parte 1 bankling

8/2/2019 Parte 1 Bankling

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INTRODUCTION

We have been learning about the companies coming together to from

another company and companies taking over the existing companies to expand

their business.

With recession taking toll of many Indian businesses and the feeling ofinsecurity surging over our businessmen, it is not surprising when we hear about

the immense numbers of corporate restructurings taking place, especially in the

last couple of years. Several companies have been taken over and several have

undergone internal restructuring, whereas certain companies in the same field of

business have found it beneficial to merge together into one company.


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In this context, it would be essential for us to understand what corporate

restructuring and mergers and acquisitions are all about.

All our daily newspapers are filled with cases of mergers, acquisitions,

spin-offs, tender offers, & other forms of corporate restructuring. Thus

important issues both for business decision and public policy formulation have

been raised. No firm is regarded safe from a takeover possibility. On the more

positive side Mergers & Acquisitions may be critical for the healthy expansion

and growth of the firm. Successful entry into new product and geographical

markets may require Mergers & Acquisitions at some stage in the firm's

development. Successful competition in international markets may depend on

capabilities obtained in a timely and efficient fashion through Mergers &

Acquisition's. Many have argued that mergers increase value and efficiency and

move resources to their highest and best uses, thereby increasing shareholder

value. .

To opt for a merger or not is a complex affair, especially in terms of the

technicalities involved. We have discussed almost all factors that the

management may have to look into

Before going for merger. Considerable amount of brainstorming would berequired by the managements to reach a conclusion. E.g. A due diligence report

would clearly identify the status of the company in respect of the financial

position along with the net worth and pending legal matters and details about

various contingent liabilities. Decision has to be taken after having discussed

the pros & cons of the proposed merger & the impact of the same on the

business, administrative costs benefits, addition to shareholders' value, tax


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implications including stamp duty and last but not the least also on the

employees of the Transferor or Transferee Company.

WHAT IS MERGER

Merger is defined as combination of two or more companies into a single

company where one survives and the others lose their corporate existence. The

survivor acquires all the assets as well as liabilities of the merged company or

companies. Generally, the surviving company is the buyer, which retains its

identity, and the extinguished company is the seller.

Merger is also defined as amalgamation. Merger is the fusion of two or

more existing companies. All assets, liabilities and the stock of one company

stand transferred to Transferee Company in consideration of payment in the

form of:

Equity shares in the transferee company, Debentures in the transferee company, Cash, or A mix of the above modes.

WHAT IS ACQUISITIONAcquisition in general sense is acquiring the ownership in the property.

In the context of business combinations, an acquisition is the purchase by one

company of a controlling interest in the share capital of another existing

company.

Methods of Acquisition:


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An acquisition may be affected by

a) Agreement with the persons holding majority interest in the companymanagement like members of the board or major shareholders

commanding majority of voting power;

b) Purchase of shares in open market;c) To make takeover offer to the general body of shareholders;d) Purchase of new shares by private treaty;e) Acquisition of share capital through the following forms of

considerations viz. Means of cash, issuance of loan capital, or insurance

of share capital.

Takeover:

A takeover is acquisition and both the terms are used interchangeably.

Takeover differs from merger in approach to business combinations i.e.The process of takeover, transaction involved in takeover, determination of

share exchange or cash price and the fulfillment of goals of combination all are

different in takeovers than in mergers. For example, process of takeover is

unilateral and the offeror company decides about the maximum price. Time

taken in completion of transaction is less in takeover than in mergers, top

management of the offeree company being more co-operative.

De-merger or corporate splits or division:

De-merger or split or divisions of a company are the synonymous terms

signifying a movement in the company.


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Purpose of Mergers & Acquisitions

The purpose for an offeror company for acquiring another company shall

be reflected in the corporate objectives. It has to decide the specific objectives

to be achieved through acquisition. The basic purpose of merger or business

combination is to achieve faster growth of the corporate business. Faster growth

may be had through product improvement and competitive position.

