TOPIC: Merger of ICICI Ltd. with ICICI Bank.

Group Members:

1.Dheeraj Gupta 37.

2.Vikas Nagvanshi 61.
3.Sailee Rane 83.
4.Ankita Shastri 97.
5. Somil Vira 115.
Introduction to the case

ICICI Ltd merged with ICICI Bank on 30th March 2002, with the swap ratio of 2
ICICI shares for 1 share of ICICI Bank limited. With this merger, second largest
bank in India was born. RBI had given approval for reverse merger of ICICI Ltd
with its banking arm ICICI bank. ICICI bank with its 1 lakh crore rupees asset
base bank is second only to State Bank of India, which is well over Rs. 3 lakh
crore in size. RBI also cleared the merger of two ICICI subsidiaries ICICI
Personal Financial Services and ICICI Capital Services with ICICI Bank. The
merged entity will have a capital base of Rs 95 billion, 8,300 employees and a
huge nationwide branch network. As the proposed merger is between a banking
company and a financial institution, all matters connected with shareholding
including the swap ratio, will be governed by the provisions of Companies Act,
1956, as provided. In case of any disputes, the legal provisions in the
Companies Act and the decision of the Courts would apply.

While clearing the merger which was cleared by the Bombay High Court and
the Gujarat High Court, RBI said, considering that the advances of ICICI are
not subject to the requirement applicable to the banks in respect of the priority
sector lending, the bank will post merger have to maintain an additional 10%
over and above the requirement of 40% that is 50% on the net bank credit on the
residual portion of its advances.

This additional 10% by way of priority sector will apply until such time as the
aggregate priority sector advances reach a level of 40% total of the net bank
credit of the bank. RBI said, adding its existing instructions on sub targets under
priority sector lending and eligibility of certain types of investments for
reckoning as priority sector advances will apply to the bank.
On reserve requirements, RBI said, ICICI bank should comply with CRR
requirements under section 42 of the RBI Act of 1934 and the SLR requirement
under section 24 of the Banking Regulation Act of 1949 as applicable to banks
on the net demand and time liabilities of the bank, inclusive of the liabilities
pertaining to ICICI from the date of merger. Consequently, ICICI has to comply
with the CRR/SLR computed accordingly and with reference to the position of
net demand and time liabilities as required under existing norms.

ICICI has already mopped a whopping rupees 23000 crores of SLR and CRR of
rupees 5500 core to conform to this norm.

ICICI bank will continue to comply with all prudential requirements, guidelines
and other norms as applicable to banks concerning capital adequacy, asset
classification, and income recognition and provisioning, issued by RBI from
time to time on its entire portfolio of assets and liabilities post merger.

The bank should also ensure compliance with section 20 of the Banking
Regulation Act concerning granting of loans to companies in which directors of
such companies are also directors. In respect of loans granted by ICICI to
companies having common directors, while it will not be legally necessary for
ICICI bank to recall the loans already granted to such companies after the
merger, it will not open to the bank to grant any fresh loans and advances to
such companies post merger. The bar also includes renewal or enhancement of
the existing loans. The restriction contained in section 20 of the Act does not
make any distinction between professional directors and other directors and will
apply to all directors.

The investments of ICICI Ltd. acquired by way of project finance as on the date
of merger would be kept outside the exposure ceiling of 5 per cent of advances
towards exposure to equity and equity linked instruments for a period of five
years since these investments need to be continued to avoid any adverse effect
on the viability or expansion of the project. The bank should, however, mark to
market the above instruments and provide for any loss in their value in the
manner prescribed for the investments of the bank. Any incremental accretion to
the above project-finance category of equity investment will be reckoned with
in the 5 per cent ceiling for equity exposure for the bank.

While taking over the subsidiaries of ICICI after merger, the bank has also been
asked to ensure that the activities of the subsidiaries comply with the
requirement of permissible activities to be undertaken by the bank under
sections 6 and 19(1) of the BR Act. The takeover of certain subsidiaries
presently owned by ICICI by ICICI bank will be subject to approval, if
necessary, by other regulatory agencies like IRDA, SEBI, National Housing
Bank etc.

