositors in an economically subordinated position.
4. Maturity transformation – banks borrow more on demand debt and short term debt, but provide
more long term loans. In other words, they borrow short and lend long. With a stronger credit quality
than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and
issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining
reserves of cash, investing in marketable securities that can be readily converted to cash if needed,
and raising replacement funding as needed from various sources (e.g. wholesale cash markets and
securities markets).
Law of banking
Banking law is based on a contractual analysis of the relationship between the
bank (defined above) and the customer—defined as any entity for which the bank agrees to
conduct an account.
The law implies rights and obligations into this relationship as follows:
1. The bank account balance is the financial position between the bank and the customer: when
the account is in credit, the bank owes the balance to the customer; when the account is overdrawn,
the customer owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount standing to the credit of the
customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the customer, e.g.
a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer's account as the
customer's agent, and to credit the proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each account is just an aspect
of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that the
customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer's account—unless the
customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands
it.
8. The bank must not close a customer's account without reasonable notice, since cheques are
outstanding in the ordinary course of business for several days.
These implied contractual terms may be modified by express agreement between the
customer and the bank. The statutes and regulations in force within a particular jurisdiction
may also modify the above terms and/or create new rights, obligations or limitations relevant to
the bank-customer relationship.

Entry regulation
Currently in most jurisdictions commercial banks are regulated by government entities and
require a special bank licence to operate.
Usually the definition of the business of banking for the purposes of regulation is extended to
include acceptance of deposits, even if they are not repayable to the customer's order—
although money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market,
i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the
business of issuing banknotes. However, in some countries this is not the case. In the UK, for
example, the Financial Services Authority licences banks, and some commercial banks (such
as the Bank of Scotland) issue their own banknotes in addition to those issued by the Bank of
England, the UK government's central bank.
Some types of financial institution, such as building societies and credit unions, may be partly
or wholly exempt from bank licence requirements, and therefore regulated under separate
rules.
The requirements for the issue of a bank licence vary between jurisdictions but typically
include:
1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior officers
Approval of the bank's The economic functions of banks include:
5. issue of money, in the form of banknotes and current accounts subject to cheque or payment at
the customer's order. These claims on banks can act as money because they are negotiable and/or
repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in
the case of banknotes, or by drawing a cheque that the payee may bank or cash.
6. netting and settlement of payments – banks act as both collection and paying agents for
customers, participating in interbank clearing and settlement systems to collect, present, be presented
with, and pay payment instruments. This enables banks to economise on reserves held for settlement
of payments, since inward and outward payments offset each other. It also enables the offsetting of
payment flows between geographical areas, reducing the cost of settlement between them.
7. credit intermediation – banks borrow and lend back-to-back on their own account as middle men
8. credit quality improvement – banks lend money to ordinary commercial and personal borrowers
(ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of
the bank's assets and capital which provides a buffer to absorb losses without defaulting on its
obligations. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty
and pledges assets as security, to raise the funding it needs to continue to operate, this puts the note
holders and depositors in an economically subordinated position.
9. maturity transformation – banks borrow more on demand debt and short term debt, but provide
more long term loans. In other words, they borrow short and lend long. With a stronger credit quality
than most other borrowers, banks can do this by aggregating issues (e.g. accepting deposits and
issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintaining
reserves of cash, investing in marketable securities that can be readily converted to cash if needed,
and raising replacement funding as needed from various sources (e.g. wholesale cash markets and
securities markets.
Banking law is based on a contractual analysis of the relationship between the bank (defined
above) and the customer—defined as any entity for which the bank agrees to conduct an
account.
The law implies rights and obligations into this relationship as follows:
1. The bank account balance is the financial position between the bank and the customer: when
the account is in credit, the bank owes the balance to the customer; when the account is overdrawn,
the customer owes the balance to the bank.
2. The bank agrees to pay the customer's cheques up to the amount standing to the credit of the
customer's account, plus any agreed overdraft limit.
3. The bank may not pay from the customer's account without a mandate from the customer, e.g.
a cheque drawn by the customer.
4. The bank agrees to promptly collect the cheques deposited to the customer's account as the
customer's agent, and to credit the proceeds to the customer's account.
5. The bank has a right to combine the customer's accounts, since each account is just an aspect
of the same credit relationship.
6. The bank has a lien on cheques deposited to the customer's account, to the extent that the
customer is indebted to the bank.
7. The bank must not disclose details of transactions through the customer's account—unless the
customer consents, there is a public duty to disclose, the bank's interests require it, or the law demands
it.
8. The bank must not close a customer's account without reasonable notice, since cheques are
outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the
customer and the bank. The statutes and regulations in force within a particular jurisdiction
may also modify the above terms and/or create new rights, obligations or limitations relevant to
the bank-customer relationship.
 Currently in most jurisdictions commercial banks are regulated by government entities and
require a special bank licence to operate.
Usually the definition of the business of banking for the purposes of regulation is extended to
include acceptance of deposits, even if they are not repayable to the customer's order—
although money lending, by itself, is generally not included in the definition.
Unlike most other regulated industries, the regulator is typically also a participant in the market,
i.e. a government-owned (central) bank. Central banks also typically have a monopoly on the
business of issuing banknotes.
However, in some countries this is not the case. In the UK, for example, the Financial
Services Authority licences banks, and some commercial banks (such as the Bank of
Scotland) issue their own banknotes in addition to those issued by the Bank of England, the
UK government's central bank.
Some types of financial institution, such as building societies and credit unions, may be partly
or wholly exempt from bank licence requirements, and therefore regulated under separate
rules.

The requirements for the issue of a bank licence vary between jurisdictions but typically
include:
1. Minimum capital
2. Minimum capital ratio
3. 'Fit and Proper' requirements for the bank's controllers, owners, directors, and/or senior
officers
4. Approval of the bank's
5. business plan as being sufficiently prudent and plausible.

Banking channels
Banks offer many different channels to access their banking and other services:
 A branch, banking centre or financial centre is a retail location where a bank or financial institution
offers a wide array of face-to-face service to its customers.
 ATM is a computerised telecommunications device that provides a financial institution's customers a
method of financial transactions in a public space without the need for a human clerk or bank teller.
Most banks now have more ATMs than branches, and ATMs are providing a wider range of services to
a wider range of users. For example in Hong Kong, most ATMs enable anyone to deposit cash to any
customer of the bank's account by feeding in the notes and entering the account number to be credited.
Also, most ATMs enable card holders from other banks to get their account balance and withdraw cash,
even if the card is issued by a foreign bank.
 Mail is part of the postal system which itself is a system wherein written documents typically enclosed in
envelopes, and also small packages containing other matter, are delivered to destinations around the
world. This can be used to deposit cheques and to send orders to the bank to pay money to third
parties. Banks also normally use mail to deliver periodic account statements to customers.
1. Telephone banking is a service provided by a financial institution which allows its customers to
perform transactions over the telephone. This normally includes bill payments for bills from major billers
(e.g. for electricity).
2. Online banking is a term used for performing transactions, payments etc. over the Internet
through a bank, credit union or building society's secure website.
E-banking is the very popular in the world.
Types of banks
Banks' activities can be divided into retail banking, dealing directly with individuals and small
businesses; business banking, providing services to mid-market business; corporate banking,
directed at large business entities; private banking, providing wealth management services to
high net worth individuals and families; and investment banking, relating to activities on the
financial markets. Most banks are profit-making, private enterprises. However, some are
owned by government, or are non-profit organizations.
Central banks are normally government-owned and charged with quasi-regulatory
responsibilities, such as supervising commercial banks, or controlling the cash interest rate.
They generally provide liquidity to the banking system and act as the lender of last resort in
event of a crisis. just jokin
 Commercial bank: the term used for a normal bank to distinguish it from an investment bank. After the
Great Depression, the U.S. Congress required that banks only engage in banking activities, whereas
investment banks were limited to capital market activities. Since the two no longer have to be under
separate ownership, some use the term "commercial bank" to refer to a bank or a division of a bank
that mostly deals with deposits and loans from corporations or large businesses.
 Community Banks: locally operated financial institutions that empower employees to make local
decisions to serve their customers and the partners.
 Community development banks: regulated banks that provide financial services and credit to under-
served markets or populations.
 Postal savings banks: savings banks associated with national postal systems.
 Private banks: banks that manage the assets of high net worth individuals.
 Offshore banks: banks located in jurisdictions with low taxation and regulation. Many offshore banks
are essentially private banks.
 Savings bank: in Europe, savings banks take their roots in the 19th or sometimes even 18th century.
Their original objective was to provide easily accessible savings products to all strata of the population.
In some countries, savings banks were created on public initiative; in others, socially committed
individuals created foundations to put in place the necessary infrastructure.
 Nowadays, European savings banks have kept their focus on retail banking: payments, savings
products, credits and insurances for individuals or small and medium-sized enterprises. Apart from this
retail focus, they also differ from commercial banks by their broadly decentralised distribution network,
providing local and regional outreach—and by their socially responsible approach to business and
society.
 Building societies and Landesbanks: institutions that conduct retail banking.
 Ethical banks: banks that prioritize the transparency of all operations and make only what they consider
to be socially-responsible investments.
 Islamic banks: Banks that transact according to Islamic principles.

Types of investment banks

 Investment banks "underwrite" (guarantee the sale of) stock and bond issues, trade for their own
accounts, make markets, and advise corporations on capital market activities such as mergers and
acquisitions.
 Merchant banks were traditionally banks which engaged in trade finance. The modern definition,
however, refers to banks which provide capital to firms in the form of shares rather than loans. Unlike
venture capital firms, they tend not to invest in new companies.
Both combined
 Universal banks, more commonly known as financial services companies, engage in several of these
activities. For example, Citigroup is a large American bank involved in commercial and retail lending,
with subsidiaries in tax havens offering offshore banking services to customers in other countries.
 Other large financial institutions are similarly diversified and engage in multiple activities. In Europe and
Asia, big banks are very diversified groups that, among other services, also distribute insurance—
hence the term bancassurance, a portmanteau word combining "banque or bank" and "assurance",
signifying that both banking and insurance are provided by the same corporate entity.

Other types of banks

 Islamic banks adhere to the concepts of Islamic law. This form of banking revolves around several well-
established principles based on Islamic canons. All banking activities must avoid interest, a concept
that is forbidden in Islam. Instead, the bank earns profit (markup) and fees on the financing facilities
that it extends to customers.

Size of global banking industry

Worldwide assets of the largest 1,000 banks grew 16.3% in 2006/2007 to reach a record $74.2
trillion. This follows a 5.4% increase in the previous year. EU banks held the largest share,
53%, up from 43% a decade earlier. The growth in Europe’s share was mostly at the expense
of Japanese banks, whose share more than halved during this period from 21% to 10%. The
share of US banks remained relatively stable at around 14%. Most of the remainder was from
other Asian and European countries.[8]
The United States has by far the most banks in the world, both in terms of institutions (7,540 at
the end of 2005) and branches (75,000). This is an indicator of the geography and regulatory
structure of the USA, resulting in a large number of small to medium-sized institutions in its
banking system. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and
Italy each had more than 30,000 branches—more than double the 15,000 branches in the UK.
[8]
Bank crisis
Banks are susceptible to many forms of risk which have triggered occasional systemic crises.
These include liquidity risk (where many depositors may request withdrawals beyond available
funds), credit risk (the chance that those who owe money to the bank will not repay it), and
interest rate risk (the possibility that the bank will become unprofitable, if rising interest rates
force it to pay relatively more on its deposits than it receives on its loans).
Banking crises have developed many times throughout history, when one or more risks have
materialized for a banking sector as a whole. Prominent examples include the bank run that
occurred during the Great Depression, the U.S. Savings and Loan crisis in the 1980s and early
1990s, the Japanese banking crisis during the 1990s, and the subprime mortgage crisis in the
2000s.

Challenges within the banking industry

The banking industry is a highly regulated industry with detailed and focused regulators. All
banks with FDIC-insured deposits have the FDIC as a regulator; however, for examinations,
the Federal Reserve is the primary federal regulator for Fed-member state banks; the Office of
the Comptroller of the Currency (“OCC”) is the primary federal regulator for national banks;
and the Office of Thrift Supervision, or OTS, is the primary federal regulator for thrifts. State
non-member banks are examined by the state agencies as well as the FDIC. National banks
have one primary regulator—the OCC.
Each regulatory agency has their own set of rules and regulations to which banks and thrifts
must adhere.
The Federal Financial Institutions Examination Council (FFIEC) was established in 1979 as a
formal interagency body empowered to prescribe uniform principles, standards, and report
forms for the federal examination of financial institutions. Although the FFIEC has resulted in a
greater degree of regulatory consistency between the agencies, the rules and regulations are
constantly changing.
In addition to changing regulations, changes in the industry have led to consolidations within
the Federal Reserve, FDIC, OTS and OCC. Offices have been closed, supervisory regions
have been merged, staff levels have been reduced and budgets have been cut. The remaining
regulators face an increased burden with increased workload and more banks per regulator.
While banks struggle to keep up with the changes in the regulatory environment, regulators
struggle to manage their workload and effectively regulate their banks. The impact of these
changes is that banks are receiving less hands-on assessment by the regulators, less time
spent with each institution, and the potential for more problems slipping through the cracks,
potentially resulting in an overall increase in bank failures across the United States.
The changing economic environment has a significant impact on banks and thrifts as they
struggle to effectively manage their interest rate spread in the face of low rates on loans, rate
competition for deposits and the general market changes, industry trends and economic
fluctuations.
It has been a challenge for banks to effectively set their growth strategies with the recent
economic market. A rising interest rate environment may seem to help financial institutions, but
the effect of the changes on consumers and businesses is not predictable and the challenge
remains for banks to grow and effectively manage the spread to generate a return to their
shareholders.
The management of the banks’ asset portfolios also remains a challenge in today’s economic
environment. Loans are a bank’s primary asset category and when loan quality becomes
suspect, the foundation of a bank is shaken to the core. While always an issue for banks,
declining asset quality has become a big problem for financial institutions. There are several
reasons for this, one of which is the lax attitude some banks have adopted because of the
years of “good times.”
The potential for this is exacerbated by the reduction in the regulatory oversight of banks and
in some cases depth of management. Problems are more likely to go undetected, resulting in a
significant impact on the bank when they are recognized. In addition, banks, like any business,
struggle to cut costs and have consequently eliminated certain expenses, such as adequate
employee training programs.
Banks also face a host of other challenges such as aging ownership groups. Across the
country, many banks’ management teams and board of directors are aging. Banks also face
ongoing pressure by shareholders, both public and private, to achieve earnings and growth
projections. Regulators place added pressure on banks to manage the various categories of
risk. Banking is also an extremely competitive industry. Competing in the financial services
industry has become tougher with the entrance of such players as insurance agencies, credit
unions, check cashing services, credit card companies, etc.
As a reaction, banks have developed their activities in financial instruments, through financial
market operations such as brokerage and trading and become big players in such activities.
Profitability
A bank generates a profit from the differential between the level of interest it pays for deposits
and other sources of funds, and the level of interest it charges in its lending activities.
This difference is referred to as the spread between the cost of funds and the loan interest
rate. Historically, profitability from lending activities has been cyclical and dependent on the
needs and strengths of loan customers.
In recent history, investors have demanded a more stable revenue stream and banks have
therefore placed more emphasis on transaction fees, primarily loan fees but also including
service charges on an array of deposit activities and ancillary services (international banking,
foreign exchange, insurance, investments, wire transfers, etc.). Lending activities, however,
still provide the bulk of a commercial bank's income.
In the past 10 years American banks have taken many measures to ensure that they remain
profitable while responding to increasingly changing market conditions. First, this includes the
Gramm-Leach-Bliley Act, which allows banks again to merge with investment and insurance
houses. Merging banking, investment, and insurance functions allows traditional banks to
respond to increasing consumer demands for "one-stop shopping" by enabling cross-selling of
products (which, the banks hope, will also increase profitability).
Second, they have expanded the use of risk-based pricing from business lending to consumer
lending, which means charging higher interest rates to those customers that are considered to
be a higher credit risk and thus increased chance of default on loans. This helps to offset the
losses from bad loans, lowers the price of loans to those who have better credit histories, and
offers credit products to high risk customers who would otherwise been denied credit. Third,
they have sought to increase the methods of payment processing available to the general
public and business clients. These products include debit cards, prepaid cards, smart cards,
and credit cards. They make it easier for consumers to conveniently make transactions and
smooth their consumption over time (in some countries with underdeveloped financial systems,
it is still common to deal strictly in cash, including carrying suitcases filled with cash to
purchase a home). However, with convenience of easy credit, there is also increased risk that
consumers will mismanage their financial resources and accumulate excessive debt. Banks
make money from card products through interest payments and fees charged to consumers
and transaction fees to companies that accept the cards.
Banks in India can be categorized into non-scheduled banks and scheduled banks. Scheduled
banks constitute of commercial banks and co-operative banks. There are about 67,000 branches of
Scheduled banks spread across India. During the first phase of financial reforms, there was a
nationalization of 14 major banks in 1969. This crucial step led to a shift from Class banking to Mass
banking. Since then the growth of the banking industry in India has been a continuous process.
As far as the present scenario is concerned the banking industry is in a transition phase. The Public
Sector Banks (PSBs), which are the foundation of the Indian Banking system account for more than 78
per cent of total banking industry assets. Unfortunately they are burdened with excessive Non
Performing assets (NPAs), massive manpower and lack of modern technology.
On the other hand the Private Sector Banks in India are witnessing immense progress. They are
leaders in Internet banking, mobile banking, phone banking, ATMs. On the other hand the Public Sector
Banks are still facing the problem of unhappy employees. There has been a decrease of 20 percent in
the employee strength of the private sector in the wake of the Voluntary Retirement Schemes (VRS).
As far as foreign banks are concerned they are likely to succeed in India.