Other possible purposes for acquisition are short listed below: -

(1) Procurement of supplies:

1.

To safeguard the source of supplies of raw materials or intermediaryproduct;

2. To obtain economies of purchase in the form of discount, savings intransportation costs, overhead costs in buying department, etc.;

3. To share the benefits of suppliers economies by standardizing thematerials.

(2) Revamping production facilities:


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1. To achieve economies of scale by amalgamating production facilitiesthrough more intensive utilization of plant and resources;

2. To standardize product specifications, improvement of quality of product,expanding

3. Market and aiming at consumers satisfaction through strengthening aftersale

Services;

4. To obtain improved production technology and know-how from theoffered company

5. To reduce cost, improve quality and produce competitive products toretain and

Improve market share.

(3) Market expansion and strategy:

1. To eliminate competition and protect existing market;2. To obtain a new market outlets in possession of the offeree;3. To obtain new product for diversification or substitution of existing

products and to enhance the product range;4. Strengthening retain outlets and sale the goods to rationalize distribution;5. To reduce advertising cost and improve public image of the offeree

company;

6. Strategic control of patents and copyrights.

(4) Financial strength:

1. To improve liquidity and have direct access to cash resource;


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2. To dispose of surplus and outdated assets for cash out of combinedenterprise;

3. To enhance gearing capacity, borrow on better strength and the greaterassets backing;

4. To avail tax benefits;5. To improve EPS (Earning Per Share).

(5) General gains:

1. To improve its own image and attract superior managerial talents tomanage its affairs;

2. To offer better satisfaction to consumers or users of the product.

(6) Own developmental plans:

The purpose of acquisition is backed by the offeror companys owndevelopmental plans.

A company thinks in terms of acquiring the other company only when it

has arrived at its own development plan to expand its operation having

examined its own internal strength where it might not have any problem of

taxation, accounting, valuation, etc. But might feel resource constraints with

limitations of funds and lack of skill managerial personnels. It has to aim atsuitable combination where it could have opportunities to supplement its funds

by issuance of securities, secure additional financial facilities, eliminate

competition and strengthen its market position.

(7) Strategic purpose:


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The Acquirer Company view the merger to achieve strategic objectives

through alternative type of combinations which may be horizontal, vertical,

product expansion, market extensional or other specified unrelated objectives

depending upon the corporate strategies. Thus, various types of combinations

distinct with each other in nature are adopted to pursue this objective like

vertical or horizontal combination.

(8) Corporate friendliness:

Although it is rare but it is true that business houses exhibit degrees of

cooperative spirit despite competitiveness in providing rescues to each other

from hostile takeovers and cultivate situations of collaborations sharing

goodwill of each other to achieve performance heights through business

combinations. The combining corporate aim at circular combinations by

pursuing this objective.

(9) Desired level of integration:

Mergers and acquisition are pursued to obtain the desired level of

integration between the two combining business houses. Such integration could

be operational or financial. This gives birth to conglomerate combinations. Thepurpose and the requirements of the offeror company go a long way in selecting

a suitable partner for merger or acquisition in business combinations.


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Types of Mergers

Merger or acquisition depends upon the purpose of the offeror company it

wants to achieve. Based on the offerors objectives profile, combinations could

be vertical, horizontal, circular and conglomeratic as precisely described below

with reference to the purpose in view of the offeror company.

(A) Vertical combination:

A company would like to takeover another company or seek its merger

with that company to expand espousing backward integration to assimilate the

resources of supply and forward integration towards market outlets. The

acquiring company through merger of another unit attempts on reduction of

inventories of raw material and finished goods, implements its production plans

as per the objectives and economizes on working capital investments. In other

words, in vertical combinations, the merging undertaking would be either a

supplier or a buyer using its product as intermediary material for final

production.

The following main benefits accrue from the vertical combination to the

acquirer company i.e.