The bank should ensure that its investments in any of the companies in which
ICICI Ltd. had investments prior to the merger are in compliance with Section
19 (2) of Banking Regulation Act, 1949, prohibiting holding of equity in excess
of 30 per cent of the paid-up share capital of the company concerned or 30 per
cent of its own paid-up share capital and reserves, whichever is less.

ICICI Bank Ltd. should ensure that fair valuation of the assets of the ICICI Ltd.
is carried out by the statutory auditors to its satisfaction and that required
provisioning requirements are duly carried out in the books of ICICI Ltd. before
the accounts are merged. Certificates from statutory auditors should be obtained
in this regard and kept on record.

Section 12 of the Banking Regulation Act, 1949 requires that capital of a

banking company shall consist of ordinary shares only (except preference share
issued before 1944). The inclusion of preference share capital of Rs. 350 crore
(350 shares of Rs.1 crore each issued by ICICI Ltd. prior to merger), in the
capital structure of the bank after merger is, therefore, subject to the exemption
from the application of the above provision of Banking Regulation Act, 1949,
granted by the Central Government in terms of Section 53 of the Act ibid for a
period of five years.

After complying with all the requirements, the approval of the RBI gave birth to
the reverse merger of ICICI ltd and ICICI bank.

Background of the Companies

Industrial Credit and Investment Corporation of India Limited (ICICI) was set
up in 1955 as a public limited company by the Government of India, the World
Bank and some private Institutions with a paid up share capital of just rupees 5
crores. Its primary objective was to provide foreign currency loans to Indian
companies. But gradually it expanded its activities into the areas of project
finance, underwriting, venture capital, mutual funds and establishment of
various subsidiaries including that of ICICI bank in 1994. The institution was
able to quickly grasp the opportunities thrown up by the economic liberalization
of early nineties and grow into formidable force in Indian financial scene.
Finally, when RBI allowed Indian development bank in October 2001 to convert
themselves into universal banks, ICICI was the sole applicant to RBI and
presented its case with a detailed scheme of reverse merger of itself with ICICI
bank.

ICICI banking corporation limited was set up as a scheduled commercial bank

in 1994 by ICICI Ltd as its wholly owned subsidiary. In 1999, ICICI bank
became the first Indian bank or financial Institution from non Japan Asia to be
listed on the New York Stock Exchange. Consequent to the merger, the ICICI
groups financing and banking operations, both wholesale and retail, have been
integrated into a single entity. After the merger, the holding of ICICI Ltd in the
bank was diluted to 55.6% from the pre merger level of 62.6%.

ICICI Bank has now became Indias second largest bank after The State Bank of
India with a total assets of about Rs. 1,679.59 billion as on 31 st March, 2005. It
has a network of 562 branches and extension counters and about 1,880 ATMs.
It is now offering a wide range of banking products and financial services to
corporate and retail customers through its specialised subsidiaries and affiliates.
The domestic affiliates of ICICI Bank are ICICI Venture Funds Management,
ICICI Prudential Life Insurance Company, Lombard General Insurance
Company, ICICI Securities Limited, ICICI House Finance Limited, ICICI
Investment Management Company Ltd., Trusteeship Services Ltd., and ICICI
Distribution Finance Private Ltd.

Reason behind Merger:

The reasons that compelled ICICI Ltd. to become a universal bank have much
to do with change in global banking environment rather than its internal
dynamics. The reasons for the merger merely reflect the dilemma faced by the
entire Indian banking community in general and development-banking sector in
particular.

1. Commercial banks have access to low costs funds in the form of savings
and current account deposits. But development banks can access public
money only through bond of at least five years maturity and a fairly high
rate of return. So the attraction of cheap source of funds lured ICICI Ltd
to reverse merger itself with its commercial offspring.

2. "This is basically a survival move from ICICI, as their core business

doesn't look too good and they need some kind of a bank because only a
 bank has access to low-cost funds," said an analyst with a foreign
brokerage.

3. It became quite clear after 1992 that concentrating only on project finance
was a very risky strategy. ICICI needed to spread its risks. And the only
way for it was to become a financial conglomerate- a financial superstore
that provides banking, insurance, fund management, mutual funds and
securities trading under the same umbrella.

4. Development banks provide long-term project finance. Therefore, they

need cheap source of long-term funds. The lowering of the bank rate and
the Cash Reserve Ratio by RBI has led to a fall in the prime lending rate
leading to erosion in bank income. This falling interest rate regime has
led to serious asset liability mismatch for the banks. This is another
reason for development banks like ICICI Ltd to convert themselves into
universal banks.

