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    December 1969
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Strategic factors like immediate strength of customer base, geographical base and enhancement of future shareholder value were also taken into account for derivation of the Swap ratio. To quote P.H.Ravi kumar, Senior Vice President, ICICI bank (as appeared in The Economic Times dated 12 december 2000), three issues were considered for merger, customer base, geographical base and enhancing shareholder value. We had been looking for such an activity. South is high economic activity area where the Bank of Madura had a strong presence .In fact, ICICI bank had negotiated with other South India based banks including Karnataka based Vysya bank, kerala based Federal bank and South India bank for a possible merger with the latter with the intention of expanding its operations to South India. But the negotiations were not successful. The statement of Mr. Sinor, Chairman and Managing Director of ICICI bank is as follows: Bank was looking at a network of 350-400, which could have taken atleast 5 years to achieve. Moreover, to get an additional 1.2 million customers(Bank of Madura s client base) would have required a minimum 2 years. On the other hand, Mr K.M.Thiagarajan, the then Chairman and Managing Director of BoM released a statement which is reproduced here: The financial consolidation was becoming necessary for the growth of the bank.Shareholder value is more important than anything else. The decision is based on value creation . SUITABILITY ANALYSIS: Suitability Analysis was undertaken to ascertain the suitability of Bank of Madura merger with ICICI bank.The Bank of Madura represented the culture of a 57 year old organization whereas ICICI Bank represented a 6 year old new age organization. Hence, an attempt was made to position the banks in context of new trends in the banking sector. The emerging trends in the banking sector are summarized in the form of what s in and what s out format given below. Being an old private sector bank, the Bank of Madura laid emphasis on parameters listed nder the title what s out in the banking sector. They had, traditionally focused on mass banking strategies based on social objectives, where as ICICI bank, had been emphasizing on parameters like profitability in the interests of shareholders. Being a new born private sector Bank, ICICI Bank had a credit recovery management cell, whereas the Bank of Madura had a cell working like a credit monitoring department. New Strategies (IN) and Old Priorities (Out) in the Banking Sector: What s IN Profitability Shareholders Pro-active Target banking Fee based Recovery mgt.Cell Investments Hire and Fire What s OUT Developmental and Social Priority sector Passive Mass banking Fund based Credit monitoring cell Advances Job Security Objective Interests of Strategies Segment Business NPA mgt. Concentration HR Policy ICICI Bank has been a leading private player emphasizing more on What s IN rather than What s OUT in the banking sector. Thus,the merger is beneficial for the parties concerned since the Bank of Madura was also trying to focus on new strategies in banking sector, after the implementation of banking sector reforms in India. It was not a mammoth task for them to position them with functional styles of ICICI bank. However, integrating the human resources of Bank of Madura with ICICI bank s employees was a difficult process for ICICI bank. SYNERGIES OF THE MERGER: The synergies of merger of Bank of Madura with ICICI bank can be summarized as follows: y y y y Network of over 360 branches. Reduced time setting up new branches. Combined Customer base of 2.7 million. Combined asset base of Rs.16000 crore, which makes the ICICI bank amongst the largest in private sector banks in India. In detail, the synergies can be discussed on basis of the following parameters: y Financial capability: The merger has enabled them to have a stronger financial and operational structure, which is supposed to be capable of stronger resource/deposit mobilization. y Branch network: ICICI bank s branch network not only increased by 264, but also increased the geographic coverage as well as convenience to its customers. y Customer base: The largest customer base (combined) enabled ICICI bank to offer banking and financial services and products and also facilitate cross-selling of products and services of ICICI group. y Tech edge: The merger will enable ICICI bank to provide ATMs, phone and the internet banking; and financial services and products to a large customer base, with expected savings in costs and operating expenses. y Priority sector advances: Commercial banks are required to lend money to people in the priority sector which include the farmers, people in rural areas and small scale industry. ICICI bank did not have many branches in the rural and semi-urban areas. The enhanced branch network enabled ICICI bank to lend for micro-finance activities through self-help groups, and for agricultural sector in its prority sector initiatives through s acquired 87 rural and 88 semi-urban branches. y Equity capital and EPS:The Swap ratio approved was in ratio of 1:2- two shares of ICICI bank for every one share of BoM. The deal with BoM diluted the current equity capital by around 12%. And merger brought about 20% gains in EPS of ICICI Bank. And also the bank s comfortable Capital adequacy ratio (CAR) of 19.64% declined to 17.6%. Financial Standings of ICICI bank andBank of Madura (Rs.Crore) Parameters ICICI bank Bank of Madura 1999-2000 1998-99 1999-2000 1998-99 Net worth 1129.90 308.33 247.83 211.32 Total deposits 9866.02 6072.94 3631.00 3013.00 Advances 5030.96 3377.60 1665.42 1393.92 Net profit 105.43 63.75 45.58 30.13 Share capital 196.81 165.07 11.08 11.08 Capital 19.64% 11.06% 14.25% 15.83% adequacy ratio Gross 2.54% 4.72% 11.09% 8.13% NPAs/Gross advances Net NPAs/Net 1.53% 2.88% 6.23% 4.66% advances Source: compiled from Annual reports (1999-2000) of ICICI bank and BoM. y Managing Human Resources: One of the greatest challenges before ICICI bank was managing human resources.When the head count of ICICI bank was taken, it was less than 1500 employees; on the other hand, BoM had over 2500. The merged entity had about 4000 employees which made it one of the largest banks among the new generation private sector banks. The staff of ICICI bank are drawn from various banks and business schools, mostly young qualified professionals with a computer background who prefer to work in metros or big cities with good remuneration packages. While under the influence of trade unions, most of the BoM employees have a low career aspirations. Many of them have already availed of the voluntary retirement scheme and left. On the other hand ,pay of most of the BoM employees were revised upwards. It was a Herculean task to integrate two work cultures. Managing a client base: The client base of ICICI bank, after merger was as big as 2.7 million from its past 0.5 million, an accumulation of 2.2 million from BoM. The nature and quality of clients was not of uniform quality. The BoM had built up its client base for a long time, in a hard way, on basis of personalized services. In order to deal with BoM s client base, ICICI bank needed to redefine its strategy to suit to new culture. If the sentiments or a relationship of small and medium borrowers was hurt, it woukd have been difficult for them to reestablish the relationship, which could also hamper the image of the bank. Managing rural branches: ICICI s major branches were in major metros and cities, whereas BoM has spread its wings in mostly semi-urban and rural segments of south India. There was a task lying ahead for the merged entity to increase dramatically the business mix of rural branches of BoM. On the other hand, due to geographic location of its branches and level of competition, ICICI y y bank would have tough time to cope with. Eg: an account holder needed to maintain a minimum Rs.5000 in savings bank account with ICICI bank,whereas Bank of Madura s requirement to open a savings bank account was just Rs.500. The branches in the rural area had a no. of customers from low income and middle income groups who could not have maintained Rs 5000 in their savings bank account. Also,most of the Bank of Madura employees who were working in rural branches were likely to retire soon, as the everage age of Bank Of Madura employees was almost twice that of ICICI bank. The ICICI bank employees, mostly youngsters, would not prefer to get transferred to the rural branches because of their preference for city life and culture.