1. It gains a strong position because of imperfect market of the intermediaryproducts, scarcity of resources and purchased products;

2. Has control over products specifications.


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(B) Horizontal combination:

It is a merger of two competing firms which are at the same stage of

industrial process. The acquiring firm belongs to the same industry as the target

company. The mail purpose of such mergers is to obtain economies of scale in

production by eliminating duplication of facilities and the operations and

broadening the product line, reduction in investment in working capital,

elimination in competition concentration in product, reduction in advertising

costs, increase in market segments and exercise better control on market.

(C) Circular combination:

Companies producing distinct products seek amalgamation to share

common distribution and research facilities to obtain economies by elimination

of cost on duplication and promoting market enlargement. The acquiringcompany obtains benefits in the form of economies of resource sharing and

diversification.

(D) Conglomerate combination:

It is amalgamation of two companies engaged in unrelated industries likeDCM and Modi Industries. The basic purpose of such amalgamations remains

utilization of financial resources and enlarges debt capacity through re-

organizing their financial structure so as to service the shareholders by

increased leveraging and EPS, lowering average cost of capital and thereby

raising present worth of the outstanding shares. Merger enhances the overall

stability of the acquirer company and creates balance in the companys total

portfolio of diverse products and production processes.


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[4]Advantages of Mergers

Mergers and takeovers are permanent form of combinations which vest in

management complete control and provide centralized administration which are

not available in combinations of holding company and its partly owned


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subsidiary. Shareholders in the selling company gain from the merger and

takeovers as the premium offered to induce acceptance of the merger or

takeover offers much more price than the book value of shares. Shareholders in

the buying company gain in the long run with the growth of the company not

only due to synergy but also due to boots trapping earnings.

Mergers and acquisitions are caused with the support of shareholders,

managers ad promoters of the combing companies. The factors, which motivate

the shareholders and managers to lend support to these combinations and the

resultant consequences they have to bear, are briefly noted below based on the

research work by various scholars globally.

(1) From the standpoint of shareholders

Investment made by shareholders in the companies subject

to merger should enhance in value. The sale of shares from one companysshareholders to another and holding investment in shares should give rise to

greater values i.e. The opportunity gains in alternative investments.

Shareholders may gain from merger in different ways viz. From the gains and

achievements of the company i.e. Through

(a) Realization of monopoly profits;(b)

Economies of scales;

(c) Diversification of product line;(d) Acquisition of human assets and other resources not availableotherwise;

(e) Better investment opportunity in combinations.

One or more features would generally be available in each merger

where shareholders may have attraction and favour merger.


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(2)From the standpoint of managers

Managers are concerned with improving operations of the company,

managing the affairs of the company effectively for all round gains and growth

of the company which will provide them better deals in raising their status,

perks and fringe benefits. Mergers where all these things are the guaranteed

outcome get support from the managers. At the same time, where managers

have fear of displacement at the hands of new management in amalgamated

company and also resultant depreciation from the merger then support from

them becomes difficult.

(3) Promoters gains

Mergers do offer to company promoters the advantage of increasing the

size of their company and the financial structure and strength. They can converta closely held and private limited company into a public company without

contributing much wealth and without losing control.

(4) Benefits to general public

Impact of mergers on general public could be viewed as aspect of benefitsand costs to:

(a)Consumer of the product or services;(b)Workers of the companies under combination;(c)General public affected in general having not been user or consumer or

the worker in the companies under merger plan.

(a) Consumers


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The economic gains realized from mergers are passed on to consumers in

the form of lower prices and better quality of the product which directly raise

their standard of living and quality of life. The balance of benefits in favour of

consumers will depend upon the fact whether or not the mergers increase or

decrease competitive economic and productive activity which directly affects

the degree of welfare of the consumers through changes in price level, quality of

products, after sales service, etc.