5. One of the prime reasons for the merger was to deprive operational
synergies as both the entities were in the same line of business with
slightly different specialization. While ICICI Ltd was expert in long-term
management of finance and dealing with large institutional clients, ICICI
focus on the domestic consumer and small to medium sized corporate.
Moreover, the merger was also expected to lead to greater tax efficiencies
and consolidation of holdings.

6. India has around 61,000 millionaires as of 2003-04 as per a survey

conducted by Merill Lynch Capgemini. Their combined wealth is
approximately Rs. 12, 00,000 crores. Moreover, this number is expected
to grow by 40% within the next two years. This category of rich
individuals requires a different class of banking known as personal
 banking. Personal banking is a high marginal line of business with ample
opportunities to push other financial projects like insurance, mutual funds
etc. But this being a type of retail banking product, is out of the reach of
development banks like ICICI Ltd. The combined entity was thus
expected to be able to put even more resources into this line of business
that was not possible for ICICI Bank to do alone.

7. By contrast, only 1.31 per cent of ICICI Bank's loans looked dodgy.
8. The bad loan figure for the merged entity is estimated at 3.5 per cent,
which would be the second lowest in the Indian banking industry after the
three per cent at HDFC Bank, an investment fund manager favourite.
Like HDFC Bank, which raised $172.5 million in July by issuing
American Depositary Shares, ICICI too needs to raise funds to write off
bad loans that could swell, analysts say.

9. Indians are now following the global trend of spending tomorrows

money today, i.e. the practice of using credit to finance purchases of all
kinds of goods. Banks from both the public and private domain are now
providing consumer loans at cheap rate of interest. But again
development banks cannot provide consumer loans until they get
converted into commercial ones. A similar product targeted at consumers
is that of credit cards. The number of credit cards owners during the last
four years has grown at a compounded annual growth rate of 35%. Credit
card companies charge users interest at up to 39% per annum. This is a
very high rate of return for banks when they can earn only around 9% per
annum on home loans. But development banks are not authorised to issue
credit card to their customers.

10.India has 95 scheduled commercial banks, 4 non-scheduled commercial

banks and 196 regional rural banks. A total of more than 68,000 branches
 dot the landscape with an average of one branch per 15,000 people. This
mammoth sized network with an over active trade union movement has
led to uneconomic segmentation of the industry. This makes
consolidation inevitable partly due to market forces and partly due to
regulatory intervention. As an offshoot of this trend, development banks
are going to merge with commercial banks.

11.India is slowly becoming a global economy. So inevitable every industry

has to reach global scale to survive. But out of 95 scheduled banks, only
State Bank of India ranks among top 200 banks in the world. So all types
of banks are frantically trying to grow in size in any way possible. And
the shortest way to achieve it is through the way of merger. During the
last 35 years, about 36 banks and non-banking finance companies have
merged. But the greatest wave is yet to come. ICICI Ltd has shown the
way. IDBI bank has taken the same path.

Financial Impact:

The most visible change that has come about as a result of the merger is in the
income statement and the balance sheet. The total income and net profit figures
have climbed up to Rs. 128.26 billion and Rs. 20.05 billion respectively.
Operating profit has reached Rs. 29.56 billion while EPS has become Rs.27.33.
ICICI bank is now in the process of strengthening its presence in various
emerging financial sectors in India. It has collaborated with experienced foreign
entities so that it can leverage upon its partners skills and support it with its own
nationwide infrastructure. ICICI bank has designated these joint ventures as
strategic Business Units and is striving to maintain or capture the top slot in
each of these segments.
ICICI Lombard has become the largest private non life insurance company with
a market share of 22% among a total of 12 players. ICICI Ventures is the largest
private equity investors and plan to further consolidate its position in 2004-05.
ICICI Prudential Life Insurance, with a market share of 5%, is among top five
in its category.

