BoR deal is of immense strategic value to us

BoR deal is of immense strategic value to us

Mumbai: Managing director and chief executive officer of ICICI Bank Ltd, Chanda Kochhar says the acquisition of Bank of Rajasthan Ltd (BoR) is a valuable deal for India’s second biggest lender, although investors and analysts have given it the thumbs-down.

In a phone interview on Sunday, Kochhar cited the sizeable branch network BoR offers ICICI Bank in northern and western India. She also said ICICI Bank wouldn’t need approval for the merger from the Foreign Investment Promotion Board (FIPB) although it has been classified as a foreign-owned entity.

Kochhar spoke to Mint after the boards of ICICI Bank and BoR on Sunday went ahead and approved the share swap ratio for their proposed merger, which values the Jaipur-based lender at Rs3,000 crore,

“The board has approved a share exchange ratio of 25 shares of ICICI Bank for 118 shares of Bank of Rajasthan, which works out to one ICICI Bank share for every 4.72 Bank of Rajasthan shares...," ICICI Bank said in a statement.

The proposed merger is subject to the approval of shareholders of both banks and the Reserve Bank of India (RBI). The two banks have called extraordinary general meetings (EGM) of shareholders on 21 June.

Since the announcement of the merger on 18 May, ICICI Bank stock has lost 6.12% to Rs834.89 from Rs889.35. The 7.3% decline on 19 May was its biggest in at least nine months. BoR stock has surged 45.12% since 18 May.

Brokerage analysts say the the swap ratio makes the merger expensive for ICICI Bank though, in the long term, BoR’s branch network will come in handy for its expansion. BoR has a network of 463 branches and 111 automated teller machines (ATMs). Around 60% of its branches are in Rajasthan. ICICI Bank has a network of 2,009 branches and 5,219 ATMs.

In the interview, Kochhar said she is confident that there will be no major surprises or write-downs in the future on account of the acquisition. Edited excerpts:

How did you zero in on Bank of Rajasthan?

It fixes very well in our strategy. It gives us 463 new branches, which is a 25% increase in branches and specifically in north India and western India. We can garner new business through these branches. It helps us add new customers, ability to offer more products and extend our financial inclusion in...Rajasthan as it gives us branches in rural and semi-rural areas of Rajasthan.

The BoR acquisition has been categorized by investors and brokerage houses as expensive. Your comments?

When you analyse the value of the buy, you look at the strategic and the underlying value that any deal brings. Strategically this is a valuable deal as it increases the branch network by 25% with an equity dilution of just about 3%. Hence it’s a very valuable deal. If you look at the value per branch we have paid, it comes to Rs6.5 crore, which is in line with the average market capitalization per branch of old private sector banks.

Do you need FIBP and the Securities and Exchange Board of India (Sebi) approval to acquire BoR?

After the shareholder approval, we will have to take the Reserve Bank of India’s approval. As per our legal advice, we are told that FIPB approval is not applicable in this case. Bank mergers are always done under an RBI approved scheme so what we need is RBI approval.

What will be the Tayal group’s holding? The dominant shareholder group, according to Sebi, holds a 55% stake in Bank of Rajasthan.

To us what is relevant is that we are going to issue ICICI Bank shares to all the shareholders of Bank of Rajasthan. So, for us it is a share swap for the 100% of the shareholding. For 118 shares of Bank of Rajasthan, we have agreed to give 25 shares of ICICI Bank. Whatever they (Tayal group) have, they will get in terms of the swap ratio, but as I said earlier all Bank of Rajasthan shareholder put together will get only 3% shares of ICICI Bank.

Will the Tayal group get any board membership?


Do you expect any problems to emerge during the integration?

We have done a fair amount of due diligence of the book, including the advances, investments, deposits, and it is very satisfactory. We have done a case-by-case analysis of about 80% of the book ...I do not expect any major surprises really or big write-downs to come on account of this. What we will have to do is align the accounting policies to our accounting policies whether it is on NPAs (non-performing assets) or employee liabilities.

BoR employees have been opposing the merger and are planning a nationwide strike in the coming days. Your comments?

We are a very responsible and fair organization. We believe in very fair dealing with our employees and you have seen in the past we have done two mergers...and handling those employees in a very fair manner.

All I want to say is that Bank of Rajasthan employees should not have any reason to worry about this merger and we will, as a responsible and fair organization, take care of them.

P.K. Tayal, major stakeholder in the bank, told us that in the scheme of amalgamation there will be no retrenchment of employees and existing benefits will continue.

I must only clarify that there is nothing specifically in the scheme of arrangement. I think it is left to the acquirer bank. As an acquirer bank we are a responsible and fair organization and we will deal with the employees in a manner that they should have no worries.

How much time will the integration take?

Both the banks are very customer-centric organizations and that is how we will achieve a very seamless integration.