(b) Workers community

The merger or acquisition of a company by a conglomerate or other

acquiring company may have the effect on both the sides of increasing the

welfare in the form of purchasing power and other miseries of life. Two sides of

the impact as discussed by the researchers and academicians are: firstly,

mergers with cash payment to shareholders provide opportunities for them toinvest this money in other companies which will generate further employment

and growth to uplift of the economy in general. Secondly, any restrictions

placed on such mergers will decrease the growth and investment activity with

corresponding decrease in employment. Both workers and communities will

suffer on lessening job

Opportunities, preventing the distribution of benefits resulting from

diversification of production activity.

(c) General public

Mergers result into centralized concentration of power. Economic power is to be

understood as the ability to control prices and industries output as monopolists.


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Such monopolists affect social and political environment to tilt everything in their

favour to maintain their power ad expand their business empire. These advances

result into economic exploitation. But in a free economy a monopolist does not stay

for a longer period as other companies enter into the field to reap the benefits ofhigher prices set in by the monopolist. This enforces competition in the market as

consumers are free to substitute the alternative products. Therefore, it is difficult to

generalize that mergers affect the welfare of general public adversely or favorably.

Every merger of two or more companies has to be viewed from different angles in

the business practices which protects the interest of the shareholders in the merging

company and also serves the national purpose to add to the welfare of the

employees, consumers and does not create hindrance in administration of the

Government polices.

Chapter 12: Change in scenario of Banking Sector

1. The first mega merger in the Indian banking sector that of the HDFC Bankwith Times Bank, has created an entity which is the largest private sector

bank in the country.

2. The merger of the city bank with Travelers Group and the merger of Bank ofAmerica with Nation Bank have triggered the mergers and acquisition

market in the banking sector world wide.

3. Europe and Japan are also on their way to restructure their financial sectorthought merger and acquisitions. Merger will help banks with added money


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power, extended geographical reach with diversified branch Network,

improved product mix, and economies of scale of operations. Merger will

also help banks to reduced them borrowing cost and to spread total risk

associated with the individual banks over the combined entity. Revenues of

the combine entity are likely to shoot up due to more effective allocation of

bank funds. ICICI Bank has initiated merger talks with Centurian Bank but

due to difference arising over swap ration the merger didnt materialized.

Now UTI Bank is egeing Centurian Bank. The proposed merger of UTI

Bank and Centurian Bank will make them third largest private banks in

terms of size and market Capitalization State Bank of India has also planned

to merge seven of its associates or part of its long-term policies to regroup

and consolidate its position. Some of the Indian Financial Sector players are

already on their way for mergers to strengthen their existing base.

4. In India mergers especially of the PSBS may be subject to technology andtrade union related problem. The strong trade union may prove to be bigobstacle for the PSBS mergers. Technology of the merging banks to should

complement each other NPA management. Management of efficiency, cost

reduction, tough competition from the market players and strengthing of the

capital base of the banks are some of the problem which can be faced by the

merge entities. Mergers for private sector banks will be much smoother and

easier as again that of PSBS.


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THE BANKING SCENARIO HAS BEEN CHANGING AT FAST PLACE.

Bank traditionally just borrower and lenders, has started providing

complete corporate and retail financial services to its customers

1. Technology drive has benefited the customers in terms of faster improveconvenient banking services and Varity of financial products to suit their

requirement. Atms, Phone Banking, Net banking, Any time and Any where

banking are the services which bank have started offering following the

changing trend in sectors. In plastic money segment customer have also got a

new option of debits cards against the earlier popular credit card. Earlier

customers had to conduct their banking transaction within the restricted timeframe of banking hours. Now banking hours are extended.

2. Atms ,Phone banking and Net banking had enable the customer to transact asper their convince customer can now without money at any time and from

any branch across country as certain their account transaction, order

statements of their account and give instruction using the tally banking or on

online banking services.


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3. Bank traditionally involve working capital financing have started offeringconsumer loans and housing loans. Some of the banks have started offering

travel loans, as well as many banks have started capitalizing on recent capital

market boom by providing IPO finance to the investors.