Rationale for the Merger

For ICICI the merger meant:

1. Increasing the speed in financing long term projects.

2. Obtaining access to cheaper funds for lending.

3. Increasing its appeal to investors for raising capital base needed to write
up bad loans.

4. Competing more effectively in retail finance market dominated by banks.

For ICICI Bank it meant:

1. Expanding geographically

2. Utilizing large capital base of ICICI.

3. Gaining brand equity from the strong brand name of ICICI.

4. Deriving benefits from ICICIs well established corporate relationships.

The Merger deal and its Motivations:

The swap ratio was based on the valuations and recommendations of Deloitte,
Haskins and Sells. ICICI was advised by investor bankers, JM Morgan Stanley
and ICICI Bank by DSP Merill Lynch. The merger ratio was set at two ICICI
shares for every ICICI Bank share that is one equity share of ICICI bank was
swapped for two equity shares of ICICI. Under the scheme of amalgamation,
American Depository share (ADS) holders of ICICI got five ADS of ICICI
Bank in exchange of four ADS of ICICI.

Impact of the Merger on the Enlarged Entity

Through this merger, ICICI Bank became Indias first universal bank, that is,
one stop-shop for financial services in India and acquired large market share of
retail banking and offered a complete range of banking products. The enlarged
entity (ICICI bank) derived the following benefits:

1. Optimum utilization of human capital.

2. Improved ability to further diversify asset portfolios and business

revenue.

3. Reduced costs of funds.

4. Availability of more floats money due to active participation in the

payment system.

5. Diversified fund raising due to access to retail funds.

6. Leveraged the ICICIs capital and client base in terms of increase in fee
income.

7. Improved profitability by leveraging technology and low cost structure.

8. Access to ICICI groups talent pool and thereby development of human

resource at lower costs.

Pre and Post Merger Performance measurement through:

Profitability ratios

The profitability ratio are further divided into three types such as, net profit
margin, return on assets, return on equity etc. In the context of net profit margin
ratio the overall pre merger performance was recorded 110.30 billion and post
merger performance was recorded 546.77 billion this shows the post merger
performance was high compared to pre merger performance in ICICI bank. In
the context of pre merger financial performance the highest net profit margin
was recorded 41.58 billion in the year 2008-09 as against lowest net profit
margin was recorded 31.10 billion in the year 2007-08.Further the post merger
performance the highest net profit margin was recorded 111.75 billion in the
year 2015-16 as against lowest net profit margin was recorded 40.25 billion in
the year 2010-11. In the context of return on assets the overall pre merger and
post merger performance was recorded 3.2 times and 10.71 times respectively.
The highest pre merger performance on return on assets was recorded 1.10
times in the year 2008-09 as against lowest return on assets was recorded 1.10
times in the year 2009-10. Further the post merger performance, the highest
return on assets was recorded 1.86 times in the year 2015-16, as against the
lowest return on assets was recorded 1.1 times in the year 2010-11. In the
context of return on equity the overall pre merger and post merger performance
was recorded 32.2:1 and 69.54:1 respectively.

Profitability Net Profit Return on Return on

Ratios Margin Assets Equity
Pre-Merger
2007-08 31.1 1.1 13.4
2008-09 41.58 1.1 11.1
2009-10 37.58 1 7.7
Total [A] 110.3 3.2 32.2
Post-Merger
2010-11 40.25 1.1 7.9
2011-12 51.51 1.34 9.58
 2012-13 64.65 1.5 11.09
2013-14 83.25 1.66 12.94
2014-15 98.1 1.76 13.73
2015-16 111.75 1.86 14.3
2016-17 97.26 1.49 11.32
Total [B] 546.77 10.71 69.54
Grand Total 657.07 13.91 101.74
[A+B]

The highest pre merger performance of return on equity was recorded 13.4:1 in
the year 2007-08 as against lowest return on equity was recorded 7.70:1 in the
year 2009-10. Further the post merger performance, the highest return on equity
was recorded 13.73:1 in the year 2014-15. As against lowest return on equity
was recorded 7.90:1 in the year 2010-11.To be conclude that post merger
financial performance are high or better compared to the pre merger financial
performance of profitability ratios in ICICI Bank Ltd.