Indusland Bank was the first private bank to be set up in India. IDBI, ING Vyasa Bank, SBI Commercial
and International Bank Ltd, Dhanalakshmi Bank Ltd, Karur Vysya Bank Ltd, Bank of Rajasthan Ltd etc
are some Private Sector Banks. Banks from the Public Sector include Punjab National bank, Vijaya
Bank, UCO Bank, Oriental Bank, Allahabad Bank, Andhra Bank etc.
ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank etc are some foreign
banks operating in India.
 Banks in India
 Allahabad Bank
 American Express Bank Ltd
 Andhra Bank
 ABN AMRO Bank
 Bank Muscat (S A O G)
 Bank Of America
 Bank Of India
 Barclays Bank PLC
 Centurion Bank Ltd
 Citibank
 Corporation Bank
 Dhanlakshmi Bank Ltd
 Deutsche Bank India
 Export-Import Bank Of India
 Global Trust Bank Ltd
 Hongkong Shanghai Banking Corporation Ltd
 ICICI Bank Ltd
 IDBI Bank Ltd
 IndusInd Bank Ltd
 Syndicate Bank India
 Industrial Development Bank Of India
 ING Vysya Bank Ltd
 JP Morgan Chase Bank
 Punjab National Bank
 Standard Chartered Bank
 State Bank Of India
 State Bank Of Indore
 Canara Bank India
 Reserve Bank Of India
 SBI Commercial and International Bank
 Bank Of Baroda India
 Federal Bank India
 HDFC Bank India
 Union Bank Of India
 YES BANK India
 State Bank Of Bikaner And Jaipur
 Ceylon Bank
 Catholic Syrian Bank
 Dena Bank
 Mizuho Corporate Bank
 Indian Overseas Bank
 Karnataka Bank
 Punjab and Sind Bank
 Kotak Mahindra Bank
 State Bank of Hyderabad
 Karur vysya Bank Limited
 State Bank of Patiala
 Oriental Bank of Commerce
 State Bank of Travancore
 United Bank of India
 State Bank of Mysore
 Axis Bank
 Vijaya Bank
 Tamilnad Mercantile Bank
 Ratnakar Bank
 Jammu and Kashmir Bank
 UCO Bank
 DBS Bank Ltd.
 Lakshmi Vilas Bank
 The Nainital Bank Ltd.
Banking industry in India has evolved lately under the impact of the stimulus packages
announced by the Government. According to the Annual Policy 2008-09 of the Reserve Bank
of India (RBI), the central bank, key monetary aggregates have witnessed some growth in
2008-09. This is reflected in the changing liquidity positions arising from domestic and global
financial conditions and the policy inititaves taken by the government. Also, reserve money
variations during 2008-09 have largely reflected an increase in currency in circulation and
reduction in the cash reserve ratio (CRR) of banks.
According to a study by Dun & Bradstreet (an international research body)—"India's Top
Banks 2008"—there has been a significant growth in the banking infrastructure. Taking into
account all banks in India, there are overall 56,640 branches or offices, 893,356 employees
and 27,088 ATMs. Public sector banks made up a large chunk of the infrastructure, with 87.7
per cent of all offices, 82 per cent of staff and 60.3 per cent of all automated teller machines
(ATMs).
The Credit Scenario
The year-on-year (y-o-y) aggregate bank deposits stood at 21.2 per cent as on January 2,
2009. Bank credit touched 24 per cent (y-o-y) on January 2, 2009 as against 21.4 per cent on
January 4, 2008. The year-on-year (y-o-y) growth in non-food bank credit at 23.9 per cent as
on January 2, 2009 was higher than that of 22.0 per cent as on January 4, 2008.
Increase in total flow of resources from the banking sector to the commercial sector was also
higher at 23.4 per cent as compared with 21.7 per cent a year ago. The incremental credit-
deposit ratio rose to 81.4 per cent as on January 2, 2009, as against 63.1 per cent as on
January 4, 2008. Also, during 2008-09 so far, the total flow of resources to the commercial
sector from banks stood at US$ 58.83 billion upto January 2, 2009. Scheduled commercial
banks’ credit to the commercial sector expanded by 27.0 per cent (y-o-y) as on November 21,
2008, as compared with 23.1 per cent a year ago.
There has been variation in credit expansion across bank groups. Credit expansion as on
January 2, 2009 for public sector banks stood at 28.6 per cent, scheduled commercial banks
(SCBs) including the regional rural banks (RRBs) at 24 per cent, foreign banks at 6.9 per cent
and private sector banks at 11.8 per cent, according to the Annual Policy for 2008-09 of
Reserve Bank of India.
Several measures initiated by the Reserve Bank have resulted in banks reducing their deposit
and lending rates between November 2008 and January 2009. The range for deposit rates for
public sector banks varied from 5.25 to 8.5 per cent, foreign at 5.25 to 7.75 per cent and
private sector banks at 4 to 8.75 per cent. In the post-crisis quarter caused due to collapse of
Lehman Brothers, large corporates like Infosys moved their deposits to State Bank of India
(SBI), the country's largest bank. Infosys has revealed that it transferred deposits of nearly
US$ 200.61 million from ICICI Bank to SBI last year.
Deposits as on January 2, 2009 for public sector banks stood at 24.2 per cent, scheduled
commercial banks (SCBs) including the regional rural banks (RRBs) at 21.2 per cent, foreign
banks at 12.1 per cent and private sector banks at 13.4 per cent, according to the Annual
Policy for 2008-09 of the Reserve Bank of India.
The prime lending rates of public sector banks stood at 12 to 12.5 per cent, private sector
banks at 14.75 to 16.75 per cent and foreign banks 14.25 to 15.50 per cent as on January
2009.
Bank loans rose 18.1 per cent on year-on-year basis as on March 13, the RBI has said in its
Weekly Statistical Supplement released on March 27, 2009. Outstanding loans rose to US$
541.82 billion in the two weeks to March 13. The non-food credit rose to US$ 530.19 billion in
the two weeks, while food credit stood at US$ 9.61 billion in the same period.
Since October 2008, the central bank has cut the cash reserve ratio, or the proportion of
deposits that banks set aside, and the repo rate, or the rate at which it lends to banks, by 400
basis points each to inject liquidity into the system and activate a lower interest rate regime.
Also, the reverse repo rate has been lowered by 200 basis points to discourage banks from
parking surplus funds with RBI.
Till April 7, 2009, the CRR had further been lowered by 50 basis points, while the repo and
reverse repo rates have been lowered by 150 basis points each. Public sector banks have
pruned their benchmark prime lending rates (BPLRs) by 150-200 basis points. Also, in April
2009, private sector banks such as Axis and Bank of Rajasthan have reduced their BPLRs by
50 basis points. Only few foreign banks such as Citibank have pared home loan rates by 50
basis points to 13.75 per cent.
The rupee depreciated during 2008-09, reflecting varied developments in international financial
markets and portfolio outflows by foreign institutional investors (FIIs). The rupee exchange rate
was between 48.37 to 49.19 against the US dollar and 63.60-68.09 against the Euro in
January 2009.
Government Initiatives
Apart from the bank rate cuts announced in the stimulus packages, cash withdrawals from
bank will not attract tax from April 1, 2009 following abolition of the banking cash transaction
tax (BCTT) in the Union Budget 2008-09. The total collection of BCTT stood at US$ 120.36
million in 2008-09. Also, inter-ATM usage transaction became free of charges effective April 1,
2009.
Exchange rate used: 1 USD = 49.8417 INR

The transformation of the Indian banking sector

1. As you are aware, the financial sector reforms in the country were initiated in the beginning of the
1990s. The reforms have brought about a sea change in the profile of the banking sector. Our
implementation of the reforms process has had several unique features. Our financial sector reforms
were undertaken early in the reform cycle. Notably, the reforms process was not driven by any banking
crisis, nor was it the outcome of any external support package.
Besides, the design of the reforms was crafted through domestic expertise, taking on board the
international experiences in this respect. The reforms were carefully sequenced with respect to the
instruments to be used and the objectives to be achieved. Thus, prudential norms and supervisory
strengthening were introduced early in the reform cycle, followed by interest-rate deregulation and a
gradual lowering of statutory pre-emptions. The more complex aspects of legal and accounting
measures were ushered in subsequently when the basic tenets of the reforms were already in place.
2 .The public sector banks continue to be a dominant part of the banking system. As on March 31,
2008, the PSBs accounted for 69.9 per cent of the aggregate assets and 72.7 per cent of the aggregate
advances of the Scheduled commercial banking system. A unique feature of the reform of the public
sector banks was the process of their financial restructuring.
The banks were recapitalised by the government to meet prudential norms through recapitalisation
bonds. The mechanism of hiving off bad loans to a separate government asset management company
was not considered appropriate in view of the moral hazard. The subsequent divestment of equity and
offer to private shareholders was undertaken through a public offer and not by sale to strategic
investors. Consequently, all the public sector banks, which issued shares to private shareholders, have
been listed on the exchanges and are subject to the same disclosure and market discipline standards
as other listed entities.
To address the problem of distressed assets, a mechanism has been developed to allow sale of these
assets to Asset Reconstruction Companies which operate as independent commercial entities.
3. As regard the prudential regulatory framework for the banking system, we have come a long way
from the administered interest rate regime to deregulated interest rates, from the system of Health
Codes for an eight-fold, judgmental loan classification to the prudential asset classification based on
objective criteria, from the concept of simple statutory minimum capital and capital-deposit ratio to the
risk-sensitive capital adequacy norms – initially under Basel I framework and now under the Basel II
regime. There is much greater focus now on improving the corporate governance set up through “fit
and proper” criteria, on encouraging integrated risk management systems in the banks and on
promoting market discipline through more transparent disclosure standards. The policy endeavor has
all along been to benchmark our regulatory norms with the international best practices, of course,
keeping in view the domestic imperatives and the country context. The consultative approach of the
RBI in formulating the prudential regulations has been the hallmark of the current regulatory regime
which enables taking account of a wide diversity of views on the issues at hand.
4.The implementation of reforms has had an all round salutary impact on the financial health of the
banking system, as evidenced by the significant improvements in a number of prudential parameters.
Let me briefly highlight the improvements in a few salient financial indicators of the banking system.
The average capital adequacy ratio for the scheduled commercial banks, which was around two per
cent in 1997, had increased to 13.08 per cent as on March 31, 2008. The improvement in the capital
adequacy ratio has come about despite significant growth in the aggregate asset of the banking
system. This level of capital ratio in the Indian banking system compares quite well with the banking
system in many other countries – though the capital adequacy of some of the banks in the developed
countries has remained under considerable strain in the recent past in the aftermath of the sub-prime
crisis.

In regard to the asset quality also, the gross NPAs of the scheduled commercial banks, which were as
high as 15.7 per cent at end-March 1997, declined significantly to 2.4 per cent as at end-March 2008.
The net NPAs of these banks during the same period declined from 8.1 per cent to 1.08 per cent.
These figures too compare favourably with the international trends and have been driven by the 4
improvements in loan loss provisioning by the banks as also by the improved recovery climate enabled
by the legislative environment. What is noteworthy is that the NPA ratios have recorded remarkable
improvements despite progressive tightening of the asset classification norms by the RBI over the
years. The reform measures have also resulted in an improvement in the profitability of banks. The
Return on Assets (RoA) of scheduled commercial banks increased from 0.4 per cent in the year 1991-
92 to 0.99 per cent in 2007-08.

The Indian banks would appear well placed in this regard too vis-à-vis the broad range of RoA for the
international banks.The banking sector reforms also emphasised the need to improve productivity of
the banksthrough appropriate rationalisation measures so as to reduce the operating cost and improve
theprofitability. A variety of initiatives were taken by the banks, including adoption of modern
technology, which has resulted in improved productivity. The Business per Employee (BPE), as a
measure of productivity, for the public sector banks has registered considerable improvement. The BPE
for the public sector banks, which was Rs. 95 lakh in 1998-99, almost doubled to Rs. 188 lakh in 2002
and more than re-doubled to Rs. 496 lakh in 2007.
5. It needs to be noted that the turnaround in the financial performance of the public sector
banks,pursuant to the banking sector reforms, has resulted in the market valuation of government
holdings in these banks far exceeding the initial recapitalisation cost – which is something unique to the
Indian banking system. Thus, the recapitalisation of banks by the government has not been merely a
“holding out” operation by the majority owner of the banks.
 The Indian experience has shown that a strong, pragmatic and non-discriminatory regulatory
framework coupled with the market discipline effected through the listing of the equity shares and
operational autonomy provided to the banks, can have a significant positive impact on the functioning of
the public sector banks.

The Task Ahead

1. Let me now turn to some of the areas where the public sector banks face certain challenges and
hence, need to work further to achieve the desired results, particularly in regard to fuller leveraging of
the available technology for rendering better banking services to the public at large.
Awareness of electronic payment products.
2. As is well known, the financial sector has witnessed a quantum jump in the availability of
technological solutions for delivery of financial services, and the RBI too has launched several
paymentsystem products for improving the efficiency of the payment system. It is, however, the general
perception that the awareness of these products in the system has remained rather limited.
This lack of awareness is not confined to only to the members of public at large. It is not uncommon to
find that even the branch staff, having direct interface with the banking customers, is not aware of these
products and services offered by the bank. This has, therefore, resulted in the continued reliance of the
members of public on the traditional methods for availing of various banking services and the benefits
of technology have not fully percolated to the level of the customers.
I would, therefore, like to urge upon you to take appropriate measures to increase the awareness of
the electronic payment products – not only among the clientele of the banks but also among the banks’
own staff so that the members of public can be properly guided and efficient and hassle-free customer
service is rendered to them. National Electronic Fund Transfer
3 .As you are aware, the NEFT was launched by the RBI in November 2005 as a more secure,
nationwide retail electronic payment system to facilitate funds transfer by the bank customers, between
the networked bank branches in the country. It has, however, been observed that the public sector
banks are not the most active users of this product and the majority of NEFT outward transactions are
originated by a few new-generation private sector banks and foreign banks.
For instance, in June 2008, while these banks, as a segment, accounted for a little over 43 per cent
each of the aggregate volume of outward and inward NEFT transactions, the share of public sector
banks in total outward NEFT transactions was rather low at a little over 12 per cent, of which half the
volume was the contribution of the State Bank of India.
The RBI has been pursuing the matter with the PSBs for increasing their participation in the NEFT
system in terms of the number of NEFT-enabled branches and the number of NEFT transactions
originated by them. I would like to urge upon the bankers present here to initiate appropriate measures
to stimulate greater usage of this payment medium and thereby, improve their share in this regard.
In order to popularise the e-payments in the country, the RBI, on its part, has waived the service
charges to be levied on the member banks, till March 31, 2009, in respect of the RTGS and NEFT
transactions. The RBI also provides, free of charge, intra-day liquidity to the banks for the RTGS
transactions. The service charges to be levied by banks from their customers for RTGS & NEFT have,
however, been deregulated and left to discretion of the individual bank.
It has been our experience that while some of the banks have rationalised their service charges and a
few have made it even cost-free to the customers, there are also certain banks that have fixed multiples
slabs or unreasonably high service charges, at times linked to the amount of the transaction, for
providing these services to their customers –even though the RBI provides these services to the banks
free of charge.
I would therefore, like to take this opportunity to impress upon such banks the need to have proper
appreciation of the underlying policy intent of the RBI in waiving the charges for these services, and to
adopt a pragmatic approach in determining their own service charges for providing these electronic
payment products to their customers.
4. As many of you might know, the National Financial Switch (NFS) network started its operations on
August 27, 2004 and is owned and operated by Institute for Development and Research in Banking
Technology (IDRBT), Hyderabad. NFS is one of the several shared ATM networks which interconnect
the banks’ ATM switches together and thus, enable inter-operability of the ATM cards issued by any
bank across the entire network. While there are a few other ATM networks also functioning in the
country, the NFS has emerged to be the largest one, with a network of 28,773 ATMs of 31 banks,
including 16 public sector banks.