Chapter 5: Procedure of Mergers & Acquisitions

Public announcement:

To make a public announcement an acquirer shall follow the following

procedure:

1. Appointment of merchant banker:

The acquirer shall appoint a merchant banker registered as category I with

SEBI to advise him on the acquisition and to make a public announcement of

offer on his behalf.

2. Use of media for announcement:

Public announcement shall be made at least in one national English daily

one Hindi daily and one regional language daily newspaper of that place where

the shares of that company are listed and traded.


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3. Timings of announcement:

Public announcement should be made within four days of finalization of

negotiations or entering into any agreement or memorandum of understanding

to acquire the shares or the voting rights.

4. Contents of announcement:Public announcement of offer is mandatory as required under the SEBI

Regulations.

Procedure of Bank Merger

The procedure for merger either voluntary or otherwise is outlined in therespective state statutes/ the Banking regulation Act. The Registrars, being the

authorities vested with the responsibility of administering the Acts, will be

ensuring that the due process prescribed in the Statutes has been complied with

before they seek the approval of the RBI. They would also be ensuring

compliance with the statutory procedures for notifying the amalgamation after

obtaining the sanction of the RBI.

Before deciding on the merger, the authorized officials of the acquiringbank and the merging bank sit together and discuss the procedural modalities


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and financial terms. After the conclusion of the discussions, a scheme is

prepared incorporating therein the all the details of both the banks and the area

terms and conditions.

Once the scheme is finalized, it is tabled in the meeting of Board ofdirectors of respective banks. The board discusses the scheme thread bare and

accords its approval if the proposal is found to be financially viable and

beneficial in long run.

After the Board approval of the merger proposal, an extra ordinarygeneral meeting of the shareholders of the respective banks is convened to

discuss the proposal and seek their approval.

After the board approval of the merger proposal, a registered valuer isappointed to valuate both the banks. The valuer valuates the banks on the basis

of its share capital,market capital, assets and liabilities, its reach and anticipated

growth and sends its report to the respective banks.

Once the valuation is accepted by the respective banks , they send theproposal along with all relevant documents such as Board approval,

shareholders approval, valuation report etc to Reserve Bank of India and other

regulatory bodies such Security & exchange board of India SEBI for their

approval.

After obtaining approvals from all the concerned institutions, authorized


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officials of both the banks sit together and discuss and finalize share allocation

proportion by the acquiring bank to the shareholders of the merging bank

SWAP ratio

After completion of the above procedures , a merger and acquisitionagreement is signed by the bank

Chapter 9: RBI Guidelines on Mergers & Acquisitions of

Banks

With a view to facilitating consolidation and emergence of strong entitiesand providing an avenue for non disruptive exit of weak/unviable entities in the

banking sector, it has been decided to frame guidelines to encourage

merger/amalgamation in the sector.

Although the Banking Regulation Act, 1949 (AACS) does not empowerReserve Bank to formulate a scheme with regard to merger and amalgamation

of banks, the State Governments have incorporated in their respective Acts a

provision for obtaining prior sanction in writing, of RBI for an order, inter alia,

for sanctioning a scheme of amalgamation or reconstruction.

The request for merger can emanate from banks registered under thesame State Act or from banks registered under the Multi State Co-operative

Societies Act (Central Act) for takeover of a bank/s registered under State Act.

While the State Acts specifically provide for merger of co-operative societies

registered under them, the position with regard to take over of a co-operative


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bank registered under the State Act by a co-operative bank registered under the

CENTRAL

Although there are no specific provisions in the State Acts or the CentralAct for the merger of a co-operative society under the State Acts with that under

the Central Act, it is felt that, if all concerned including administrators of the

concerned Acts are agreeable to order merger/ amalgamation, RBI may consider

proposals on merits leaving the question of compliance with relevant statutes to

the administrators of the Acts. In other words, Reserve Bank will confine its

examination only to financial aspects and to the interests of depositors as well

as the stability of the financial system while considering such proposals.