Liquidity Ratios

The liquidity ratios are further divided into three types such as, current ratio,
acid test ratio and cash ratio etc. In the context of current ratio the overall pre
merger performance was recorded 1.14 times and post merger performance was
recorded 2.71 times this shows the post merger performance was high compared
to pre merger performance in ICICI bank. In the context of pre merger financial
performance the highest current ratio was recorded 0.90 times in the year 2007-
08 as against lowest current ratio was recorded 0.11 times in the year 2008-
09.Further the post merger performance the highest current ratio was recorded
1.33 times in the year 2016-17, As against lowest current ratio was recorded
0.06 times in the year 2015-16.In the context of acid test ratio the overall pre
merger and post merger performance was recorded 18.4 times and 84.28 times
respectively. The highest pre merger performance of acid test ratio was recorded
6.42 times in the year 2008-09 as against lowest acid test ratio was recorded
5.94 times in the year 2009-10. Further the post merger performance, the
highest acid test ratio was recorded 15.86 times in the year 2011-12, as against
the lowest acid test ratio was recorded 8.7 times in the year 2016-17.In the
context of cash ratio the overall pre merger and post merger performance was
recorded 0.281 times and 0.557 times respectively. The highest pre merger
performance of cash ratio was recorded 0.107 times in the year 2007-08 as
against cash ratio was recorded 0.079 times in the year 2009-10. Further the
post merger performance, the highest cash ratio was recorded 0.106 times in the
year 2010-11.As against lowest cash ratio was recorded 0.065 times in the year
2015-16.To be conclude that post merger financial performance are high or
better compared to the pre merger financial performance of liquidity ratios in
ICICI Bank Ltd.

Liquidity Ratios Current Acid Test Cash

Ratio Ratio Ratio
Pre-Merger
2007-08 0.9 6.04 0.107
2008-09 0.11 6.42 0.095
2009-10 0.13 5.94 0.079
Total [A] 1.14 18.4 0.281
Post-Merger
2010-11 0.14 14.7 0.106
2011-12 0.07 15.86 0.083
2012-13 0.12 9.37 0.074
2013-14 0.9 10.53 0.077
2014-15 0.09 11.31 0.069
2015-16 0.06 13.81 0.065
2016-17 1.33 8.7 0.082
Total [B] 2.71 84.28 0.557
Grand Total [A+B] 3.85 102.68 0.838
Leverage Ratios

The leverage ratios are further divided into three types such as, debt ratio, debt-
equity ratio and interest coverage ratio etc. In the context of debt ratio the
overall pre merger performance was recorded 9.14 times and post merger
performance was recorded 48.09 times this shows the post merger performance
was high compared to pre merger performance in ICICI bank. In the context of
pre merger financial performance the highest debt ratio was recorded 3.27 times
in the year 2008-09 as against lowest debt ratio was recorded 2.75 times in the
year 2007-08. Further the post merger performance the highest debt ratio was
recorded 8.99 times in the year 2015-16, as against lowest debt ratio was
recorded 4.70 times in the year 2016-17.In the context of debt equity ratio the
overall pre merger and post merger performance was recorded 23.76:1 and
45.47:1 respectively. The highest pre merger performance of debt equity ratio
was recorded 11.42:1 in the year 2007-08 as against lowest debt equity ratio
was recorded 5.72:1 in the year 2009-10.Further the post merger performance,
the highest debt equity ratio was recorded 7.27:1 in the year 2016-17, as against
the lowest debt equity ratio was recorded 5.74:1 in the year 2010-11. In the
context of interest coverage ratio the overall pre merger and post merger
performance was recorded 38.96:1 and 100.03:1 respectively. The highest pre
merger performance of interest coverage ratio was recorded 13.47:1 in the year
2007-08 as against lowest interest coverage ratio was recorded 12.69:1 in the
year 2009-10. Further the post merger performance, the highest interest
coverage ratio was recorded 16.19:1 in the year 2014-15.As against lowest
interest coverage ratio was recorded 12.62:1 in the year 2016-17.To be conclude
that post merger financial performance are high or better compared to the pre
merger financial performance of leverage ratios of ICICI Bank Ltd.
 Leverage Debt Debt-Equity Interest Coverage
Ratios Ratio Ratio Ratio
Pre-Merger
2007-08 2.75 11.42 13.47
2008-09 3.27 6.62 12.8
2009-10 3.12 5.72 12.69
Total [A] 9.14 23.76 38.96
Post-Merger
2010-11 5.92 5.74 13.48
2011-12 7.36 6.08 13.97
2012-13 6.45 6.55 14.96
2013-14 7.14 6.56 15.27
2014-15 7.53 6.64 16.19
2015-16 8.99 6.63 13.81
2016-17 4.7 7.27 12.62
Total [B] 48.09 45.47 100.03
Grand Total 57.23 69.23 139.26
[A+B]