The primary objective of any ATM network, like the NFS, is to make the ATM deployment more
economical and viable for banks by pooling their respective ATM resources. The main advantage of an
ATM network is that it obviates the need for having bank-specific multiple ATM installations in the same
geographical area, thereby reducing the entailed costs for the banks but without compromising on the
reach of the banks to their customers. From the customers’ perspective, the ATM card of any bank can
be used in any ATM – which enables more convenient and wider ATM access to the bank customers of
varied banks in different geographical areas.

As regards the charges for use of the ATMs connected through any of the ATM networks in the country,
while the balance enquiry by the customers is free of any charges, the cash withdrawal from such
ATMs, which currently attracts a nominal charge, would also become cost free for the customers from
April 1, 2009,. Thus, the networking of the ATMs across the country, by leveraging the technology, is
indeed a very customer-friendly development.
May I also mention for record that as at end-June 2008, the number of ATMs in the country stood at
36,314 of which the number of ATMs deployed by the PSBs, new-private-sector, old-private-sector and
foreign banks was 22,525, 10,552, 2,189 and 1048 ATMs, respectively. At the system level, the banks
had planned the installation of another 10,560 ATMs during 2008-09. During the quarter ended June
2008, the daily average number of hits on the ATMs of the PSBs aggregated 31,31,431, with the daily
average amount of transactions at Rs. 759.81 crore as against the corresponding figure of 14,91,399
and over Rs. 385 crore for the (old and new) private sector banks, of which the new private sector
banks accounted for a loin’s share at 12,84, 071 hits and around Rs. 329 crore in the value of daily
transactions.

Credit Cards
1. As you are aware, there has been phenomenal increase in the number of credit cards issued by the
banks in India during the last few years and a majority of the PSBs has been in the credit card business
 since long. The number of credit cards outstanding at the end of June 2008 was 27.02 million as
against 24.39 million in June 2007. Of these, the number of credit cards issued by public sector banks
was 3.8 million, of which 3.09 million cards were issued by the SBI Cards – a joint venture of GE Money
and SBI. The usage of credit cards has also recorded an increase of 10.73 per cent during the year this
period, which is mainly at the Point of Sale (POS) terminals. In June 2008, the number of transactions
by credit cards at POS terminals was 20.6 million as against 17.2 million transactions in June 2007,
reflecting an increase of almost 20 per cent during the year. The amount involved in these transactions
recorded a growth of 25.6 per cent during the year ended June 2008 with the aggregate value of such
transactions at Rs. 5261.63 crore.
While the increasing usage of the credit cards is a welcome development in as much as it reduces
reliance on currency for settlement of transactions, it also entails certain additional elements of
operational risk and can be a potential source of customer complaints. The RBI, based on the
complaints received from the credit card holders, had undertaken a study of the credit card operations
of the banks.
The RBI has since advised the banks in July 2008, the recommendations emerging from the study, for
implementation. These recommendations are fairly wide ranging and encompass several issues in the
areas of card issuance, card statements, interest and other chares on the cards, using the services of
direct selling / marketing agents, redressal of customers’ grievances, reporting of default information of
the card holder to the CIBIL, etc. I would urge the banks to put in place necessary mechanism to
ensure meticulous compliance with these instructions of the RBI so as to minimise, if not eliminate, the
risks and customer complaints in the area of credit card operations.
Satellite banking
10. As you might be aware, having regard to much greater reliability of a satellite-based communication link
for interconnecting the branches of the banks, particularly in the hilly areas and difficult terrain where
terrestrial communication link is difficult to provide, the RBI had constituted a Technical Group to
examine the proposal for providing satellite connectivity to the bank branches in such areas.
The objective is to enable greater penetration of the electronic payment products in the hinterland
areas also, by facilitating the integration of the rural and remote branches with the core banking solution
platform of the banks and help them providing efficient banking services to their customers. Under the
proposal, the RBI would be bearing a part of the leased rentals for the satellite connectivity, provided
the banks use it for connecting

their branches in the North Eastern States and in the under-banked districts in the rest of the country.
Thus, the RBI would be providing an incentive to the banks for adopting the satellite communication
technology for networking their branches in the remote areas. A discussion paper on this scheme was
placed on RBI website in June 2008 for public comments.
The comments received were examined and the modalities of implementing the incentive scheme are
being worked out in consultation with the Indian Banks’ Association. I would, however, like to take this
opportunity to encourage the banks to be in readiness to embrace this latest technology for further
improving the delivery of banking services, specially in the remote parts of the country, with a view to
enhancing financial inclusion.

Financial Inclusion
Last but not the least, let me now dwell briefly on the issue of financial inclusion, in which the banks
have a major role to play. Given the socio-demographic complexities in India, the policy endeavour of
the RBI has been to adopt a multi-institutional and multi-instrument approach to comprehensively
address the issue of financial inclusion in all its dimensions, going beyond mere availability of credit to
themasses.
The term ‘financial inclusion’ needs to be understood in a broader perspective to mean the provision of
the full range of affordable financial services, viz., access to payments and remittance facilities,
savings, loans and insurance services by the formal financial system to those who tend to be excluded
from these services.
The RBI, while recognising the concerns in regard to the banking practices that tend to exclude rather
than attract vast sections of population, has been urging the banks to review their existing practices to
align them with the objective of achieving greater financial inclusion. The RBI too has taken a number
of measures with the objective of attracting the financially excluded population into the formalised
financial system. Let me briefly recount some of the measures taken in this direction. With a view to
achieving greater financial inclusion, banks were advised in November 2005 to make available a basic
banking ‘no frills’ account either with ‘nil’ or very low minimum balances as well as charges that would
make such accounts accessible to vast sections of population. All the public and the private sector
banks as well as the foreign banks, except those not having significant retail presence, are reported to
have introduced the basic banking 'no-frills' account.
With the objective of providing hassle-free credit to the banks’ constituents in rural and semi urban
areas, the banks were advised in December 2005, to consider introduction of a General Credit Card
(GCC) to such constituents. The card was to have a credit limit of up to Rs. 25000/-, based on the
assessment of income and cash flows of the household without insistence on security or purpose or
endues of credit. The credit facility was to be in the nature of revolving credit entitling the holder to
withdraw up to the limit sanctioned. The banks are required to charge appropriate and reasonable
Interest rate on the facility.

In January 2006, banks were permitted to utilise the services of non-governmental

organisations( NGOs/SHGs), micro-finance institutions and other civil society organisations as
intermediaries inproviding financial and banking services through the use of business facilitator and
business correspondent (BC) models. The BC model allows banks to do ‘cash in - cash out’
transactions at the location of the BC and allows branchless banking.
The matter of issuing passbooks to the small depositors has been a nagging issue for sometime past.
As we all know, the pass books provide the account holders a ready reckoner of the transactions intheir
accounts and is a convenient reference document – which can not be substituted by periodical bank
account statements, particularly by the small account holders.
Since non-issuance of the pass books to the small customers could indirectly lead to their financial
exclusion, the RBI had advised the banks in October 2006 to invariably offer the pass book facility to all
its savings bank account holders (individuals) and not to levy any charge from the customers therefor. I
do hope that the banks, particularly those with greater reliance on technology, have instituted
necessary measures to ensure that non-provision of pass books does not become yet another source
of financial exclusion.
With a view to facilitating the opening of bank accounts by the common man through a simplified KYC
procedure, in the Mid-Term Review of the Annual Policy of the RBI for the year 2006-07, it was
announced that the "banks could open accounts of low balance / turnover (where the balance does not
exceed Rs. 50,000/- in all the accounts taken together and the total credit in all the accounts taken
together is not expected to exceed rupees two lakh in a year) only with self certification of address by
the customers and his photograph." However, this policy announcement is yet to be operationalised as
the matter is under consideration of the Government in the light of the provisions of the Rules framed
under Prevention of Money Laundering Act.
Promoting credit counselling and financial education of the clientele of the banks is also an area
that deserves due attention of the banking community. Towards this objective, the banks were also
advised by the RBI to make available all printed material used by retail customers in the concerned
regional language. As far as RBI itself is concerned, it has launched on 18 June 2007, a multilingual
website in 13 Indian languages on all matters concerning banking and the common person so that the
language does not become a barrier to acquiring financial education by the public at large.

Conclusion
I have tried to present a broad over view of the progress achieved by the Indian banking sector in the
post-reform era over past two decades or so. While we have no doubt made significant progress on
several fronts in the banking arena, the enduring challenge of ensuring much greater financial inclusion,
to my mind, is the mightiest one facing the banking industry and also the RBI, as the regulator and
supervisor of the banking system. Appropriate leveraging of technological innovations holds the
promise of providing a cost-effective solution to this challenge. I am sure the Indian banking industry
would make concerted efforts at evolving and embracing ‘appropriate technology’ to secure fullest
financial inclusionof the Indian populace, in the days to come.

HISTORY OF BANKING IN INDIA

Modern banking developed in the west, in response to the need of increasing industrialization
of the economy. Money circulation increased with the provision of various money deposit
schemes by the banks.
While “sahkari” practiced modern banking has developed strong roots. There are several types
of banking in our country. At the apex is the Reserve Bank of India, with powers to regulate the
entire banking system, print currency, extend loans to the government, and formulate credit
policy.
Next comes the state bank of India and its subsidiaries. Then there are the nationalized banks,
which are public sector undertakings. Under the new economic regime, private banks are once
again coming up in a big way. Co-operative banks have also been set up. Local area banks in
addition to credit thrifts societies formed by the staff of government departments are becoming
popular.
 At the dawn of independence, hundred of the banks were in operation, often and by
unscrupulous managements. In 1949, the government of India took two major steps. The first
was the enactment of the banking regulation act, which gave regulatory powers to RBI the
Indian banking system, grew not only geographically but also structurally. However, the
number of scheduled banks came down from 94 to 76 over the same period. Their deposit
rose from Rs 843 crore in 1950-51 to Rs 2,025 crore in 1969-70.

Time deposits, as did personal accounts comp aired to business accounts during the same
period. The s5tste bank of India was setup in 1955. Eight regional banks were nationalized in
1960 and had to open new offices in semi urban and rural areas. They’re for their relative
share in total deposits increased.

Nationalization of Banks
The need for and mode of social control over banks is required in order to prevent a monopoly
and check oligopolistic practice was debated. 14 commercial banks with deposits worth Rs 50
crores were nationalized in 1969.
The objective of the nationalization of the banks as stated by Mrs. Indira Gandhi, former prime
minister of India were:
 Removal of control by few.
 Provision for adequate credit to the agriculture sector, small industries and exports.
 Giving a professional trust to the managements of banks.
 Encouraging a new class of entrepreneurs.
 Provision of adequate training as well as better terms of service to bank staff.

The Banking Companies Acquisition and Transfer of Undertaking Act, 1969 spelt out of
objectives of and reasons for nationalization as follows, “ the banking system touches the lives
of millions and has to be inspired by a large purpose and has to subscribe to national priorities
and objectives such as rapid growth in agriculture, small industries and exports raising of
employment level, and the development of backward classes. For this purpose it is necessary
for government to take direct responsibility for extension and diversification of banking
services and for the working of substantial part of the banking system.

The establishment of National Bank for Agriculture and Rural Development (NABARD) on 12 th
July 1982 was another milestone in banking. The Export and Import Bank (EXIM) was setup in
1985 to look after the financial needs of the exporters and importers. In recent years there has
been phenomenal growth in banking sector and continuing reforms have ensured their
competitiveness, viability and profitability. The Cash Reserve Ratio (CRR) cuts have increased
liquidity and now enough lendable resources and the banks have reduced their Prime Lending
Rates (PLR). The overall negative growth rate of public sector banks is a matter of concern.
The total non-performing assets of Indian banks have been taken to tackle these problems. In
recent years there has been a phenomenal growth in banking services and activities.

STRUCTURE OF BANKS IN INDIA

Structure of banks in India

Scheduled Non-Scheduled
Banks-
Banks

Commercial
Banks

Central Co- Commercial

operative Banks Banks
State Co-
operative Banks

Private Sector
Public Sector Banks
Banks
In India Total Banks are more than 1000, out of which Public sector Banks are 26 (Nationalized 19 &
others 7), Private sector Banks are 26 & Foreign Banks are 31 and rest are Non Scheduled & State Co
operative Banks. The maximum business is being done by PSU Banks, Pvt. Banks & Foreign Banks.

ICICI BANK
ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81
billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year
ended March 31, 2010.
The Bank has a network of 2,035 branches and about 5,518 ATMs in India and presence in
18 countries. ICICI Bank offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through its
specialized subsidiaries in the areas of investment banking, life and non-life insurance,
venture capital and asset management. The Bank currently has subsidiaries in the United
Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain,
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. Their UK subsidiary has established branches in Belgium and Germany.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National
Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on
the New York Stock Exchange (NYSE).
ICICI Bank Limited (the Bank) is a banking company engaged in providing a range of banking
and financial services, including commercial banking and treasury operations. It operates
under four segments: retail banking, wholesale banking, treasury and other banking. The
Bank’s subsidiaries include ICICI Prudential Life Insurance Company Limited, ICICI Lombard
General Insurance Company Limited, ICICI Trusteeship Services Limited, ICICI Prudential
Pension Funds, Management Company Limited, ICICI Home Finance Company Limited and
ICICI Securities Limited.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,562.28 billion (US$ 77
billion) at December 31, 2009 and profit after tax Rs. 30.19 billion (US$ 648.8 million) for the
nine months ended December 31, 2009. The Bank has a network of 1,700 branches and about
4,883 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking
products and financial services to corporate and retail customers through a variety of delivery
channels and through its specialised subsidiaries and affiliates in the areas of investment
banking, life and non-life insurance, venture capital and asset management. The Bank
currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United
States, Singapore, Bahrain, 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. Our UK subsidiary has established branches in Belgium
and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National
Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on
the New York Stock Exchange (NYSE).
Specialties
Banking products and financial services

Products and Services

ICICI Bank offers a host of products and services to its clients, which include Deposits, Loans,
Cards, Investments, Insurance, Demat, NRI Services and Online Services etc.
Deposits

Following deposits are offered:

 Savings Account
 Advantage Deposit
 Special Savings Account
 Life Plus Senior Citizens Savings Account
 Fixed Deposits
 Security Deposits
 Recurring Deposits
 Tax-Saver Fixed Deposit
 Young Stars Savings Account
 Child Education Plan
 Bank@Campus
 Salary Account
 Advantage Woman Savings Account
 EEFC Account
 Resident Foreign Currency (Domestic) Account
 Privilege Banking
 No Frills Account
 Rural Savings Account
 People's Savings Account
 Self Help Group Accounts
 Outward Remittance
 Freedom Savings Account
 Family Banking
 Loans

ICICI Bank offers following loan facilities:

 Home Loans
 Loan Against Property
 Personal Loans
 Car Loans
 Two Wheeler Loans
 Commercial Vehicle Loans
 Loans Against Securities
 Loan Against Gold Ornaments
 Pre-approved Loans

Cards
ICICI Bank is India's largest issuer of credit cards. It also offers other types of cards. The
various cards offered by ICICI bank are as below:
 Consumer Cards
 Credit Cards
 Travel Cards
 Debit Cards
 Commercial Cards
 Corporate Cards
 Prepaid Cards
 Purchase Cards
 Distribution Cards
 Business Cards
 Merchant Services
Investments

ICICI Bank facilitates a range of investment products including:

 ICICI Bank Tax Saving Bonds
 Mutual Funds
 Government of India Bonds
 Initial Public Offers (IPO) by Corporates
 Foreign Exchange Services
 ICICI Bank Pure Gold
 Senior Citizens Savings Scheme, 2004
 Insurance

ICICI Bank offers various types of insurance. Customers can choose from the following:
 Home Insurance
 Health Insurance
 Health Advantage Plus
 Family Floater
 Personal Accident
 Travel Insurance
 Individual Overseas Travel Insurance
 Student Medical Insurance
 Motor Insurance
 Car Insurance
 Two Wheeler Insurance
 Life Insurance
 ICICI Pru LifeTime Gold
 ICICI Pru LifeState RP
NRI Services
Following services are offered to the NRIs:
 Money Transfer
 Bank Accounts
 Investments
 Home Loans
 Insurance
 Loans Against FD

