>ICICI Bank to merge Bank of Rajasthan with itself (INDIA INFOLINE)

■ ICICI Bank to merge Bank of Rajasthan with itself; share swap ratio at 25:118shares.
ICICI Bank has received in-principle board approval to merge the controversial Bank of Rajasthan (BoR) with itself, subject to due diligence and valuations by an independent valuer. With increasing conflict over promoter Tayal’s stake, BoR board too approved the said amalgamation. The bank has been on the watchlist of both SEBI and RBI due to uncertainness over promoter’s stake and string of violations. The share swap deal has been agreed upon at 25 shares of ICICI Bank for each 118 shares of Bank of Rajasthan.

■ Equity dilution at meager 3.1%; high level of NPL’s remain the key challenge area
While BoR balance sheet size remains limited at Rs173bn (4.8% of ICICI Bank balance sheet), deposit book at Rs152bn and advance book at Rs78bn would constitutes 7.5% and 4.3% of ICICI Bank respectively. The merger in our view, is expected to enable ICICI bank to increase its balance sheet size, which declined by 4% during the period FY09-10. Equity dilution for ICICI Bank, however, is expected to remain at a meager 3.1% as at end FY10 (see table 2). Increasing levels of NPLs for both banks, however, have remained the key concern. Gross NPL for ICICI Bank stood at 4.4%, while that for BoR was at 2.0%. Substantial decline in unsecured portfolio, improvement in asset quality and secured lending would enable the bank to weather through this concern.

■ Acquisition to expand branch reach, particularly in North India
BoR with 463 branches as at end FY09, constituted ~23% of the branch network for ICICI Bank. With ~60% of these branches located in the state of Rajasthan, the merger would enable ICICI
Bank to increase its foothold in the state and North India. Earlier, while the acquisition of Bank of Madura (2000-01) had enabled ICICI Bank to increase its presence in South India, the merger of Sangli Bank (2006-07) had enabled the bank to mark a strong footprint in West India, particularly Maharashtra. With CASA ratio for BoR at healthy ~40%levels, (in-line with ICICI Bank), the merged entity would continue to focus on garnering low-cost deposits. The acquisition price at ~Rs30.4bn translates into Rs65mn per branch of BoR as against Rs260mn paid by HDFC Bank for acquiring branches of CBoP in February, 2008.

To read the full report: ICICI BANK