Growth ratios

The growth ratios are further divided into two types such as, Earning per Share
(EPS) and Dividend per Share (DPS) etc. In the context of earning per share the
overall pre merger performance was recorded 108.04 Rs and post merger
performance was recorded 330.74 Rs, this shows the post merger performance
was high compared to pre merger performance in ICICI bank. In the context of
pre merger financial performance the highest earning per share amounts to
Rs.39.4 in the year 2008-09 as against lowest earning per share to Rs.33.8 in the
year 2009-10.Further the post merger performance the highest earning per share
amounts to Rs.84.99 in the year 2014-15.as against lowest earning per share
amounts to Rs.16.75 in the year 2016- 17.In the context of Dividend Per Share
(DPS) the overall pre merger and post merger performance amounts to Rs.32.00
and Rs.95.50 respectively. The highest pre merger performance of dividend per
share amounts to Rs.11.00 in the year 2008-09 as against lowest dividend per
share amounts to Rs.10.00 in the year 2009- 10.Further the post merger
performance, the highest dividend per share amounts to Rs.23.00 in the year
2014-15, as against the lowest dividend per share amounts to Rs.5.00 in the year
2016-17.To be conclude that post merger financial performance are high or
better compared to the pre merger financial performance of growth ratios of
ICICI Bank Ltd

Growth Ratios Earnings Per Dividend Per Share

Share (EPS) (DPS)
Pre-Merger
2007-08 34.84 10
2008-09 39.4 11
2009-10 33.8 11
Total [A] 108.04 32
Post-Merger
2010-11 36.1 12
2011-12 45.27 14
2012-13 56.11 16.5
2013-14 72.2 20
2014-15 84.99 23
2015-16 19.32 5
2016-17 16.75 5
Total [B] 330.74 95.5
Grand Total 439.14 127.5
[A+B]

Performance Analysis

ICICI Ltd set before itself some specific goals prior to the merger process. The
initial indications are that it is well on its way to fulfil almost all its objectives
that propelled it to reverse merger with ICICI bank. Let us now analyze its
financial results in the light of its merger objectives.
ICICI Ltd wanted to gain from the synergistic effect of the merger. This can be
studied by comparing the projected figure of both ICICI Ltd and ICICI Bank
with that of the merger entities for the years 2002-03 to 2004-05.

The trend growth rate for ICICI bank has been derived from the result of 1997-
98 to 2000-01, the year before merger. The figure has been adjusted to inflation
at 4.75% p.a., this has been done by multiplying the combined figure with
average inflation rate so that it matches up to the nominal figures of the
respective years with the effect of inflation already impounded.

The effect of synergy has been reflected in certain areas. While total income is
far short of projected combined figures for all the years, the net profit earned by
the company in the post merger situation has been way ahead of projections.
This shows that ICICI bank has an operational efficiency by a large margin. The
rise in paid up share capital post merger (from Rs. 200 crores to Rs. 613 crores)
has led to a far lower earnings per share and Book value figures in the later
years in spite of the growth in net profit. All in all, ICICI bank has achieved
operational efficiency to a large extent.

ICICI Bank has now become the second largest bank in India after State Bank
of India in terms of asset size. Its total assets were rupees 1, 67,659 crores in
2004-05 in comparison to rupees 4, 59,800 billion of State Bank of India,
Indias premier commercial bank. The immediate gain of the reverse merger
was the near fivefold rise of total assets of the pre merger level. The growth in
assets was continued even after the merger.

ICICI Banks overall average cost of deposit at 4.5% in 2004-05 is one of the
best among Indian Banks. This is far better than figures of 2000-01 when it was
high as 7.7% at the same time, its net interest margin or yield spread has started
to improve after a brief slide during post merger period as the effect of ICICI ltd
wanes off.