ICICI Bank
CEO
Chanda Kochar

Chairman of the Board

Kandapur Kamath

Chairman of the Board

Narayanan Vaghul

Director
Sridar Iyengar

Executive Director
MPB

Compliance, Secretary
SBHuman Resources

ICICI Bank’s Strategy for Promotion of Financial Inclusion

Introduction
People from low-income groups live in high-risk and unpredictable environment, making
access to financial services vital for their sustenance. Dealing with life cycle events,
emergencies and planning for future are some aspects in which financial intervention can help.
A large part of this financially under-served segment resides in rural India. Integration of rural
India into economic mainstream will boost rural household incomes and have a multiplier effect
on the demand for goods and services across the economy while promoting financial inclusion.
However, considering the sheer size of the population and the geographic spread, neither the
existing bank branch based infrastructure nor the standard financial products are optimal to
meet the financial needs of the rural populace. Seasonality in income, coupled with
dependence on weather, necessitates creation of financial products that mitigate such risks. At
the same time, traceable credit histories need to be built that will help in designing products
that meet needs such as housing, health, education, child care etc. Further, varying financial
needs of different customer segments viz. manual labourers, farmers, traders, and rural
entrepreneurs calls for customised financial products.
Focus on Underserved Segments ICICI Bank has taken up specific initiatives to ramp up
financial literacy as well as intermediation to the underserved and underbanked segments in
both rural and urban areas.
Customers’ Financial Behaviour
In the absence of a formal Credit Bureau, extending financial service to low income segments
becomes a challenge. To overcome this challenge, ICICI Bank’s financial intermediation
models, both through the microfinance institutions and business correspondents have been
designed to build a repository of information with regard to financial behavior of the customers.
Through Financial Information Network and Operations Limited (FINO (Refer Annexure I for
details on FINO)), the technology platform it has helped conceptualise, and the biometric card,
the Bank is able to collect demographic information of the customers. It would be possible to
trace details such as credit history, savings habit and investment patterns of individuals.
This information would be useful to incentivise those with good credit history and to discourage
wilful default, at the same time developing better-suited financial products.
This information, when shared across the industry, will enable the underserved segments to
have access to financial services in a well-defined credit analysis framework. It will also go a
long way in channelising funds from funding agencies involved in promoting financial inclusion.
They can track and monitor the end use
of their funds, thus being able to assess the impact of their interventions.
ICICI Bank’s Financial Intermediation Models:
With focus on low-income segments, ICICI Bank has come up with innovative delivery
channels:
Microfinance
ICICI Bank works closely with MFIs and NGOs to adapt its products to suit consumer needs.
Two innovative models have helped achieve scale in serving the low-income household:

a) Partnership Model being implemented with NGOs and MFIs: Under this model ICICI Bank
forges an alliance with existing MFIs wherein the MFI undertakes the promotional role of
identifying, training and promoting the micro-finance clients and the ICICI Bank finances the
clients directly on the recommendation of the MFI, so the customer and portfolio resides in the
Bank’s book.
b) Securitisation of Portfolios of MFIs: Under this model ICICI Bank buys out portfolios from
MFIs. The MFI continues to service the clients and acts as the collection agent. Here again,
the MFI shares the credit risk with the Bank. A variant of the securitisation model is ‘on-tap
securitisation’, wherein the MFI receives an advance purchase consideration to create a
portfolio of loans that could then be periodically sold to ICICI Bank.
The guiding principles on the basis of which these models have evolved have been to separate
the MFI’s balance sheet risk from its operational risk, and leveraging the core competencies of
a Bank (financial strength) and an MFI (social mobilization, client management) to achieve
scale.
Technology The Bank has been actively looking at technology solutions to scale up the micro
finance portfolio. Further, the Bank has been considering adopting a 'Core Banking
System' (CBS) for managing the loan portfolio generated under the partnership model. In this
regard, the Bank has found an able partner in FINO to provide technology solutions to the
micro finance sector. The technology solution comprises of core banking and smart card
systems. In light of the technology solutions available through FINO, the Bank has designed a
new process for delivering loans under the partnership model.
Some of the key aspects where a strong technology platform will add value to the micro
finance operations include reduction in transaction cost; better data management and reporting
capacities and capability to interface with multiple peripherals, etc. This will also enable
enhanced disclosure and transparency in the operations of MFIs, setting a platform for robust
securitisation / buyout opportunities to meet the priority sector lending objectives of the
regulator.
Business Correspondent
In line with the RBI guidelines ICICI Bank employs Business Correspondent (BC) model to
extend financial services, especially the much-needed savings services to rural customers.

In the pilot stage, the transactions by BC are being done with the help of an 'e- Passbook' and
an Authentication Device (AD). The e-Passbook can display and store the customer KYC
information, customer account details and the transactions in each account. It also has a
unique feature of biometric authentication by the way of fingerprints, thereby mitigating the risk
related to PIN (Personal Identification Number) in the rural scenario.
ADs provide Customer interface with user-friendly menu options, enabling transactions. An
authorized operator is enrolled by capturing the fingerprints of all the 10 fingers to mitigate
fraud risk, can operate each AD. The transaction is recorded on the AD, which at specific
intervals would be uploaded and updated in the Bank's system through a normal telephone
line, which is a widely available infrastructure even in remote rural areas. Further connectivity
through GSM and CDA would also be made possible to ensure that the transaction details are
updated in the Bank’s system at higher frequency. How does this Align with the Overall Rural
& Agri Strategy of ICICI Bank? ICICI Bank has adopted inclusive banking strategy to provide
financial intermediation to farmers, traders and processors as well as the underserved
segments. The elements on which the Bank’s rural strategy is based are multiple products that
meet customer requirements, offered through technology-based channels.
Multiple products
ICICI Bank offers a complete suite of products and services to meet the individual financial
requirements of customer segments. Savings, investments and insurance products are made
available to its rural and agri customer base. The Bank also offers microfinance services to
low-income households and crop loans, farm equipment loans, commodity based loans to
farmers. Hybrid channels ICICI Bank employs delivery channels backed by technological
innovations to achieve scale and outreach in a sustainable manner. The Bank’s channel
architecture includes branch and non-branch channels. Branches act as a business hub
providing banking services on the one hand, while facilitating the fulfilment of products that
have been sourced by the business facilitators and business correspondents.
Non-branch channels are of two types, business facilitators and business correspondents.
Business facilitators, referred to as ‘Vikas Sahyogis’, are outsourced channels that generate
business opportunities for the Bank. Network of Vikas Sahyogis has been set to act as referral
or sourcing agents for loans, insurance and investment products such as mutual funds. These
centres are operated by local people with existing relationship with the Bank’s customer
segments. Vikas Sahyogis include agri input dealers, tractor dealers, automobile dealers and
diesel dealers.
Solution for the rural masses
The FINO team has developed a platform using a biometric enabled multiapplication hybrid
smart cards and biometric enabled handheld devices to cater to the needs of Local Financial
Institutions (LFIs) serving the rural masses. The platform has been sized for 12 - 50 mn
customers at the moment but can easily be expanded if the needs are larger. FINO's solution
is a comprehensive solution which encompasses three key components:
1. Core banking system component which is built as a shared back end banking engine that
provides accounting, MIS, reporting and monitoring facility for all asset and liability products
that the micro sector requires.
2. Distribution component that enables “offline” data capture from end user specific unique,
biometric enabled hybrid multi-application Smart Cards. These smart cards can hold upto 15
different types of end consumer financial and non-financial relationships on a single card. In
the field, these cards can interact with various offline channel enablers like FINO's biometric
enabled. Point of Transaction devices (POT), Mobile POS/PDAs etc. and existing magstripe
based on-Line networks of ATMs, PCs, POS and Kiosks. Captured end consumer data is
periodically transferred to a centralized location using connectivity options like PSTN
(GSM/CDMA options are being planned). Authentic identification and non-repudiation of
transactions is achieved through the biometric finger print templates stored in the card of the
end user. The finger print verification is done at the device level where a live fingerprint of the
end user is captured and verified using against the stored fingerprint template on the card.
3. Credit Bureau component which enables creation of knowledge base and financial credit
worthiness, credit rating profile of the end user
Company’s current position in market
ICICI Bank (NSE: ICICIBANK, BSE: 532174, NYSE: IBN) (formerly Industrial Credit and
Investment Corporation of India, Hindi: आय सी आय सी आय बैं क ) is a major banking and
financial services organization in India. It is the second largest bank in India and the largest
private sector bank in India by market capitalization. The bank also has a network of 2,016
branches (as on 31 March 2010) and about 5,219 ATMs in India and presence in 18 countries,
as well as some 24 million customers (at the end of July 2007). ICICI Bank offers a wide range
of banking products and financial services to corporate and retail customers through a variety
of delivery channels and specialization subsidiaries and affiliates in the areas of investment
banking, life and non-life insurance, venture capital and asset management. (These data are
dynamic.) ICICI Bank is also the largest issuer of credit cards in India. ICICI Bank's shares are
listed on the stock exchanges at BSE, NSE, Kolkata and Vadodara (formerly Baroda) ; its
ADRs trade on the New York Stock Exchange (NYSE).
The Bank is expanding in overseas markets and has the largest international balance sheet
among Indian banks. ICICI Bank now has wholly owned subsidiaries, branches and
representatives offices in 19 countries, including an offshore unit in Mumbai. This includes
wholly owned subsidiaries in Canada, Russia and the UK (the subsidiary through which the
HiSAVE savings brand is operated), offshore banking units in Bahrain and Singapore, an
advisory branch in Dubai, branches in Belgium, Hong Kong and Sri Lanka, and representative
offices in Bangladesh, China, Malaysia, Indonesia, South Africa, Thailand, the United Arab
Emirates and USA. Overseas, the Bank is targeting the NRI (Non-Resident Indian) population
in particular.
ICICI reported a 1.15% rise in net profit to 1,014.21 crore on a 1.29% increase in total income
to 9,712.31 crore in Q2 September 2008 over Q2 September 2007. The bank's CASA ratio
increased to 30% in 2008 from 25% in 2007.
ICICI Bank is one of the Big Four Banks of India, along with State Bank of India, Punjab
National Bank Bank of india and Canara Bank — its main competitors.
In 1954, The Industrial Credit and Investment Corporation of India Limited (ICICI) was
incorporated at the initiative of World Bank, the Government of India and representatives of
Indian industry, with the objective of creating a development financial institution for providing
medium-term and long-term project financing to Indian businesses. In 1994, ICICI established
Banking Corporation as a banking subsidiary. Formerly known as Industrial Credit and
Investment Corporation of India, ICICI Banking Corporation was later renamed as 'ICICI Bank
Limited'. ICICI founded a separate legal entity, ICICI Bank, to undertake normal banking
operations - taking deposits, credit cards, car loans etc. In 2001, ICICI acquired Bank of
Madura (est. 1943). Bank of Madura was a Chettiar bank, and had acquired Chettinad
Mercantile Bank (est. 1933) and Illanji Bank (established 1904) in the 1960s. In 2002, The
Boards of Directors of ICICI and ICICI Bank approved the reverse merger of ICICI, ICICI
Personal Financial Services Limited and ICICI Capital Services Limited, into ICICI Bank. After
receiving all necessary regulatory approvals, ICICI integrated the group's financing and
banking operations, both wholesale and retail, into a single entity. At the same time, ICICI
started its international expansion by opening representative offices in New York and London.
In India, ICICI Bank bought the Shimla and Darjeeling branches that Standard Chartered Bank
had inherited when it acquired Grindlays Bank.
In 2003, ICICI opened subsidiaries in Canada and the United Kingdom (UK), and in the UK it
established an alliance with Lloyds TSB. It also opened an Offshore Banking Unit (OBU) in
Singapore and representative offices in Dubai and Shanghai. In 2004, ICICI opened a
representative office in Bangladesh to tap the extensive trade between that country, India and
South Africa. In 2005, ICICI acquired Investitsionno-Kreditny Bank (IKB), a Russia bank with
about US$4mn in assets, head office in Balabanovo in the Kaluga region, and with a branch in
Moscow. ICICI renamed the bank ICICI Bank Eurasia. Also, ICICI established a branch in
Dubai International Financial Centre and in Hong Kong. In 2006, ICICI Bank UK opened a
branch in Antwerp, in Belgium. ICICI opened representative offices in Bangkok, Jakarta, and
Kuala Lumpur. In 2007, ICICI amalgamated Sangli Bank, which was headquartered in Sangli,
 in Maharashtra State, and which had 158 branches in Maharashtra and another 31 in
Karnataka State. Sangli Bank had been founded in 1916 and was particularly strong in rural
areas. With respect to the international sphere, ICICI also received permission from the
government of Qatar to open a branch in Doha. Also, ICICI Bank Eurasia opened a second
branch, this time in St. Petersburg. In 2008, The US Federal Reserve permitted ICICI to
convert its representative office in New York into a branch. ICICI also established a branch in
Frankfurt. In 2009, ICICI made huge changes in its organisation like elimination of loss making
department and restreching outsourced staff or renegotiate their charges in consequent to the
recession. In addition to this, ICICI adopted a massive approach aims for cost control and cost
cutting. In consequent of it, compesation to staff was not increased and no bonus declared for
2008-09.
On 23 May ICICI Bank announced that it would merge with Bank of Rajasthan through a
share-swap in a non-cash deal that values the Bank of Rajasthan at about 3,000 crore. ICICI
announced that the merger expand ICICI Bank's branch network by 25%. [9][10][11]
On 18h October 2010, ICICI will inaugurate I-Express, an instant cross-border money transfer
option for Non-Resident Indians (NRIs). This service will be available through the ICICI Bank's
select partners in the Gulf Cooperation Council

BANK OF RAJASTHAN
Bank of Rajasthan, with its stronghold in the state of Rajasthan, has a nationwide presence,
serving its customers with a mission of “together we prosper " engaging actively in
Commercial Banking, Merchant Banking, Auxiliary services, Consumer Banking, Deposit &
Money Placement services, Trust & Custodial services, International Banking, Priority
Sector Banking, Depositary.
Bank of Rajasthan, a leading Private Sector Bank, having branches all over India with
prominent presence in Rajasthan having specialized forex and Industrial finance branches.
The Bank is committed to the highest level of customer satisfaction through personalized and
efficient services. Bank of Rajasthan is a listed old Indian private sector bank with its corporate
office at Mumbai in Maharashtra and registered office at Udaipur in Rajasthan. At March 31,
2009, Bank of Rajasthan had 463 branches and 111 ATMs, total assets of Rs. 172.24 billion,
deposits of Rs. 151.87 billion and advances of Rs. 77.81 billion. It made a net profit of Rs. 1.18
billion in the year ended March 31, 2009 and a net loss of Rs. 0.10 billion in the nine months
ended December 31, 2009.

WHY BANK OF RAJASTHAN

 ICICI Bank Ltd, India’s largest private sector bank, said it agreed to acquire smaller rival Bank of
Rajasthan Ltd to strengthen its presence in northern and western India.
 Deal would substantially enhance its branch network and it would combine Bank of Rajasthan
branch franchise with its strong capital base.
 This acquisition would be ICICI Bank’s third one after Bank of Madura in 2000-01 and Sangli
Bank in 2006-07.
 In February, RBI imposed 25 lakh Indian rupees penalty on Bank of Rajasthan for various
violations. It also ordered a special audit of the books of the bank, after it found lapses in corporate
governance and disclosure norms.
 The deal, which will give ICICI a sizeable presence in the northwestern desert state of
Rajasthan, values the small bank at about 2.9 times its book value, compared with an Indian banking
sector average of 1.84.
 ICICI Bank may be killing two birds with one stone through its proposed merger of the Bank of
Rajasthan. Besides getting 468 branches, India's largest private sector bank will also get control of 58
branches of a regional rural bank sponsored by BoR.
 The board approved the merger after considering the results of the due diligence covering
advances, investments, deposits, properties and branches and employee-related liabilities, and the
valuation report of Haribhakti and Co, Chartered Accountants.
 Post-merger, ICICI Bank's branch network would go up to 2,463.This is the third merger for the
bank, after it took over Bank of Madura and Sangli Bank.

NEGATIVE
 The negatives for ICICI Bank are the potential risks arising from BoR's non-performing loans
and that BoR is trading at expensive valuations.
 As on FY-10 the net worth of BoR was approximately Rs 760 crore and that of ICICI Bank Rs
5,17,000 crore, he added. For the December 2009 quarter, BoR reported a loss of Rs 44 crore on an
income of Rs 373 crore.
DEAL STRUCTURE OR VALUATION
Merger Dynamics
SWAP Ratio
ICICI Bank Bank of Rajasthan •25 share of ICICI
Latest Market 1471
99,125 Bank for 118 share
Capital (Rs Crore)
Branches 2, 009 458* of Bank of
ATM 5,219 111* Rajasthan
No. of Employees 34,596* 4075
Gross NPA (%) 5.06 2.8# •Branch network of
Capital Adequacy 19.41 11.3# ICICI Bank to cross
(%) 2,440 post-merger
Loan book (Rs 1,81,200 81,00#
•BOR’s market cap
crore )
Low cost deposits 41.7 27.4* is currently 1.5% of
(%) that of ICICI Bank’s
Business/employee 1,154* 532* •Third acquisition
(Rs crore)
for ICICI Bank after
Sangli Bank, Bank
of Madura

* As of March 2009
# As of December 2009
All the other figures are as of March 31, 2010
The Board will consider the due diligence report and valuation report at a subsequent meeting.
The proposal if approved by the Boards of both ICICI Bank and Bank of Rajasthan would then
be placed before the shareholders of both banks for approval and would be submitted to
Reserve Bank of India (RBI) for its consideration.
Under the terms of the deal, ICICI Bank will offer 25 shares for every 118 shares of Bank of
Rajasthan

The valuation implied by the share exchange ratio is in line with the market capitalization per
branch of old private sector banks in India, The final determination of the share exchange ratio
is subject to due diligence, independent valuation and approvals.
According to the Securities and Exchange Board of India (SEBI), Tayals, the promoters of
Bank of Rajasthan hold nearly 55 percent stake in the bank. At the end of 2009, the promoters
held a 28.6 per cent stake in the bank, according to stock exchange data.
ICICI is offering to pay 188.42 rupees per share, in an all-share deal, for Bank of Rajasthan, a
premium of 89 percent to the small lender, valuing the business at $668 million. The Bank of
Rajasthan approved the deal, which will be subject to regulatory agreement.