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Chapter 10: Amalgamation of Urban Banks


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Chapter 11: Information & Documents to be furnished by BY THE

ACQUIRER OF BANKS

1. Draft scheme of amalgamation as approved by the Board of Directors of the

acquirer bank.

2. Copies of the reports of the valuers appointed for the determination of

realizable value of assets (net of amount payable to creditors having

precedence over depositors) of the acquired bank.

3. Information which is considered relevant for the consideration of the scheme

of merger including in particular:-

A. Annual reports of each of the Banks for each of the three completed

financial years immediately preceding the proposed date for merger.

B. Financial results, if any, published by each of the Banks for any

period subsequent to the financial statements prepared for the financial

year immediately preceding the proposed date of merger.

C. Pro-forma combined balance sheet of the acquiring bank as it will

appear consequent on the merger.

D. Computation based on such pro-forma balance sheet of the following:-


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I. Tier I Capital

Ii. Tier II Capital

Iii. Risk-weighted Assets

Iv. Gross and Net npas

V. Ratio of Tier I Capital to Risk-weighted Assets

Vi. Ratio of Tier II Capital to Risk-weighted Assets

Vii. Ratio of Total Capital to Risk-weighted Assets

Viii. Tier I Capital to Total Assets

Ix. Gross and Net npas to Advances

X. Cash Reserve Ratio

Xi. Statutory Liquidity Ratio

4. Information certified by the values as is considered relevant to understand the

net realizable value of assets of the acquired bank including in particular:-

A. The method of valuation used by the values

B. The information and documents on which the values have relied

and the extent of the verification, if any, made by the values to test the

accuracy of such information


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C. If the values have relied upon projected information, the names

and designations of the persons who have provided such information

and the extent of verification, if any, made by the values in relation to

such information

D. Details of the projected information on which the values have relied

E. Detailed computation of the realizable value of assets of the acquired

bank.

5. Such other information and explanations as the Reserve Bank may require.

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The Generation Gap:- the merger of 57 year old BOM sooth bared oldgeneration bank with a fast growing technology say new Generation bank

will help the latter and the start merger is likely to bring cheer to shareholder

and bank employees of BOM and some amount of discomfort and anxiety to

those of ICICI bank.

The scheme of amalgamation will increase the equity bank of ICICI Bank to

RS 220.36 CR. ICICI Bank will issue 235.4-lakh share of RS 10 each to the

shareholder of BOM. The merger entity will have an increase of a net base over

RS 160 bn and deposit base of RS 131 bn.

The merged entity will have 360 branches and a similar number of

ATMs across the country and also enable the ICICI to serve a large


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customer bone of 1.2 million customers of BOM through a wider network,

adding to the antoma bare to 2.7 million.

Managing rural branches:

ICICI major branches are in major and cities, where as BOM spreads its

wings mostly in semi urban and city segments of south India. There in a task

ahead lying for the merged entity to increase dramatically the business mix

of rural branches of BOM. On the other hand due to Geographical location

of its branches and level of competition. ICICI Bank will have a tough time

to cope with.

Managing software:

Another task which stand on the way is technology while ICICI bank which

is fully automatic.

Quality of assets:- the nature of assets a bank is holding would signify itsoperational efficiency. Usually the level of Non performing Assets (NPAS) judges the quality of assets. The lower the NAPS to total advances or

total assets the better the quality is and vice versa.

Staff productivity: - One of the key area where banks can developcompetition advantage. The measurement of staff productivity becomes one

of the essential factors while measuring the performance of the banks.


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Liquidity:- While assessing the liquidity of a bank the most sought ratio isnet loans to total assets. A rise in the net loans to total assets may be

considered as a fall in the liquidity of the bank.

Book Value per share:- It is simply the net worth of the company (which isequal to the paid up equity capital plus resource and surplus) divided by the

number of outstanding equity shares.