Particulars 2002-2003 2003-2004 2004-2005

Projected Actual Projected Actual Projected Actual

Total
Income(Rs.
Crore) 17,732 12,526 22,697 11,958 29,775 12,826

Net Profit
(Rs. Crore) 751 1,206 869 1,637 1,098 2,005

E.P.S.
(Rupees) 1,958 1,965 2,523 2,644 3,379 2,773

B.V.
(Rupees) 204.94 113.10 258.25 127.27 339.60 169

Other income has grown from Rs. 574 crores in 2001-02 to Rs. 12,826 crores in
2004-05, a growth of 495%. Other income represents income earned by way of
dividend, profit from sale of investments, profit from merchant foreign
exchange transactions etc. This shows that ICICI bank is successfully reducing
its dependence on interest income and increases soared from increasing
exposure to fee based services. Its income from fee based services has soared
from Rs 171 Crores in 2000-01 to Rs. 2,098 crores in 2004-05. Its retail loan
portfolio has grown substantially. It now forms 61% of total loans disbursed
compared to just 9.5% in 2000-01.

ICICI bank has now the leverage to force its investment banking clients to
maintain their salary and other employees account with the bank, there by
boasting its captive client base and increasing its repertoire of cheap funds.
ICICI Bank through its subsidiaries can also cross sell its mutual funds and non
life insurance products to its institutional clients. Cross selling has become an
important tool to increase the retail business.

One of the reasons behind the merger was to increase shareholder wealth. ICICI
bank submitted its proposal for reverse merger on 1/10/2001 to RBI. Its share
price has risen from Rs. 72.00 as on that date to Rs. 127.00 on 29/3/2002, just
prior to the merger. This resulted in 76% gain for the shareholders just out of the
news of merger. This shows that the stock market had welcomed the decision
and has factored in the expected gains into the share price. The trend continued
even after the merger.

ICICI Bank is actively getting into wealth management activities through its
personal banking division. It has also launched its credit and debit cards. The
number of such cards has risen from 6.5 million in 2002-03 to about 10.1
million in 2003-04, representing a growth of 55.5%. It has also become very
active in the area on home loans and charges very competitive rates to its
clients.

Model retail banking is all about technology banking. ICICI bank has deployed
Finacle from Infosys to manage its Core Banking Applications. It has spread its
wings in the area of tele banking, ATMs, call centres and e-banking. It is 1,759
seats call centres operate round the clock and handles 1.5 lakh calls from
customer per day, while 1,880 ATMs provide banking services all round the
country. Its e-banking facility has made anytime, anywhere banking a reality.
Thus ICICI bank has been able to further solidify its position in the Indian
banking scenario. The above instances clearly points out that ICICI bank is
going all out to achieve the goals it has set for itself before the reverse merger.

Safe Harbour

ICICI Limited and ICICI Bank expect to make available a copy of

Amalgamation and an Information Statement to shareholders and investors.
Shareholders & investor are requested to read offer document carefully.

The statement of ICICI Ltd and ICICI bank which was a forward-looking
statements and it is based on the current beliefs and expectations but actual
result may differ from the forward-looking statements because it contain various
risk and uncertainties are as follows.

The risk of failure to obtain government and other approvals of the

merger as per planned.
The risk of failure of the High Courts of Mumbai and Gujarat to approve
the Scheme of Amalgamation.
The risk of business which may not be integrated as smooth as planned.
Merger of ICICI Ltd and ICICI bank making it more difficult to maintain
relationships with clients, employees and suppliers.
The risk of new and changing regulation and unfavourable political
support or other developments in Indian and international markets.

Apart from all above risk merger of ICICI Ltd and ICICI bank has achieved
their goal as per the planned and today they are market leader in financial
sector.
Conclusion

Merger and acquisitions is nothing new in the Indian banking system. But there
has been a change in the impetus. Earlier with the banks firmly under the
control of RBI, mergers were forced upon to save weak banks from collapsing.
The gradual privatization and globalization of the banking industry has now
forced bank themselves to go in for merger. Increase in profitability synergies in
operation, global scale and other such reasons have replaced the social and
political motives of yesteryears, successful merger can lead to prosperity both
for shareholders of the merged company and for the economy as a whole. The
true catalyst of the successful merger is the top executive whose pragmatic and
dynamic leadership and a clear foresight can help a merger click. The trick is to
neutralize the expected pitfalls while bringing the best out of operational
synergies. The making of ICICI bank into universal bank has shown the way.
This reverse merger has thus opened up a challenge to the banks and financial
institutions in India to merge and become financial conglomerates by
exploiting the preserve favourable business environment and to de-risk their
operating environment.