Swap Ratio
The bank said the swap ratio is based on an internal analysis of the strategic value of the
amalgamation, average market capitalization per branch of old private sector banks and
relevant precedent transactions. According to analysts, the swap ratio works out to a premium
of 89.4 per cent over BoR's current market price. The merger is not likely to have any material
impact on ICICI Bank's capital and the only advantage is a readymade branch network. With a
Tier-I capital of above 13 per cent, the impact on ICICI Bank's capital would be less than 3 per
cent.
TYPE OF ACQUISITION
This is a horizontal Acquisition in related functional area in same industry (banking) in order to acquire
assets of a non- performing company and turn it around by better management; achieving inorganic
growth for self by access to 3 million customers of BoR and 463 branches

ACQUISITION MOTIVE
Inorganic growth
- Since 1997, ICICI Bank has acquired smaller banks to increase its reach.
-1997 - Acquired ITC Classic Finance
-1998 - Acquired Anagram Finance
-2000 - Acquired with the Bank of Madura.
-2005 - Acquired Russia's IvestitsionnoKreditny Bank.
-2007 - Acquired Sangli Bank
 PROCESS OF ACQUISITION

 Haribhakti & Co was appointed jointly by both the banks to assess the valuation
 Swap ratio of 25: 118 (25 shares of ICICI for 118 shares of Bank of Rajasthan) i.e. one ICICI Bank
share for 4.72 BoR shares
 Post-Acquisition, ICICI Bank's branch network would go up to 2,463 from 2000.
 The NPAs record for Bank Of Rajasthan is better than ICICI Bank. For the quarter ended Dec
09, Bank Of Rajasthan recorded 1.05 percent of advances as NPA's, which is far better than 2.1
percent recorded by ICICI Bank.
 The deal, entered into after the due diligence by Deloitte, was found satisfactory in maintenance
of accounts and no carry on of bad loans.

LEGAL ISSUES
EGM- Kolkata Civil Court
The extraordinary general meeting of Bank of Rajasthan convened to seek shareholders'
approval for its merger with ICICI Bank witnessed high drama with a Kolkata court staying the
meeting that was subsequently overruled by the High Court.
Extraordinary general meeting that was called to approve the merger was first cancelled after a
Kolkata civil court restrained the management from holding the EGM. This was based on a
complaint filed by a shareholder who was against the merger. The bank then went ahead and
informed the exchanges that the EGM has been cancelled following a court order.
The Managing Director of the bank then decided not to hold the meeting and he, along with
other officers of the bank, left the venue.
The bank also informed stock exchanges that the EGM has been cancelled following a court
order. However, some of the directors and shareholders, including dominant shareholder Mr.
P.K. Tayal went ahead and held the meeting, chaired by Mr. Dinesh Lakhani, a shareholder.
However, Bank of Rajasthan moved the Calcutta High Court contending that the city court did
not have the jurisdiction to hear the matter. The High Court vacated the stay. “The BoR EGM
happened. A lower court in Kolkata had issued an injunction against holding of the EGM. The
Calcutta High Court has stayed the lower court order,”
According to legal experts, it was the bank which requisitioned the meeting and later cancelled
it following the court order. Therefore, the meeting held by the shareholders after that is illegal
and the outcome of the ballot will not be legally binding on the bank. The extraordinary general
meeting of Bank of Rajasthan convened to seek shareholders' approval for its merger with
ICICI Bank witnessed high drama with a Kolkata court staying the meeting that was
subsequently overruled by the High Court. Out of the total 15 directors on the BoR board, 12
attended the board meeting held on May 18, said an association representative. While seven
directors voted in favour of the amalgamation, five abstained from voting.
The stay was lifted after an order of the Kolkata High Court moved by ICICI Bank. The boards
of both the banks had approved the merger at a swap ratio of 1:4.72, – 4.72 shares of Bank of
Rajasthan for one share of ICICI Bank.
EGM and Company Law
They had all the shareholders who had gathered there and they decided that they could
appoint their own Chairman and continue with the meeting. There is no real process for
something like this.
What the Companies Act provides is that 10% of the shareholders of a company could
requisition a meeting and make a request to the Board of the company to hold a meeting, and
then the Board would be mandated to hold such a meeting within a period of three weeks of
such a requisition again by following all the procedures.

Although you may have had the 10% who could have requisitioned the meeting but the onus
eventually was on the Board to then to take it forward. So if you look at it from a very technical
perspective, whether that shareholders’ meeting is a validly held meeting or not is very
questionable. From a company law point of view it could easily be a 50-50 case. Maybe that
meeting was not valid in its own right.

Union Strike
Three major employee unions of BoR -All India Bank of Rajasthan Employees Federation, All
India Bank of Rajasthan Officers' Association and Akhil Bhartiya Bank of Rajasthan Karmchari
Sangh, have called the strike demanding the immediate termination of the ICICI-BoR merger
proposal.
The United Forum of Bank of Rajasthan Unions has opposed the merger of Bank of Rajasthan
with ICICI Bank, citing cultural compatibility issues. According to it, if a merger is essential it
should be with a public sector bank.
Employees fear that the merger would result in job losses as the work cultures of both banks
are 'extremely' different. This would also destroy the identity of one of the oldest private sector
banks in the country. More than 4,300 employees of BoR began a two-day all-India strike to
protest against the merger.

POST MERGER LEGAL ISSUES

Rajasthan High Court
The Rajasthan High Court issued notices to the Reserve Bank of India, Bank of Rajasthan (BoR), ICICI
Bank and others on a petition filed by an employees union of the Udaipur-based BoR against its
proposed merger with ICICI Bank, the country's largest private sector lender.

The petition claims that the BoR board decision on 18 May 2010 to merge with ICICI Bank was illegal
as the Securities and Exchange Board of India had found out that the Tayals had acquired 55.1 per
cent equity in the bank in violation of its regulations.
Share movement

Shares of BoR jumped close to 20 per cent to a 52-week high on the back of reports of the merger. The
shares were locked in at the upper circuit at Rs 99.5. Close to three crore shares of BoR were traded
on BSE and NSE, making for a total turnover of Rs 27,431 lakh. ICICI Bank was down more than one
per cent on both the exchanges.

On the BSE, the scrip was down 1.45 per cent at Rs 889.35. The ICICI Bank ADR was trading at
$38.61 down $0.86 or 2.18 per cent on the NYSE.

INTRODUCTION
Bank of Rajasthan, one of the oldest private sector banks in the country, on May 18
announced that it would merge with the largest private sector bank, ICICI Bank. The board of
ICICI Bank also agreed to give in-principle approval for merger of Bank of Rajasthan with it
subject to due diligence and valuation by an independent valuer jointly appointed by both
banks. Bank of Rajasthan is a listed bank with its corporate office in Mumbai and registered
office at Udaipur in Rajasthan. As on March 31, 2009, Bank of Rajasthan had 463 branches
and 111 ATMs, total assets of Rs.17,224 crore, deposits of Rs.15,187 crore and advances of
Rs.7,781 crore. It made a net profit of Rs.118 crore in the year ended March 31, 2009, and a
net loss of Rs.10 crore in the nine months ended December 31, 2009. ICICI Bank has a
network of 2,009 branches and 5,219
ATMs.
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 release to the stock exchanges
saying its board will meet in the evening to discuss a proposal of merging the bank with ICICI
Bank. ICICI Bank stock was down 1.45% to Rs889.35. The ICICI Bank ADR was trading at
$38.61 down $0.86 or 2.18 per cent on the NYSE.
ICICI Bank further stated that it has entered into an agreement with certain shareholders of
Bank of Rajasthan agreeing to effect the amalgamation of Bank of Rajasthan with ICICI Bank
with a share exchange ratio of 25 shares of ICICI Bank for 118 shares of Bank of Rajasthan.
ICICI Bank said that it’s willing to pay more than BoR;s present market valuation.
According to banking circles, the Tayals, who acquired BoR a decade ago, have been under
pressure to sell the old private bank which is grappling with directives from sebi and RBI. In
March, Sebi banned 100 entities allegedly holding BoR shares on behalf of the promoters from
all stock market activiites.
A little earlier, RBI had slapped a penalty of Rs 25 lakh on the bank for a string of violations
like deletion of records in the bank’s IT system, irregular property deals and lapses in the
acccounts of a corporate group.
In the past few months, the central bank has virtually taken over BoR. The RBI appointed a
new CEO for the bank, which currently has five RBI nominated directors.
Significantly, well before the downtum considered the possibility of taking over BoR. But the
deal fell through as ICICI was unwilling to fork out the money Mr Tayal had asked for.
On 24th May, ICICI Bank (The Board of Directors of ICICI Bank Ltd ) approved the
amalgamation of Bank of Rajasthan with it for a share exchange ratio of one share of ICICI
Bank for every 4.72 shares of Bank of Rajasthan. Unsatisfied with the internal valuation
arrived at by ICICI Bank, Bank of Rajasthan's promoter Tayals have asked their suitor to
sweeten the deal to a level that would value the Udaipur-based bank at Rs 4,500 crore. After
the two banks agreed to merge, ICICI Bank released an internal valuation that put BoR's worth
at nealry Rs 3,040 crore. During the week, shares of Bank of Rajasthan gained 74 per cent on
the BSE to settle at Rs 144.40 on 27th May.
On 13th Aug the country's oldest private sector bank, Bank of Rajasthan Ltd, had become part
of ICICI bank Ltd. Accordingly, all Bank of Rajasthan branches have started functioning as ICICI
Bank branches. This follows the Reserve Bank of India's (RBI) sanctioning the scheme of
amalgamation of Bank of Rajasthan Ltd with ICICI Bank Ltd.The scheme has come into force
from the close of business on 12 August 2010. Shares of ICICI Bank closed at Rs 963.95, down
0.74 per cent, while that of Bank of Rajasthan slipped 0.03 per cent to Rs 190.15 on the Bombay
Stock Exchange. K N Bhandari, Director Bank of Rajasthan assured that all BoR employees will
be retained and there would be no job losses.
The research reports by some foreign institutional investors have given a mixed reaction to the
proposed take-over bid of Bank of Rajasthan by ICICI Bank. JP Morgan says the valuations of
the deal is very expensive. The swap ratio implies a price of Rs188/share for BoR, which is at
a 90% premium to the current market price. It would typically take a year for ICICI Bank to set
up a similar network to that of BoR and another two years to break-even. Key downside risk to
the deal is potentially higher non performing loans (NPL).We have been learning about the
companies coming together to from another 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 surging over
our businessmen, it is not surprising when we hear about the immense numbers of corporate
restructurings taking place, especially in the last couple of years. Several companies have
been taken over and several have undergone internal restructuring, whereas certain
companies in the same field of business have found it beneficial to merge together into one
company.
In this context, it would be essential for us to understand what corporate 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 & Acquisition’s may be critical for the healthy expansion
and growth of the firm. Successful entry into new product and geographical markets may
require Mergers & Acquisition’s 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, especially in terms of the 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.

ICICI BANK
ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81
billion) at March31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year
ended March 31, 2010. The Bank has a network of 2,035 branches and about 5,518 ATMs in
India and presence in 18 countries. ICICI Bank offers a wide range of banking products and
financial services to corporate and retail customers through a variety of delivery channels and
through its specialised subsidiaries in the areas of investment banking, life and non-life
insurance, venture capital and asset management. The Bank currently has subsidiaries in the
United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, 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.
Their UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity
shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of
India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock
Exchange(NYSE).

BANK OF RAJASTHAN
Bank of Rajasthan, with its stronghold in the state of Rajasthan, has a nationwide presence,
serving its customers with a mission of " together we prosper " engaging actively in
Commercial
Banking, Merchant Banking, Auxiliary services, Consumer Banking, Deposit & Money
Placement services, Trust & Custodial services, International Banking, Priority Sector Banking,
Depository. Bank of Rajasthan, a leading Private Sector Bank, having branche s all over India
with prominent presence in Rajasthan having specialised forex and Industrial finance branches.
The Bank is committed to the highest level of customer satisfaction through personalized and
efficient
services. Bank of Rajasthan is a listed old Indian private sector bank with its corporate office at
Mumbai in Maharashtra and registered office at Udaipur in Rajasthan. At March 31, 2009,
Bank of Rajasthan had 463 branches and 111 ATMs, total assets of Rs. 172.24 billion,
deposits of Rs. 151.87 billion an advances of Rs. 77.81 billion. It made a net profit

2. PROBLEM IDENTIFICATION

Analyze the perception of Bankers for merger. The negative for ICICI Bank are the potential
risks arising from BoR’s non-performing loans and that BoR is trading at expensive
valauations. As on FY-10 the net worth of BoR was approximately Rs 760 crore and that of
ICICI Bank Rs 5,17,000 crore. For the December 2009 quarter, BoR reported a loss of Rs 44
crore on an income of Rs 373 crore.

Legal Problems- Company Law

They had all the shareholders who had gathered there and they decided that they could
appoint their own Chairman and continue with the meeting.
Three major employee unions of BoR -All India Bank of Rajasthan Employees Federation, All
India Bank of Rajasthan Officers' Association and Akhil Bhartiya Bank of Rajasthan Karmchari
Sangh, have called the strike demanding the immediate termination of the ICICI-BoR merger
proposal. The United Forum of Bank of Rajasthan Unions has opposed the merger of Bank of
Rajasthan with ICICIBank, citing cultural compatibility issues. According to it, if a merger is
essential it should be with apublic sector bank. So this project study is find out that employees
were agreed to merger or not.

3. SCOPE OF STUDY

The project is about to know the various preference and patterns of the investor for investing in
Bullion market and Equity share market. So it involves introduction of various kind of
Investment Avenues of short term and long term including Equity shares, Currency market,
Commodity market, Derivative market and Bullion market.

4. OBJECTIVE OF STUDY
The primary objective of the study remains to the preference of clients of religare securities
limited between bullion & equity share of investor. The study will, in an overall perspective, aim
to cover following objectives.
1. To study the investment pattern of investors.
2. To study the investment decisions of different social class people (in term of age group,
education, income level etc.)
3. To analyze the investment pattern of people who reside in an Economically developed
area and economically developing area.
4. To study techniques and principles useful in systematic and rational Investment
management.
5. To study the popularity of various products offered for investment in the market.

Review of literature

The phenomenon of companies merging or acquiring each other is not new. In his studies of
industry development, Chandler (1962) recognizes merger waves already in the 1800 century.
In those early days of industrial development the need for scarce resources seemed to be a
much more frequent motive than the access to customers as today. Demand was rarely a
problem in the growing industrialization (Wren 1994). In the history of the Swedish company
ASEA (ASEA 100 år) many examples are presented on how ASEA systematically acquired
smaller competitors. A phenomenon called horizontal integration. In a study of Swedish paper
dealers (Lindstedt 1987) the author found waves of horizontal integration mixed with waves of
integration starting in the 1950s.
Already in the classic work of Penrose (1959) acquisition or merger is mentioned as an
alternative to organic growth. She particularly points out the control over assets such as
‘monopolized supplies of raw materials’ as one reason. Mergers and acquisitions have
continued to be a very popular choice for strategic change: growth and/or diversification. In the
1960s vertical and horizontal integration are discussed as strategic issues (Lawrence and
Lorsch 1967; Thompson 1967). The fact that many companies started to experience
diminishing growth of demand or even stagnating demand accentuated the strive towards
scale economy in production. Cutting costs as a motive for merging or acquiring companies
grew in importance during the latter part of the 1900s. Thus the early research focus was
directed to the company initiating a merger or an acquisition.
There is, to our knowledge, nothing in the very early literature on M&As about customers
and/or suppliers to merging companies. They do not exist in other terms than as demand or
resources. More importantly they are not expected to react in any way to a merger or an
acquisition.
M&As have periodically attracted academic interest as the merger waves have appeared.
Studies have emerged in the fields of finance, industrial economics, strategic management,
human resource management and organisation theory. On the one hand, literature
concentrates on comparing the acquiring and target firms: the strategic and organisational fit,
and synergy between the two companies (Chatterjee 1992; Datta 1991; Larsson 1990). One
part of these studies concerns the financial aspects of the M&A (e.g. Bild 1998). In this
category we place studies of so-called unrelated or strategies (e.g. Salter and Weinhold
1979). One part of studies are focussing on motives which can be influenced by an ambition to
increase income and/or reduce costs ‘When market power is not an issue, most mergers are
presumably made to realize economies of scale of some form’ (Dranove and Shanley 1995).
More specific motives prompting mergers can be increase of market share, reduction or
elimination of competition, quick and economical entry into a business, impulse purchase of a
bargain-priced business, reduction of over-dependence on geographical presence, acquisition
of new technology, exploitation of multiple synergies, and desire to grow rapidly (Shrivastava
1986). Yet another category includes the authors who have tried to measure (financial)
performance after the merger (e.g. Rumelt 1974).
Analysis of process as such – concerning, e.g., pre-merger negotiations, acquisition behaviour,
post-merger integration, and post-merger performance – has been prominent (Hunt 1990;
Nupponen 1996; Shrivastava 1986; Vaara, 1992, Walsh 1989). A substantial part of later
studies have had more of an organisation theory perspective meaning that issues such as e.g.
company culture, organisational beliefs and values are active forces interfering with any
integration or change processes in an organisation (Vaara 1996). Also reactions among
individuals within the companies have been studied. There are studies of management
turnover (Grossman 1999) as well as employee attitudes and behaviour (Risberg 1999). A
large proportion of the M&A literature also seems to be based on the assumption that
managerial actions have a major influence on the success of the acquisition or merger (cf.
Paine and Power 1984).
In conclusion we find that there is quite an extensive literature on the behaviour and effects for
the two merging companies. In evaluating terms the literature claims that expected gains from
take-overs rarely materialise. Several studies claim that most M&As fail (Chatterjee 1992; Hunt
1990; Lubatkin 1983) and, for example, Jemison and Sitkin (1986), Shrivastava (1986), and
Walsh (1989) suggest that failures in the integration process are important reasons.

