The Smart Techie was renamed Siliconindia India Edition starting Feb 2012 to continue the nearly two decade track record of excellence of our US edition.

Life After Merger

Subhash Desai
Friday, February 28, 2003
Subhash Desai
A YEAR AGO, ICICI WAS JUST ANOTHER BANK, among a pantheon of others in the Indian banking segment. However, one bold move saw the bank being catapulted into the top ranks of banks in the world. When the Reserve Bank of India approved the reverse merger of ICICI with ICICI Bank, not only did it create India’s largest private sector bank, but also paved the way for what might someday become the first global Indian bank.

“It’s not easy to drive the $19.8-billion merged entity when the economy is sluggish. We still have some unfinished agenda on hand. Although the merger has been highly rewarding, it is in a gradual showdown to convert its potential into real monetary values,” says K. V. Kamath, the chairman and managing director of ICICI Bank (NYSE:IBN), who orchestrated the reverse merger with ICICI in March 2002.

What had occupied Kamath’s mind most then was managing the entire retail resource mobilization in such a way that the institution would not end up paying high cost for retail liability; and, coughing up a mandatory investment of $4,166 million in government of India securities as per the Reserve Bank of India guidelines.

“Rustling up huge money—a mandatory investment—to meet the statutory requirements was a tangible challenge. We raised some ourselves and sold-off part of the assets for the rest,” says Kalpana Morparia, executive director of ICICI Bank. At the same time, she had to personally oversee integrating the bank’s different departments into one single entity in a seamless manner, mapping compensation structure and re-creating new organizational hierarchies.

The bank also had to sell some quality paper and resort to high-cost borrowings that were needed to meet liquidity requirements. The result was the twin blow: Lower profits $42 million, and a magnification of the bad assets, much of which has been inherited from the former financial institution. However, Morparia affirms, “In 18 months, that is by September 2004, the bank won’t be talking any longer about my legacy non-productivity assets. We would have reined in our non-productivity liability levels to the international benchmark of 1-2 per cent by then.”

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