ICICI, ICICI Bank set to merge

Mumbai: The boards of ICICI, aged 47, and ICICI Bank, aged eight, are meeting on 25 October to consider the merger of the financial institution along with two of its wholly-owned subsidiaries - ICICI Personal Financial Services and ICICI Capital Service - with the bank.

On 24 October, after the markets closed for trading, the managements of both the companies had informed the Bombay Stock Exchange that they would consider the merger proposal the next day.

The highlights of the proposed merger are:
1) The identity of ICICI will cease to exist. ICICI shareholders will exchange their shares with those of ICICI Bank. Though yet to be decided, people in the know are talking of a possible ratio of 1.5 to 1.9 shares of ICICI with one share of ICICI Bank. JM Morgan Stanley and DSP Merrill Lynch are to recommend the share swap-ratio in consultation with the accounting firm Deloitte, Haskins and Sells.
2) ICICI Home Finance will be kept out of the merger.
3) The combined entity will become the second-largest financial services company in India in terms of assets, which at Rs 94,000 crore stand next only to the State Bank of India, which tops the list with assets of Rs 3,16,000 crore. IDBI is third on the list with assets of Rs 71,783 crore.
4) In terms of advances the combined entity will continue to remain behind SBI, with total advances of Rs 56,285 crore. SBI tops the list with total advances of Rs 1,13,590 crore followed by Bank of India at Rs 31, 823 crore.
5) Both the companies are listed overseas and the merger will impact the ADS prices of both the companies.
6) The combined holding of financial institutions in the merged entity is unlikely to fall below 26 per cent.

Why merger? Of late ICICI has been burdened with high NPAs and has been facing stiff competition from banks, which have been encroaching into its territory by getting into project financing. For the banks, availing of low-cost finance is no big deal, where ICICI stands helpless. The merger will help lower the average cost of funds for the merged entity and create synergies of operations.

Nevertheless, if the merged entity were to act as a bank immediately, it would be required to set aside Rs 18,000 crore as SLR and CRR, which are currently placed at 25 per cent and 5.5 per cent respectively. Chances are that as contemplated by ICICI MD and CEO K V Kamath, the merged entity will act as a quasi bank to begin with and become a full-fledged one after or within a period of 18 months.