A focus on the two merging companies fails to recognise the interdependence between a firm
and its environment and is therefore too narrow. This is also recognised by Finkelstein
(1997:787): ‘However, the influence of industry environments on merger behavior has been
relatively little studied by organizational researchers.’ In order to provide a new understanding
of the phenomenon of M&A we focus on the external exchange relationships of the merging
companies. We propose that an acquisition or a merger is related to – influences and is
influenced by – not only the two merging companies, but also their supplier and customer
relationships (Anderson, Havila and Salmi 2001; Havila and Salmi 2000; Havila and Salmi
2002).

Hunt (1990) argues for a contextual approach to acquisition processes, and postulates that
different contexts suggest different acquisition processes (including targeting, negotiating,
post-acquisition implementation). Accordingly, as important contextual variables are included
such variables as buyer's strategy, industry, ownership, health of seller, compatibility of size,
experience of buyer, and access to audit.

As inter-organizational theory (e.g. Aldrich 1979; Pfeffer and Salancik 1978) has developed,
the focus in business studies has been extended from the perspective of the single firm to
include the interaction between several firms. Relations between organizations have been
studied in order to increase our understanding of a market form (Powell 1990), of distribution
systems (Reve and Stern 1979), of industries (Porter 1991), and of transactions (in works
inspired by Williamson 1975). The network metaphor for describing structures of relationships
formed by connected and interacting actors has become increasingly popular over the years.
Also the study of organizations has derived inspiration from the network metaphor. Nohria
(1992) recognizes that in important respects all organizations are social networks, and that our
understanding of organizations can be enhanced if we regard them as parts of networks. A
similar interest is pursued by Miles and Snow (1992) in their search for a well-functioning
organizational form for the firm.

Businesses relationships are rarely constructed, but rather, evolve over time and the
establishment and development of a business relationship is a time-consuming and resource-
intensive process. It is also a process in which the two involved parties invest in different ways.
Therefore established relationships form an important asset for any company. As far as M&As
are concerned, it becomes a central issue to what extent these market assets are transferable.
That is, the outcome of any acquisition depends on whether already established relationships
can be taken over. However, an implicit assumption in M&A literature and operations so far
seems to be that in buying a firm, also its market position and market relationships are
acquired. (Anderson and Salmi 1998) That is, all the activities that companies undertake to
build up, keep and develop relations to customers and other external entities. Such interaction
forms exchange relationships between two or more connected exchange parties (Cook and
Emerson 1984). These exchange relationships, in turn, can be conceptualised as market-
based assets, which increase shareholder value of the firm (Srivastava, Shervani and Fahey
1998). This is in line with the emerging view of a key role played by marketing in the process of
strategy formulation (Anderson 1982; Srivastava, Shervani and Fahey 1998; Webster 1992).
Through interaction the involved actors have an impact on the character of the relationship,
which means that it over time changes in content and strength (Johanson and Mattsson
1987:35; Håkansson and Snehota 1995:269). Mutual adaptation and commitment characterize
long-term relations. Trust and commitment are two central features in relationships which have
been given attention also in research regarding business relationships (see e.g. Doney and
Cannon 1997; Morgan and Hunt 1994). These relationships give the company access to
resources of other business actors. Investments in relationships are cumulative and
interdependent; commitments made in one relationship influence the company’s opportunities
to enter into and act within other relationships.

The dyadic relationship between two firms is always connected with other relationships: it is
influenced by other actors connected with it through the two business parties (Anderson et al.
1994; Håkansson and Johanson 1985; Håkansson and Snehota 1995). For instance,
customers' customers and suppliers' suppliers may have a decisive impact on the business
relationship. A process of interaction creates a mutual relationship connecting companies to a
net of, directly and indirectly, interrelated actors.

A = Company A
B = Company B
sup = Supplier company
cus = Customer company

Owing to the connectedness of business relationships, changes in the focal relationship affect
not only the two parties directly doing business with each other, but also other connected
parties (Anderson, Håkansson and Johanson 1994:3). Connectedness of relationships means
that there are always several parties who have made investments due to the focal business
relationship (between A and B in Figure 1). A change in the focal business relationship,
therefore, may affect also other, directly or indirectly, connect parties. Moreover, their reaction,
in turn, is bound to affect the focal relationship. Therefore, changes initiated in the interaction
between any two parties are likely to cause multiple actions and counteractions in its context.

A situation where a company takes over another company or where two (or several)
companies merge to form one company. More specifically, we elaborate on the possible
effects of the merger or acquisition on the supplier and customer relationships of the two
companies. As shown, earlier research on mergers and acquisitions has usually ignored these
relationships and seems to leave untouched several important factors affecting mergers and
acquisitions and their outcomes.

In the M&A literature, suppliers and customers are only mentioned in passing. For instance,
Shrivastava (1986) points out that in pre-merger phase all ”relevant stakeholders” should be
provided with general information about the likely impact of the merger, in order to alleviate
fears about abrupt policy changes. Relationships with, for example, suppliers and customers in
connection with acquisitions have been ignored, and for instance, the impact on these relations
that personnel turnover may have, have not been analysed. The review indicates that if
customers and suppliers are at all considered, this is done more implicitly. Customers, for
example, can be discussed in terms of market share or in terms of customers as an
aggregated homogeneous group. Even more rare is the recognition of suppliers and if so they
are characterised in terms of, for example, a supplier base. We will in the following present
how customers and suppliers respectively are discussed about.
We have categorised our observations under three headlines. First and foremost, both
customers and suppliers are mentioned as aggregates under several labels. Secondly, they
are indirectly acknowledged and in that sense become objectified and mentioned, but not seen
as actors themselves. Thirdly, and that is actually what we would like to see is, customers and
suppliers as subjects being companies perceiving, reacting and acting in relation to what other
companies do.

The overwhelming majority of the 118 articles included in our review does not consider or only
mention customers and suppliers in passing in connection with M&As. Further, those articles
that mention suppliers and customers (as aggregates, indirectly or directly) do not address the
issue of how M&As influence the involved companies’ customers and suppliers. What can be
found, is some kind of pre-understanding that something good/positive usually comes along
with an acquisition or a merger. This can be illustrated with the following quotation: ‘Thus when
a firm acquires a knowledge base it obtains access not only to the acquired firm’s internally
created knowledge but also to a larger external domain of knowledge that is understood and
used by the acquired firm.’ (Ahuja and Kattila 2001:200). Such a view on the connected
companies objectifies, and does not take interaction between the companies into
consideration. If at all mentioned, the interdependence between a company and its suppliers
and customers, is often made with reference to Pfeffer and Salancik (1978). Only a few of the
articles adapt an approach where customers and suppliers are seen as subjects. One example
is the following quotation that shows that a company is dependent on its specific
environment/context: ‘Acquiring a competence […] is a complicated process. It involves
socially constructed elements […] Key players are likely to interpret the conditions the face and
assign meaning to the actions they take in fairly idiosyncratic ways. They make moves as
much by experimentation, trial and error, opportunism and accident as by planning (Marcus
and Geffen 1998:1147).
Why are customers and suppliers not investigated in M&A research? Methodological reasons
may be one reason. The vast majority of the empirical studies have been made through
questionnaires using primary or secondary data. The samples range from a couple of
hundreds to a couple of thousands. Investigations have involved American, Japanese, and
European firms. Response rates are most often less than 50%. Since business relationships
are social constructions built up through interaction and transactions between companies
(persons) they are not easily captured within questionnaires or secondary data. Another
difficulty is the time lag between a merger or an acquisition and the reactions among the
customers or suppliers. There may be delayed actions and reactions. Finally the causality
problem is great.

Another explanation may be that researchers indeed are stuck in traditions or paradigms.
Organisational theory research has out of tradition performed studies within the organisation
represented by the many studies on integration processes. The researchers with a more
performance interest rely on economic theory and see the company as an actor or rather many
actors without any connections between them. Also, several authors explicitly refer to an
acquisition process as a rational one. Marketing research, which is dedicated to producer-
distributor-consumer relationships and communication, have more or less by definition not
studied the phenomenon of M&As. This can also be seen in our literature review: only one of
the 12 articles in Journal of Marketing is an article that reports a study. Research on supplier
management and logistics which also addresses interaction has, as the marketing
researchers, neglected the M&A phenomenon. Strategy research, finally, has been devoted to
evaluate motives to merge through, for example, the synergy concept and to evaluate what
comes out of M&A processes. In that way the research has been limited to evaluate M&As as
a strategic alternative for management within the two directly involved companies.

A third reason may be that the approach we argue for, namely that there is substantial
interconnectedness between companies, is a conceptualisation accepted and adopted by a
few researchers.
What do we miss by not acknowledging customers and suppliers in the M&A research? Well
we miss the understanding of what kind of importance M&A have for the development of any
integration between companies and of course for the outcome of any such strategic step. We
think that neither customers nor suppliers are likely to passively accept a merger or an
acquisition. How many bank customers have, for example, really experienced the benefits of
the mergers among the banks that the management has used as arguments? And, suppliers to
the car industry are likely to think about new ways to organise themselves in order to be more
competitive when the car producers merge.
Finally, an interesting observation of ours is that the so called popular business press has
observed the problems addressed in this paper and we will end by presenting a few citations of
that kind: news of a significant merger or acquisition. Those transactions will have major
effects on their competitors, suppliers and customers …’ (Phillips, 1999)
Trends are reshaping the coated and uncoated paper business a major wave of mergers and
acquisitions. These factors are driving major changes in the coating chemical business
[suppliers]. (Cody, 1999)
The transfer of ownership of a domain name should consist of no less than three documents;
the Acquisition Agreement, a document issued by the relevant domain name registry attesting
to the transfer (if such change is not done electronically) and an assignment agreement. The
latter two documents may be set forth as exhibits to the Acquisition Agreement or delivered as
a post-closing obligation. (Tannenbaum, William A., 1999)

The Acquisition Agreement should make certain to address the intersection of domain names
and trademark law. In addition to stating the intentions of the parties and transferring the
domain name itself, all common law trademark, copyright and other intellectual property rights
related to the domain name should be should be subject to the transfer as well.
Representations and warranties to the effect that the seller is the sole owner and that the
subject domain name is not subject to any claims of infringement or other claims or actions
should be made, together with indemnity provisions in favor of the buyer. The agreement
should further prohibit the seller from registering or using a similar or related domain name.
Specific reference to the domain name registrar should be made with an affirmative obligation
on both the buyer and seller to execute any documents it requires. In most instances, the
buyer is responsible for filing any required documents with the relevant domain name registry
and this should be explicitly set forth in the Purchase Agreement. Gunderson & Kavanaugh,
(1998).

Understanding how intellectual property rights are involved with mergers and acquisitions is
essential given how merger and acquisition (M&A) activity in the intellectual property field has
come to dominate, both in volume and in value, merger transactions generally. This situation
was true in the 1990s, and it is still true now. The driving force behind a majority of mergers
completed during the past decade has been the acquirer’s desire to obtain the target’s
intellectual property assets Glenn A. Gunderson & Paul Kavanaugh (1999, at 87).

Hart (1996) defines this article is grounded on research of the requirements of successful
mergers & the issues faced by companies at the time of a Merger & Acquisition. This article
will be significant in a number of ways. First, the article will analyze the effects of Mergers and
Acquisitions on the wealth creation for the shareholders.The research will also expand the
literature in the areas of potential problems associated with Mergers & Acquisitions and
provide information on the required competencies for successful deals in the concerned area.
Generally, the purchased firm managers then report to the management team of the acquiring
firm.
Nicholas, 1998; Delbridge, 1998 define the general underlying principle behind Mergers and
Acquisitions of businesses is to generate extra worth through the latest alliance than could be
created by the concerned firms’ working as individual units. A merger can be related,
concentric, vertical or horizontal. Mergers which are made within the same industry are known
as related mergers. Concentric mergers take place when two firms from different but “adjacent”
industries merge. For example, if an auto manufacturer & a motorcycle manufacturer merge,
the merger is a concentric one. Although both industries serve the transportation needs of their
customers, the two are quite unique in their competitive structures. Usually, the merging firms
determine some similarities in their technology or marketing. Vertical mergers are the ones in
which a company buys one of its suppliers (backward merger) or merge with one of its
customer firms. The motivation for buying a supplier can be to guarantee availability of some
scarce resource on which the firm is highly dependent. Another motivation for a backward
merger can be to obtain cheaper supplies, since no profit margin is added to the products of an
internal supplier. On the other hand, the firm may choose to merge forward in order to absorb
the margin in its customer’s line of business. Horizontal mergers involve the purchase of as
many unrelated businesses as possible. These were the very most popular types of mergers in
the 1950s & the 1960s. Beatrice Foods & ITT are good examples of firms following this
strategy. Although not as popular these days, horizontal mergers are still a very viable option
for firms intending to diversify.
Lynch & Ariely, (1998) Any merger or acquisition transaction envisages a take over or changes
in control and management of a company. Thus, a takeover may be defined as a transaction
or series of transactions, whereby a person (individual/group of individuals/company) acquires
control over the assets of a company, either directly, by becoming the owner of those assets;
or, indirectly by obtaining control of the management of the company. In India, the regulatory
framework concerning takeover includes the Companies Act and the Securities and Exchange
Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 1997 ('Takeover
Code'). The objective of the Takeover Code is to regulate substantial acquisition of shares and
takeover of companies whose shares are listed on a stock exchange. The Takeover Code also
apply in a limited sense to an unlisted company including a body corporate incorporated
outside India, as long as such acquisitions give control over a listed company or substantial
voting rights in a listed company. This regulation is applicable to both a merger and an
acquisition transaction. Further, the Securities and Exchange Board of India has also recently
enacted the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, which
applies to preferential allotments made by an Indian listed company.
The Indian economy has been growing with a rapid pace and has been emerging at the top, be
it IT, R&D, pharmaceutical, infrastructure, energy, consumer retail, telecom, financial services,
media, and hospitality etc. It is second fastest growing economy in the world with GDP
touching 9.3 % last year. This growth momentum was supported by the double digit growth of
the services sector at 10.6% and industry at 9.7% in the first quarter of 2006-07. Investors, big
companies, industrial houses view Indian market in a growing and proliferating phase, whereby
returns on capital and the shareholder returns are high. Both the inbound and outbound
mergers and acquisitions have increased dramatically. According to Investment bankers,
Merger & Acquisition (M&A) deals in India will cross $100 billion this year, which is double last
year’s level and quadruple of 2005.
In the first two months of 2007, corporate India witnessed deals worth close to $40 billion. One
of the first overseas acquisitions by an Indian company in 2007 was Mahindra & Mahindra’s
takeover of 90 percent stake in Schoneweiss, a family-owned German company with over 140
years of experience in forging business. What hit the headlines early this year was Tata’s
takeover of Corus for slightly over $10 billion. On the heels of that deal, Hutchison Whampoa
of Hong Kong sold their controlling stake in Hutchison-Essar to Vodafone for a whopping $11.1
billion. Bangalore-based MTR’s packaged food division found a buyer in Orkala, a Norwegian
company for $100 million. Service companies have also joined the M&A game.
The taxation practice of Mumbai-based RSM Ambit was acquired by PricewaterhouseCoopers.
There are many other bids in the pipeline. On an average, in the last four years corporate
earnings of companies in India have been increasing by 20-25 percent, contributing to
enhanced profitability and healthy balance sheets. For such companies, M&As are an effective
strategy to expand their businesses and acquire global footprint.
Mergers or amalgamation, result in the combination of two or more companies into one,
wherein the merging entities lose their identities. No fresh investment is made through this
process. However, an exchange of shares takes place between the entities involved in such a
process. Generally, the company that survives is the buyer which retains its identity and the
seller company is extinguished.
The circumstances and reasons for every merger are different and these circumstances impact
the way the deal is dealt, approached, managed and executed. .However, the success of
mergers depends on how well the deal makers can integrate two companies while maintaining
day-to-day operations. Each deal has its own flips which are influenced by various extraneous
factors such as human capital component and the leadership. Much of it depends on the
company’s leadership and the ability to retain people who are key to company’s on going
success. It is important, that both the parties should be clear in their mind as to the motive of
such acquisition i.e. there should be census- ad- idiom. Profits, intellectual property, costumer
base are peripheral or central to the acquiring company, the motive will determine the risk
profile of such M&A. Generally before the onset of any deal, due diligence is conducted so as
to gauze the risks involved, the quantum of assets and liabilities that are acquired etc.