Earning per share:- specific valuation per unit of investment given by Netincome after income taxes and after dividends on preferred stock of the

company.

Net work:- Book value of a company is common stock, surplus, resourcesand retained earnings.

Profitability: - the most crucial ratio in measuring the profitability is netprofit of the bank. The ratio such as Net Interest Income (NIL) and Net

Interest Margin (NIM) measure sustenance ability of the bank based on the

spread. Entity is using the package, Banks 2000, BOM computerized 90

percent of its business and was converted with ISBS software.

The BOM branches are supposed to switch over to Banks 2000. Though it isnot a difficult task, with 80% computer literate staff would need effective

retraining which involves a cost. The ICICI Bank need to invest RS 50 core

for upgrading BOMs 263 branches.

Managing Human Resources:


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One of the greatest challenges before ICICI Banks is managing human

resources. When the head count of ICICI Bank is taken it in less than 1500

employees on the other hand BOM has over 2500.

The merged entity will have bout 4000 employees which will make it one of

the largest banks among the new generation private sector banks. Th staff of

ICICI Banks are drawn from 75 various banks mostly young qualified

professionals with computer background and prefer to work in metro or by

either with good remuneration packages.

While under the influence of tread unions most of the BOM employees have

low career aspiration. The announcement by H.N. signor, CEO and MD of

ICICI, that three would be no VRS or retrenchment, creates a new hope

amongst the BOM employees. It is a tough task ahead to manage. On the other

hand their pay would be revised up wards. It is not a Herevlean task to integrate

two work welters?

Managing Client Base:-

The clients base of ICICI Bank after merger, will be as 2.7 Million from

it past 0.5 Million, as accumulation of 2.2 Million from BOM. The nature and

quality of clients is not of uniform quality.

The BOM had built up it client base for a long time, in a hard way, on the

basis of personalized services. In order to deal with the BOM clientele, the

ICICI Bank needs to redefine its strategies to suit to the new clientele. The

sentiments or a relationship of small and medium borrower is hurt it may be


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difficult for them to reestablish the relationship which could also hamper the

image of the bank.

Given the situation, we need to wait and view, as to how the ICICI will face this

challenge.

Recommendation of Narasimham Committee on banking sector reforms

Globally, the banking and financial systems have adopted information andcommunications technology. This phenomenon has largely by passed the

Indian banking system, and the committee feels that requisite success needs

to be achieved in the following areas:-

- Banking automation

- Planning, Standardization of electronic payment systems

- Telecom infrastructure

- Data were

Merger between banks and dfls and nbfcs need to be based on synergies andshould make a sound commercial sense. Committee also opines that merger

between strong banks / fls would make for greater economic and commercial

sense and would be a case where the whole is greater than the sum of its


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party and have a force multiplier effect. It also have merger should not be

seen as a means of bailing out weak banks.

A weak bank could be nurtured into healthy units. Merger could also be asolution to a after cleaning up their balances sheets it only say if these is no

Voltaire response to a takeover of such bank, a restructuring commission for

such PSB, can consider other options such as restructuring , merger and

amalgamations to it not closure.

The committee also options that while licensing new private sector banks,the initial capital requirement need to be review. It also emphasized on a

transparent mechanism for deciding the ability of promoter to professionally

manage the bank. The committee also feels that a minimum threshold capital

for old private banks also deserved threshold capitals. The committee also

opined that a promoter group couldn't hold more that 40 percent of the equityof a bank.

The Narasimham Committee also suggested that the merger could be a

solution to Weak banks Coney after clearing up the balance sheets) with a

strong public sector bank.

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Chapter 15: Case Studies

Case study I

IDBIUNITED WESTERN MERGER BANK (Merger)


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The merger that was announced on , 2006 between Deutsche Bank and

Dresdner Bank, Germanys largest and the third largest bank respectively was

considered as Germanys response to increasingly tough competition markets.

