The same evening, recollects a jubilant Kamath, after submitting an application to Y.V. Reddy, the deputy governor of Reserve Bank of India, to turn ICICI into a universal bank, he was on board a flight to Los Angeles. With him was his A-team, comprising Hoshang Noshirwan Sinor, ICICI Bank’s managing director, Kalpana Morparia, executive director, and Lalita Gupte, ICICI’s deputy managing director. The object was to get the backing of some 70 foreign institutional investors, who hold 47 percent of the merged entity.

Nobody questioned the merger, he explains with a sense of pride. “Ever since I took over the reins of ICICI in 1996, I had this big dream of creating India’s first universal bank. And everyone was waiting for this day to come. It took us five years to put things on track.”

It’s not the first merger Kamath has orchestrated. “I have led significant mergers with Bank of Madura and financial institutions like ITC Classic Finance and Anagram Finance,” he recalls. “The excitement is there this time because this merger has catapulted the institution to the number two position in the Indian banking industry with a total asset base of $19.8 billion,” says Kamath. This is second only to the state-owned State Bank of India’s roughly $67 billion.

Cross-Selling

As he talks of the merger, he quickly pulls out a statistical sheet to show how ICICI can really compete with international giants like HSBC and Citigroup, which have bigger clout and financial muscle. The statistics show that the merged entity will have a combined customer base of ten million (six million bond customers and rest bank customers), 390 ATMs, 150,000 credit card holders, 536 bank branches, 500,000 Internet banking accounts, seven distribution channels and headcount of 8,300 employees.

One of the biggest advantages stemming from the new merger will be the ability to cross-sell a slew of retail products, such as housing loans, car loans, personal finance and credit cards, reducing the share of project loans from 70 to 50 percent of the business. “Further, the merged entity will be able to compete with any threat from global players I see coming to India,” he says, as if he had won the war before it began.

But what does this merger mean to the Indian banking industry? “This will awaken wannabe universal banks into action. It’s now or never for the global banking giants (HSBC and Citigroup) to push themselves in the Indian retail market. Now they will find it almost impossible to penetrate into the domestic market,” he claims.

The merger seems to be triggering further consolidation across India’s commercial banks and development financial institutions (DFIs). For instance, the Industrial Development Bank of India (IDBI) is set to merge with its bank, IDBI Bank. The housing finance institution, HDFC, is already exploiting all possible synergies with HDFC Bank.

Why these reverse mergers? Ever since DFIs such as ICICI were created in the 1950s to meet the financial requirements of Indian industry in project financing, the FIs were saddled with the problem of having to rely on an increasingly cagey market to raise resources. More dangerously, as FIs were funding long-term projects with money raised short term, there was a critical asset-liability disparity. With this in mind, RBI gave a blueprint to financial institutions to convert themselves into universal banks only recently. A reverse merger with their own subsidiary banks will now give these institutions access to low-cost funds.

New Investments

Over the last three years, with the advent of the Internet in India, ICICI has made huge investments in IT infrastructure. Those investments acquired customers and offered them a choice of multiple channels: Net banking, branch banking, ATMs, call centers and direct sales. “Now the critical strategy from the bank’s perspective is to cross-sell by using business capabilities,” says executive director Kalpana Morparia.

ICICI implemented CRM from Siebel as a move to take care of its back end operations and provide quality of service. The move has paid off with a huge pool of data now being taken care of. “We have already laid the foundation for the big retail push,” Kamath says.

Merger Challenges

The biggest challenge that the merger brings could be the integration of financial and human resources. But Kamath says there won’t be any integration issues since the merger is within the group. “The challenge is playing the bigger numbers and effectively putting in place data mining solutions that will collate. The job is to convert volumes into profits, and increase market share, which is very low currently,” he says.

However, Morparia concedes, one of the building blocks is training existing employees to avoid overlapping of skills, and changing the corporate mindset to suit the new environment.

A more tangible challenge is the need to rustle up Rs 180 billion to meet the statutory requirements. “The institution has raised already Rs 30 million and is weighting the option of scrutinizing a part of its assets,” says an official.

Kamath says he especially wants to drive business by leveraging technology. “Our success is largely due to the embracing of technology at various levels. Coping with the changes in technology has been a big challenge and, of course, finding the right talent and mindset.” Electronic brokerage company ICICI Web Trade is estimated to have 50 percent market share in India. The institution’s officials claim that it generates Rs 300-400 million in daily turnovers.

ICICI’s share in ICICI Bank is currently around 46 percent. Both ICICI and ICICI Bank are listed in New York Stock Exchange (NYSE), thereby making it easier to handle merger-related issues in the United States, says Morparia.

Eventually the 53-year-old Kamath hopes that with the retail push strategy, ICICI will be India’s clear leader. Currently investors are backing Kamath’s every move, but it remains to be seen if he gets the same verdict from all shareholders. The appointed date of the merger is March 31, 2002 or the date from which the RBI approval becomes effective, whichever is later. si