Legal Procedures for Merger, Amalgamations and Take-overs. The basis law related to
mergers is codified in the Indian Companies Act, 1956 which works in tandem with various
regulatory policies. The general law relating to mergers, amalgamations and reconstruction is
embodied in sections 391 to 396 of the Companies Act, 1956 which jointly deal with the
compromise and arrangement with creditors and members of a company needed for a merger.
Section 391 gives the Tribunal the power to sanction a compromise or arrangement between a
company and its creditors/ members subject to certain conditions. Section 392 gives the power
to the Tribunal to enforce and/ or supervise such compromises or arrangements with creditors
and members. Section 393 provides for the availability of the information required by the
creditors and members of the concerned company when acceding to such an arrangement.
Section 394 makes provisions for facilitating reconstruction and amalgamation of companies,
by making an appropriate application to the Tribunal. Section 395 gives power and duty to
acquire the shares of shareholders dissenting from the scheme or contract approved by the
majority.
And Section 396 deals with the power of the central government to provide for an
amalgamation of companies in the national interest. In any scheme of amalgamation, both the
amalgamating company or companies and the amalgamated company should comply with the
requirements specified in sections 391 to 394 and submit details of all the formalities for
consideration of the Tribunal. It is not enough if one of the companies alone fulfils the
necessary formalities. Sections 394, 394A of the Companies Act deal with the procedures and
the requirements to be followed in order to effect amalgamations of companies coupled with
the provisions relating to the powers of the Tribunal and the central government in the matter
of bringing about amalgamations of companies.

After the application is filed, the Tribunal would pass orders with regard to the fixation of the
dates of the hearing, and the provision of a copy of the application to the Registrar of
Companies and the Regional Director of the Company Law Board in accordance with section
394A and to the Official Liquidator for the report confirming that the affairs of the company
have not been conducted in a manner prejudicial to the interest of the shareholders or the
public. Before sanctioning the scheme of amalgamation, the Tribunal has also to give notice of
every application made to it under section 391 to 394 to the central government and the
Tribunal should take into consideration the representations, if any, made to it by the
government before passing any order granting or rejecting the scheme of amalgamation. Thus
the central government is provided with an opportunity to have a say in the matter of
amalgamations of companies before the scheme of amalgamation is approved or rejected by
the Tribunal.
The powers and functions of the central government in this regard are exercised by the
Company Law Board through its Regional Directors. While hearing the petitions of the
companies in connection with the scheme of amalgamation, the Tribunal would give the
petitioner company an opportunity to meet all the objections which may be raised by
shareholders, creditors, the government and others. It is, therefore, necessary for the company
to keep itself ready to face the various arguments and challenges. Thus by the order of the
Tribunal, the properties or liabilities of the amalgamating company get transferred to the
amalgamated company. Under section 394, the Tribunal has been specifically empowered to
make specific provisions in its order sanctioning an amalgamation for the transfer to the
amalgamated company of the whole or any parts of the properties, liabilities, etc. of the
amalgamated company. The rights and liabilities of the employees of the amalgamating
company would stand transferred to the amalgamated company only in those cases where the
Tribunal specifically directs so in its order.
The assets and liabilities of the amalgamating company automatically gets vested in the
amalgamated company by virtue of the order of the Tribunal granting a scheme of
amalgamation. The Tribunal also make provisions for the means of payment to the
shareholders of the transferor companies, continuation by or against the transferee company
of any legal proceedings pending by or against any transferor company, the dissolution
(without winding up) of any transferor company, the provision to be made for any person who
dissents from the compromise or arrangement, and any other incidental consequential and
supplementary matters to secure the amalgamation process if it is necessary. The order of the
Tribunal granting sanction to the scheme of amalgamation must be submitted by every
company to which the order applies (i.e., the amalgamating company and the amalgamated
company) to the Registrar of Companies for registration within thirty days.
According to Jhunjhunwala, Bharat, (2003) the relevant provisions of the Act, only those
mergers & acquisitions are liable to be regulated that qualify under the definition of
combinations under Section 5. Size is currently the only criteria for stipulating the post-merger
review of mergers & acquisitions. Other arguably more valid criteria such as the market size of
a particular industry or the market share of an industry player are not included. There exist no
provisions for the regulation of those mergers & acquisitions that do not fall within the meaning
of combination and yet have the potential to affect competition adversely.  There may arise a
situation where any merger may not come under the definition of combination, yet may give
rise to serious competition concern in a market. Therefore, most enterprises with a lower asset
value and turnover would be excluded from this stipulation. Let us suppose a situation where
there are only two competitors for a product and they decide to merge. However, their asset
values as well as turnover are such that their merger would fall outside the definition of
combination as given in the Act. Hence, despite causing clear appreciable adverse effect on
competition, the merger would go unregulated.
Jhunjhunwala, Bharat (2003) Infect the Associated Chambers of Commerce in India has
carried out an analysis of the implications of the Act and its findings report that practically
every investment in India by a global major will cross the thresholds stipulated in Section 5.
The Competition Commission of India (CCI) will be able to investigate the deal irrespective of
the position the investment or joint venture will occupy in the marketplace. Conversely a
smaller enterprise which may have a dominant position in the same marketplace will not
necessarily meet the criteria and may avoid investigation.
 Maitra, Neelanjan(2001) The threshold values indicated serve only as a trigger for the
investigative process and do not render the merger bad by themselves. The CCI would carry
out a more detailed investigation before any action is taken against the particular merger.
However, in view of the dynamics of the Indian economy and the unstable currency rates the
threshold values serve little purpose. It is therefore suggested that a suitable compromise
would lie in listing several criteria like asset valuation and net turnover, market share, etc, the
satisfaction of even one of which could trigger an investigation. The very purpose of Section 5
& 6 of the Act is to restrict combinations which cause or are likely to cause an appreciable
adverse effect on competition. It is indeed hard to understand how the above can be achieved
without considering market share of the merging and the merged entities. 
Section 5 of the Competition Act 2002 contains provisions regarding acquisitions, acquiring of
control, mergers and amalgamations. However, the Act does not delve into the repercussions
of arrangements on competition. Section 390 (b) of the Companies Act, 1956 defines the term
arrangement as “including a re-organization of the share capital of the company by the
consolidation of shares of different classes, or by the division of shares into shares of different
classes or, by both those methods.” This term is of wide import and includes all modes of
reorganization of the share capital, takeover of shares of one company by another including
interference with preferential and other special rights attached to shares.[1][1] Arrangements
can have dire consequences on competition and must, therefore, be specifically included in the
provisions regarding combinations under the Act.
 Section 6(2) of the Act gives enterprises and persons the option to notify the CCI of the
proposed combination. Although Section 6(2) of the Act gives persons and enterprises the
option to notify the CCI about the proposed combination, it is subject to Section 6(1) which
renders the proposed combination, if it has an adverse effect on competition, void ab initio.
Thus, a combination falling afoul of the provisions of Section 5 is void in the first instance.
 Furthermore, pursuant to Section 20(1) of the Act, the CCI can inquire into any combination,
suo moto or upon receiving information, within one year from when such combination takes
effect. The pre-notification option granted to enterprises under Section 6(2) and the power of
the CCI to inquire suo moto under Section 20 may lead to an anomalous situation, since
companies that do not exercise their option under Section 6(2) are not automatically exempt
from the investigations of the CCI. The said anomaly can be better explained with the help of
the following factual situation:
Company “A” merges with company “B.” A and B do not consider their merger anti-competitive
even though they have an asset value and turnover above the prescribed threshold limit. The
two companies do not notify the CCI about their merger. The companies invest a large amount
on their merger within the first six months. The CCI on receipt of information from a competitor
carries out an inquiry and passes a judgment within one year of the merger, that the merger
has an adverse effect on competition and should not take effect. In this case, the two merged
companies will incur huge losses as a result of the CCI’s order.
 Bassett, William F., and Egon Zakrajsek. 2000 This inconsistency can be removed by making
pre-notification of combinations mandatory for all enterprises that have the prescribed asset
value and turnover. In other words rather than have an optional notification requirement, it
must be mandated that all combinations crossing the threshold limits must seek the CCI’s
clearance.  The CCI can then give its judgment within ninety working days from the publication
of the details of the combination, as prescribed under Section 31(11). 
This of course may seem against the government’s policy of ‘free market’, ‘minimum
restrictions’ and ‘minimum intervention’. But, in the light of the anomaly pointed out it is the
most practical solution. But this solution has its problems as well. The Confederation of Indian
Industries (CII) has pointed out that together with the provisions of the Competition Act
regarding notifications of mergers the Companies Act already required the mandatory nod of
the High Courts to complete mergers. This multiplicity of procedures ofcourse acts as a
hindrance and deterrent factor to business activities. With regard to this problem it is
suggested that a system could be worked out whereby the CCI could be enabled to place its
views before the High Court, and thereby cut down on procedures.
Pursuant to Section 29(3) of the Act, the CCI may invite any person or member of the public
affected or likely to be affected by the combination, to file a written objection. This Section
gives the CCI excessive discretion to decide on which persons are eligible to be invited to file
their objection against the combination. This section must, therefore, be amended to allow
anyone affected by the combination to file a written objection against the combination. Apart
from suo moto action initiated by the CCI, action may also be initiated at the request of any
person affected or likely to be affected by the said combination. A problem may arise in this
situation that frivolous complaints maybe filed to harass the companies concerned. As a
necessary balance of the two interests it is suggested that on an objection by a person
affected or likely to be affected by the said combination the CCI should conduct an internal
inquiry and if the objection is found to be reasonable only then should action be initiated
against the combination.
Andrew Dolbeck(2007) While the pace of merger and acquisitions has slowed in the United
States in the wake of the recent credit crisis, some countries are still seeing considerable
activity. Major companies in India, having money to spend and a desire to expand, are
continuing to pursue M&A opportunities.
Jayaratne, Jith, and Donald P. Morgan. 2000 India is emerging as a global economic and
political power. According to research from Boston Consulting Group, India has contributed the
second-largest number of emerging market giants to BCG's 2008 top global challengers list.
While China has added more companies to BCG's list, its international sale contribution is only
17 percent, in contrast to India's 45 percent. And although India is known for information
technology services, it is also making a substantial contribution to the manufacturing sector
and its manufacturing giants are generating greater shareholder returns than its major IT
companies.
India is putting its growing economic resources to use. Indian companies have announced
$22.3 billion worth of foreign acquisitions in 2007, according to data from Thomson Financial.
The country's record year is 2006, which, bolstered by Tata Steel's $12.9 billion takeover of
Corus, reached $24 billion.
And the buying doesn't appear to be slowing down. Indian copper and aluminum producer
Hindalco Industries paid $6 billion this year to acquire Novelis Inc., a Canadian manufacturer
of semi-finished aluminum products. Hindalco has recently expressed interest in acquiring
foreign copper mines. Indian automakers Tata Motors Ltd. and Mahindra & Mahindra are
competing against each other and private equity firm One Equity Partners to buy British car
brands Jaguar and Land Rover from Ford Motor Company. The car brands are expected to
sell for around $1.5 billion. Other Indian companies that have expressed interest in acquisitions
include petrochemical producer Reliance Industries and pharmaceuticals company Biocon Ltd.
It is worth noting that a significant portion of the Indian M&A activity is driven by the corporate
sector, rather than by private equity investors. The global credit crunch continues to limit deals
from highly-leveraged private equity firms, reducing competition for acquisition targets. The
lack of competition from equity players means that target companies can often be acquired for
less. The value of the Indian rupee is on the rise as well, up more than ten percent against the
US dollar this year. With reduced competition and increased buying power, India's corporate
sector is seeing a good opportunity to pursue acquisitions.
Supported by strong balance sheets and willing local lenders, Indian companies are well
positioned to pursue consolidation and expansion. The Indian airline industry has been
growing at more than 40 percent over the last two years, an increase attributed to the sector's
consolidation efforts. The country's financial sector, which has seen a wave of M&A deals and
initial public offerings, may expand further as anticipated banking reforms open the sector up
to greater foreign participation.
Although the recent economic changes have had a global impact on the M&A market, it is
worth noting that not all countries will be positioned to respond in the same way. For the
moment, it appears that some of our loss may be India's gain.
Berger et al. (1998) suggest that the larger, more organizationally complex institutions that are
created from M&A, may be less predisposed than smaller, less complex institutions to supply
credit to small, less informed borrowers. These borrowers who are most dependent on banks
for credit and whom the bank borrowers relationship is important do not get credit facilities.
Larger institutions according to them may be less predisposed to extend loans that demand
intimate knowledge of the small business, its owners, and its local market because of
diseconomies associated with producing such loans along with other financial service
products.
This diseconomies might arise because lending to small, less informed borrowers and lending
to large, informational transparent borrowers may be distinctly different in their activities, that
require the use of different technologies and entirely different credit cultures (Berger et al.,
1998; Berger et al., 2000) The policies and procedures associated with screening and
monitoring small informational opaque borrowers and transmitting the relevant information
within the banking institution may be very different from those associated with providing
transaction- driven loans to large, informational transparent borrowers. In addition to a financial
institutions size, its organizational complexity, may also affect its small business lending.
Cole et al. (1996) postulate that prior research has established a fairly strong link between
banking institution size and the supply of small business credit, with large institutions devoting
lesser proportions of their assets to small business lending than small institutions (Berger et
al., 1995).
Berger et al, (1995) opine that this simplistic analysis assumes that lending propensities are
static and determined solely by size of a bank. It neglects the fundamental nature of M&A as
dynamic event that may involve significant changes in organizational behavior beyond the
simple static aggregation of the merging institution. Such conclusions also ignores the
reactions of other lenders in the same local market that might pick up any profitable loans that
are no longer supplied by the consolidated institutions, or may react with their own dynamic
changes in behaviour that either increase or decrease their supply of small business loans.
Berger and Udell (1996) state that there are other factors beyond institution’s size and
organizational complexity, such as Emeni and Okafor 147 changes in market competitiveness
or changes in the degree of ownership control, theoretically may affect small business lending
either positively or negatively.
Levonian and Soller, (1995) opine that some of the literature had focused on the association
between small business lending and banking institution size and organizational complexity.
Berger et al. (1995) and Berger and Udell (1996), Peek and Rosengren (1996) and Strahan
and Weston (1996) found that small banking institutions tend to invest much higher proportions
of their asset in small business loans than large institutions.

Berger et al. (1998) suggest that the impact of M&A on bank lending behaviour is quite
complex, with one static effect and at least three dynamic effects. Disentangling the four
effects makes it possible to identify more precisely how M&A affect small business lending.
The static effect as postulated by Berger et al, (1998) is simply the result of the banking
institutions combining their pre-M&A asset, into a larger institution with a combined balance
sheet and competitive position. The static effect might be expected to result in a decreased
supply of small business lending, since (as discussed above) large banking institutions tend to
lend to fewer small business loans per naira of asset. For example, if a bank with N600 million
in assets merge with a N400 million bank. The static effect on small business lending captures
the predicted differences in lending between a typical N1billion bank and the two smaller
banks. The N1billion bank that resulted from simply adding together the pre-M&A balance
sheets of the merging parties is referred to as the pro-forma bank. The static effect also brings
to bear the impact from combining the financial condition or other exogenous variables of the
two smaller institutions.
Furthermore, according to Berger et al. (1998) the restructuring effect is a dynamic effect of the
M&A due to a change in focus in which the institution changes its size, financial condition, or
competitive position from their pro-forma values after consummating M&A. In the simple
example as stated above, the merger of the N600 million bank and the N400 million bank
might eventually result in a merged bank of only N800 million, rather than the N1billion bank.
This could occur, for example, if the purpose of the merger was to reduce excess banking
capacity in the local market. This reduction in bank size from the N1billion pro-forma bank to
the N800 million actual banks would likely increase its proportion of asset devoted to small
business lending since smaller institutions tend to have higher proportion of these loans.