The merger was to create the most powerful banking group in the world

with the balance sheet total of nearly 2.5 trillion marks and a stock market value

around 150 billion marks. This would put the merged bank for ahead of the

second largest banking group, U.S. based citigroup, with a balance sheet total

amounting to 1.2 trillion marks and also in front of the planned Japanese book

mergers of Sumitomo and Sukura Bank with 1.7 trillion marks as the balance

sheet total.

The new banking group intended to spin off its retail banking which was

not making much profit in both the banks and costly, extensive network of bank

branches associated with it.

The merged bank was to retain the name Deutsche Bank but adopted the

Dresdner Banks green corporate color in its logo. The future core business

lines of the new merged Bank included investment Banking, asset management,

where the new banking group was hoped to outside the traditionally dominant

Swiss Bank, Security and loan banking and finally financially corporate clients

ranging from major industrial corporation to the mid-scale companies.

With this kind of merger, the new bank would have reached the no.1

position of the US and create new dimensions of aggressiveness in the

international mergers.


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But barely 2 months after announcing their agreement to form the largest bank

in the world, had negotiations for a merger between Deutsche and Dresdner

Bank failed on April 5, 2000.

The main issue of the failure was Dresdner Banks investment arm,

Kleinwort Benson, which the executive committee of the bank did not want to

relinquish under any circumstances.

In the preliminary negotiations it had been agreed that Kleinwort Benson

would be integrated into the merged bank. But from the outset these

considerations encountered resistance from the asset management division,

which was Deutsche Banks investment arm.

Deutsche Banks asset management had only integrated with Londons

investment group Morgan Grenfell and the American Bankers trust. This

division alone contributed over 60% of Deutsche Banks profit. The top peopleat the asset management were not ready to undertake a new process of

integration with Kleinwort Benson. So there was only one option left with the

Dresdner Bank i.e. To sell Kleinwort Benson completely. However Walter, the

chairman of the Dresdner Bank was not prepared for this. This led to the

withdrawal of the Dresdner Bank from the merger negotiations.

In economic and political circles, the planned merger was celebrated as

Germanys advance into the premier league of the international financial

markets. But the failure of the merger led to the disaster of Germany as the

financial center.


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Case study II

MERGER OF ICICI BANK WITH SANGLI BANK


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COMING TOGETHER: The regional office of Sangli Bank in Mumbai.

The merger that was announced on APRIL 18, 2007 between ICICI Bank and SANGLI

Bank.All branches of Sangli Bank functions as branches of ICICI Bank from April 19, said

the Reserve Bank of India.

Sangli Bank is an unlisted private bank headquartered at Sangli in Maharashtra. As on March

31, 2006, Sangli Bank had deposits of Rs. 2,004 crore, advances of Rs. 888 crore, net NPA

(non-performing assets) ratio of 2.3 per cent and capital adequacy of 1.6 per cent. Its loss at

the end of 2005-06 amounted to Rs. 29 crore.

It has 198 branches and extension counters, including 158 branches in Maharashtra and 31

branches in Karnataka.

About 50 per cent of the total branches are located in rural and semi-urban areas and 50 per

cent in metropolitan and urban centres. The bank has about 1,850 employees. ICICI Bank isthe second largest bank in India and the biggest in terms of market capitalisation.

As on September 30, 2006, ICICI Bank had total assets of Rs. 282,373 crore. In the six

months ended September 30, 2006, it made a net profit of Rs. 1,375 crore.

It had 632 branches and extension counters and 2,336 ATMs as on that date, and is in the

process of setting up additional branches and ATMs pursuant to authorisations granted by the

RBI. It has about 31,500 employees.


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ICICI Bank offers a wide range of financial products and services directly and through

subsidiaries in the areas of life and general insurance, asset management and investment

banking.

Its shares are listed on the Bombay Stock Exchange Limited and the National Stock

Exchange of India Limited and its American Depositary Shares are listed on the New York

Stock Exchange