Freietal. (1996) suggest that the cost efficiency effects of merger and acquisition may depend
on the type of merger and acquisition, the motivation behind it and the manner in which the
management implemented its plans. Vennet (1996) studied the impact of mergers on the
efficiency of European Union banking industry by using some key financial ratios and
stochastic frontier analysis for the period 1988-93 and found that merger improve the efficiency
of participating banks. Akhavein et.al (1997) examined the price and efficiency effect of mega
mergers on US banking industry and found that after merger banks have experienced higher
level of profit efficiency than before merger. Berger (1998) found very little improvement in
efficiency for merger and acquisition of either large or small banks. Gourlay et al. (2006)
analyzed the efficiency gains from mergers among Indian banks over the period 1991-92 to
2004-05 and observed that the merger led to improvement of efficiency for the merging banks.
R.B.I (2008) also drives the same conclusions and found that public sector banks have been
able to get higher level of efficiency than private sector banks during post merger period.

The economies of world have experienced a revolutionary change in the environment of

banking sector. The competition among banks at domestic and global level has increased and
it has compelled the banking industry to improve their efficiency and productivity. Moreover,
the government and policy makers have adopted various policies and measures out of which
consolidation of banks emerged as one of the most preferable strategy. There are diverse
ways to consolidate the banking industry the most commonly adopted by banks is merger.
Merger of two weaker banks or merger of one healthy bank with one weak bank can be treated
as the faster and less costly way to improve profitability than spurring internal growth (Franz,
H. Khan, 2007) One of the major motive behind the mergers and acquisition in the banking
industry is to achieve economies of scale and scope. This is because as the size increases the
efficiency of the system also increases. Mergers also help in the diversifications of the
products, which help to reduce the risk as well (Bhan, Akil, 2009)

Meyer, Lawrence H. 2001 The banking industry is undergoing three major changes—the
consolidation of the industry, the spread of Internet banking, and the increased freedom to
combine banking with other financial services. In assessing what these changes mean for local
economies, this article has focused on the two groups that are most likely to be affected—
consumers and small businesses. On the whole, consumers appear to be benefiting from the
changes. Consolidation has not reduced competition in local banking markets very much,
because most of the mergers have not been between banks in the same city or county. Large
multistate banks appear to charge higher fees, but consumers who believe those fees are
unjustified still have plenty of smaller banks to choose from. The spread of Internet banking
should also benefit consumers by reducing the time and inconvenience of banking transactions
and, in very small communities, by providing access to banking services that might otherwise
be unavailable. It is less clear that combining banking with other financial services will benefit
consumers. Conglomerates show no evidence of producing retail financial services at lower
cost than specialists, and the Internet provides other ways for consumers to reap the benefits
of one-stop shopping besides buying all their services from the same provider. For the most
part, small businesses also appear better off as a result of the recent changes in banking. To
be sure, the evidence suggests that banks taken over in mergers by large or distant
organizations have reduced their small business lending. But some large multistate
organizations have managed to overcome the disadvantages of size and geo- 48 FEDERAL
RESERVE BANK OF KANSAS CITY graphic dispersion and expand their small business
lending. Furthermore, where gaps in small business credit have remained, newly chartered
banks and small banks not taken over in mergers have stepped in to make up the difference.
Small businesses should also benefit from Internet banking, especially if it helps them take
advantage of innovations in payments practices such as electronic billing and B2B commerce.
Finally, because financial services to small businesses have substantial and overlapping
information requirements, a good case can be made that combining these services will yield
appreciable economies in information gathering that can be passed on to small businesses in
the form of lower prices.

Laderman, Elizabeth. 2000 Despite these positive aspects of the transformation of banking,
one important concern remains about the impact on local economies—with the public less
willing to invest in bank deposits, will small banks be able to find enough funds to continue
filling gaps in small business credit? The small-bank funding problem is likely to intensify as
the growth of online finance gives local depositors more alternatives for investing their money.
Furthermore, increased reliance on FHLB advances is unlikely to provide a long-term solution
given public policy concerns about banks borrowing heavily from government-sponsored
enterprises. By moving ahead with plans for online banking, small banks may find it easier to
compete with larger banks and brokerage companies for funds. Ultimately, however, the only
solution to the funding problem may be for small banks to pay higher deposit rates. While not a
welcome prospect for any bank, it is one that the bettter managed banks should be able to
afford by exploiting their knowledge of the
local economy to make profitable, high-quality loans.
 Atlas, Riva D. 2000 Huffman and Kahn ;Wind and Rangaswamy (2010) Except for the
historical information contained herein, statements in this Release which contain words or
phrases such as 'would, 'will’, ‘seek to’, ‘growth’ etc., and similar expressions or variations of
such expressions may constitute 'forward-looking statements'. These forward-looking
statements involve a number of risks, uncertainties and other factors that could cause actual
results to differ materially from those suggested by the forward-looking statements. ICICI Bank
undertakes no obligation to update forward-looking statements to reflect events or
circumstances after the date thereof. Information on Bank of Rajasthan contained in this
release is based on its annual report and other public sources. The proposed amalgamation
would be governed by the provisions of Section 44A of the Banking Regulation Act, 1949. The
proposed amalgamation needs the approval of the
Boards of ICICI Bank and Bank of Rajasthan and to become effective, requires the consent of
a majority in number representing two-thirds in value of the shareholders of ICICI Bank and
Bank of Rajasthan, present in person or by proxy, at their respective meetings called for this
purpose, the sanction of Reserve Bank of India by an order in writing and sanction or approval,
if required, under any law or regulation, of the Government of India, or any other authority,
agency, department or persons concerned. There can be no assurance that these approvals
will be obtained or of the time involved therein. This release does not constitute an offer of
securities. The terms of the proposed amalgamation would be contained in the scheme of
amalgamation once approved by the respective Boards of ICICI Bank and Bank of Rajasthan
and requires approval by the shareholders of ICICI Bank and Bank of Rajasthan and Reserve
Bank of India. Reserve Bank of India may modify the scheme approved by the shareholders.
There can be no assurance that terms of the scheme will not have an adverse impact on ICICI
Bank. The proposed amalgamation and any future acquisitions or mergers may involve a
number of risks, including deterioration of asset quality, diversion of our management’s
attention required to integrate the acquired business and the failure to retain key acquired
personnel and clients, leverage synergies or rationalize operations, or develop the skills
required for new businesses and markets, or unknown and known liabilities, some or all of
which could have an adverse effect on our business. This exchange offer or business
combination is made for the securities of an Indian company. The offer is subject to the
disclosure requirements of India, which are different from those of the United States. Financial
statements included in this document, if any, have been prepared in accordance with Indian
accounting standards that may not be comparable to the financial statements of United States
companies.
It may be difficult for you to enforce your rights and any claim you may have arising under the
federal securities laws, since the issuer is located in India, and some or all of its officers and
directors may be residents of India. You may not be able to sue an Indian company or its
officers or directors in an Indian court for violations of the U.S. securities laws. It may be
difficult to compel an Indian company and its affiliates to subject themselves to a U.S. court's
judgment. Acquisitions and mergers fail to create the intended value (PR Newswire, 1999).
Mergers and acquisitions are designed and executed to create growth, competitive
advantages, technological acquisition, eliminate competition and more in order to create value.
But many companies badly estimate the complications that can arise during an acquisition,
resulting in a “2+2=3” rather than a “2+2=5” effect (Appelbaum, 2000; Cartwright and Cooper,
1993; Hovers, 1971). While strategic, cost, revenue and legal issues drive most deals it is
cultural issues that determine their success. It is not an exaggeration that how companies
handle culture issues is probably the single most decisive factor that can make or break a deal.
Although cultural integration is of high importance it is often hard to anticipate, analyze and
quantify. It is of no surprise that the most often quoted reason for the failure of an M&A is
culture differences. (Papadakis, 2007) “Increased turnover, low morale, satisfaction,
commitment, reduced trust, reduced productivity, poor communication, and increase
absenteeism are all potential outcomes that can and do accompany many acquisitions”
(Nikandrou et.al., 2000). Many acquisitions have only been evaluated based on their
compatibility regarding financial figures, technological advantages, or market share, never
focusing on the soft M&A issues (Appelbaum et.al., 2003). People issues once were
considered “soft” issues, but organizations have learned there are hard consequences to
ignoring or mismanaging people issues during a deal. (Appelbaum et.al., 2003). Is this
acquisition a good cultural fit with ours? Do our employees have the same beliefs and values?
Is this company open minded or closed to new ideas and change? Are we dedicating the
correct amount of time to communicating our efforts and providing the vision and direction
necessary for this integration during this acquisition? Many acquirers need to understand that
in an acquisition, it is not the assets, technology, or infrastructure that is difficult to assess and
integrate before, during, and after the takeover, but it is more the people (Feldman and Murata,
1991). Failure to fully assess the compatibility of cultures in the outset, the potential for
compatibility in the future, is unknowingly decreasing their success from the outset. Research
literature has deeply investigated M&As in the last two decades. Studies have been carried out
concerning several aspects of the M&A, including remarkable efforts describing the direct
relationship between productivity and ownership change (Lichtenberg & Siegel, 1987),
organizational changes and employee turnover ( Morrell et al. , 2004) and employees’
openness and commitment to large-scale change (Chawla & Kelloway, 2004), among others.
But do M&A research findings provide firms with the solutions needed to successfully compete
in today’s evolving market?
The two important issues examined by several academic studies relating to bank mergers are:
first, the impact of mergers on operating performance and efficiency of banks and second,
analysis of the impact of mergers on market value of equity of both bidder and target banks.
Berger et.al (1999) provides an excellent literature review on both these issues. Hence in what
follows we restrict the discussion to reviewing some of the important studies.
The first issue identified above is the study of post merger accounting profits, operating
expenses, and efficiency ratios relative to the pre-merger performance of the banks. Here the
merger is assumed to improve performance in terms of profitability by reducing costs or by
increasing revenues. Cornett and Tehranian (1992) and Spindit and Tarhan (1992) provided
evidence for increase in post-merger operating performance. But the studies of Berger and
Humphrey (1992), Piloff (1996) and Berger (1997) do not find any evidence in post-merger
operating performance. Berger and Humphrey (1994) reported that most studies that
examined pre-merger and post-merger financial ratios found no impact on operating cost and
profit ratios. The reasons for the mixed evidence are: the lag between completion of merger
process and realization of benefits of mergers, selection of sample and the methods adopted
in financing the mergers. Further, financial ratios may be misleading indicators of performance
because they do not control for product mix or input prices. On the other hand they may also
confuse scale and scope efficiency gains with what is known as X-efficiency gains. Recent
studies have explicitly employed frontier X-efficiency methods to determine the X-efficiency
benefits of bank mergers. Most of the US based studies concluded that there is considerable
potential for cost efficiency benefits from bank mergers (since there exists substantial X-
inefficiency in the industry), “but the data show that on an average, such benefits were not
realized by the US mergers of the 1980s” (Berger and Humphrey, 1994). Some studies have
also examined the potential benefits and scale economies of mergers. Landerman (2000)
explores potential diversification benefits to be had from banks merging with non banking
financial service firms. Simulated mergers between US banks and non-bank financial service
firms show that diversification of banks into insurance business and securities brokerage are
optimal for reducing the probability of bankruptcy for bank holding companies. Wheelock and
Wilson (2004) find that expected merger activity in US banking is positively related to
management rating, bank size, competitive position and geographical location of banks and
negatively related to market concentration. Substantial gains from mergers are expected to
come from cost savings owing to economies of scale and scope. In a survey of US studies,
Berger and Humphrey (1994) concluded that the consensus view of the recent scale economy
literature is that the average cost curve has a relatively flat U-shape with only small banks
having the potential for scale efficiency gains and usually the measured economies are
relatively small. Studies on scope economies found no evidence of these economies. Based
on the 6 literature, Berger and Humphrey (1994) conclude that “synergies in joint products in
banking are rather small.” The second issue identified above is the analysis of merger gains in
terms of stock price performance of the bidder and target banks on announcement of merger.
A merger is expected to create value if the combined value of the bidder and target banks
increases on the announcement of the merger. Pilloff and Santomero (1997) conducted a
survey of the empirical evidence and reported that most studies fail to find a positive
relationship between merger activity and gains in either performance or stockholder wealth.
But studies by Baradwaj, Fraser and Furtado (1990), Cornett and Tehranian (1992), Hannan
and Wolkan (1989), Hawawini and Swary (1990), Neely (1987), and Trifts and Scanlon (1987)
report a positive reaction in the stock prices of target banks and a negative reaction in the
stock prices of bidding banks to merger announcements. A recent study on mergers of
Malaysian banks shows that, forced mergers have destroyed wealth of acquired banks (Chong
et. al., 2006). Again the reasons for mixed evidence are many. A merger announcement also
combines information on financing of the merger. If the merger is financed by equity offerings it
may be interpreted as overvaluation of issuer. Hence, the negative announcement returns to
bidding firm could be partly attributable to negative signaling unrelated to the value created by
the merger (Houston et. al., 2001). Returns to bidder firms‟ shareholders are significantly
greater in bank mergers financed with cash than in mergers financed with stock (Houston and
Ryngaert, 1997). The other short coming of event study analysis of abnormal returns is that if a
consolidation wave is going on, mergers are largely anticipated by shareholders and stock
market analysts. Potential candidates for mergers are highlighted by the financial press and
analysts. In such cases event study analysis of abnormal returns may not capture positive
gains associated with mergers.
In sum, the international evidence does not provide strong evidence on merger benefits in the
banking industry. However it may be useful to note that these findings from the academic
literature usually conflict with consultant studies which typically forecast 7
considerable cost savings from mergers. Berger and Humphrey (1994) suggest why most
academic studies do not find cost gains from mergers whereas consultants tend to advocate
mergers.

6. Research Methodology

A research design is purely and simply the framework of plan for a study that guides the
collection and analysis of data. The study is intended to find the investors preferences towards
various investment avenues.

Type of Research :-

Descriptive Study is a fact finding investigation with work interpretation. It is the simplest type
of research and is more specific. Mainly designed to greater descriptive information and
provides information for formulating more sophisticated studies.

Sample Design
Selection of study area :- Jaipur
Selection of Sample Size :- 50

Sampling Method :-
 Convenience method of sampling is used to collect the data from the respondents.
Researchers or field workers have the freedom to choose whomever they find, thus the name
“Convenience” about 50 sample were collected from Jaipur city.

Data Collection:-
Primary :- Collection through structured questionnaire.
Secondary :- Earlier record from journals, books and internet.

7. Chapterisation

Chapterisation includes :-
 Preface
 Acknowledgement
 Executive summary
 Contents
1. Introduction to the industry
2. Introduction to the Organization
3. Research Methodology
3.1) Title of the Study
3.2) Duration of the project
3.3) Objective of Study
3.4) Type of Research
3.5) Sample Size and method of selecting sample
3.6) Scope of Study
3.7) Limitation of Study
4. Facts and Findings
5. Analysis and Interpretation
6. SWOT
7. Conclusion
8. Recommendation and Suggestions
9. Appendix
10. Bibliography

8. Limitations of Study

The study might be limited by following factors:

1. Duration of project is very short.
2. The data available for the project are insufficient.
3. Sample size taken for the study is small.
4. Area for the project is confined to Jaipur.

9. BIBILIOGRAPHY

BOOKS
1. Banerjee, A., Singh, S.K.. “Banking and Financial Sector Reforms in India”, Indus Books, 2001
2. Coffin, george M.. “A B C of Banks and Banking”,Abdul Press, 2000
3. Fischer Donald E., Jordan Ronald J.. “Security Analysis and Portfolio Management”,
Prentice-Hall of India, 2006
4. Gallati Retro R.. “Risk Management and Capital Adequacy”, Tata McGrawhill Publication,
2003
5. Joel Bessis. “Risk Management in Banking”, John Wiley, 2001
6. Khan M. Y.. Indian Financial System, Tata McGraw Hill Companies, 2009
7. Kohn M.. Financial Institution and Markets, Oxford University Press,2007
8. Pandian P.. “Security Analysis and Portfolio Management”, Vikas Publishing House, 2009
9. Lynch Peter. “Beating the Street”, Fireside Publishers,1994
10. Muraleedharan D.. Modern Banking: Theory and Practice, PHI Learning Pvt. Ltd., 2009

JOURNALS
1. Banking Law Journal
2. Business History
3. Harward Business Review
4. Journal of Finance
5. Journal of Economics & Finance
6. Journal of Financial Services Research

NEWS PAPERS AND MAGAZINES

1. Business Standard
2. DNA Money
3. Financial Express
4. The Capital Market
5. The Economic

WEBSITES
1. www.ibtimes.com
2. www.rbi.org.in
3. www.thehindubusinessline.com
4. www.icici.com
5. www.bankof rajasthan.com