A PROJECT REPORT ON“MERGER AND CONSOLIDATION OF ICICI LTD.

AND ICICI BANK”

CONTENTS

Chapter No. Title Page No.

1 Objective 2

2 General Introduction 3

3 Merger Procedure, Process & Details 5

4 Research Methodology 56

5 Scope of the Study 58

6 Financial Reports 59

7 Findings 62

8 Conclusions 63

9 Bibliography 64

1

OBJECTIVE OF THE STUDY

1. To study about merger and consolidation of bank.

2. To know about services provided by the ICICI bank limited after merging.

3. Analysis of impact of merger on ICICI bank.

4. Study about working of the bank after merge.

2

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 of

insecurity 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. 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 &

Acquisition’s may be critical for the healthy expansion and growth of the firm.

Successful entry into new product and geographical markets may require Mergers

& Acquisition’s 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. 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 be required by the managements to 3

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 implications including stamp duty and last but not the least

also on the employees of the Transferor or Transferee Company.

4

MERGER & CONSOLIDATION: OVERVIEW

Merger: A contractual and statutory process by which one corporation (the

surviving corporation) acquires all of the assets and liabilities of another

corporation (the merged corporation), causing the merged corporation to become

defunct.

As part of the merger process, the shareholders of the merged corporation

receive

(1) Payment for their shares in the merged corporation and/or

(2) Shares in the surviving corporation.

Consolidation: A contractual and statutory process by which

(1) Two or more corporations join to become a completely new corporation (the

successor corporation),

(2) The original corporations cease to exist and to do business, and

(3) The successor corporation acquires all of the assets and liabilities of the

original (now defunct) corporations.

5

MERGER & CONSOLIDATION:

PROCEDURE

Any merger or consolidation is governed by the laws of one (or

more) of the states, each of which sets forth its own procedural

requirements. However, in general:

(1) The boards of directors of each (original) corporation

involved in the proposed transaction must approve the merger or

consolidation plan;

(2) The shareholders of each (original) corporation involved

in the proposed transaction must, thereafter, approve the merger

or consolidation plan by vote at a called or scheduled

shareholders’ meeting;

(3) The approved plan must be filed with the appropriate state

officials; and

(4) Once all state-law formalities have been satisfied, the state

will issue, as appropriate, a certificate of merger to the surviving

corporation or a certificate of consolidation to the successor

corporation.

6

Short-Form Merger: A merger between a parent and a

subsidiary (at least 90% owned by the parent) which can be

accomplished without shareholder approval.

MERGER & CONSOLIDATION:

SHAREHOLDERS’ RIGHTS

While the day-to-day operations of a corporation, and even the

policies governing its ongoing operations, are generally left to the

corporation’s officers and directors, any “extraordinary” matter –

such as a merger or consolidation – must be approved by the

corporation’s shareholders.

If the necessary majority of the corporation’s shareholders

approve a merger or consolidation, it will go forward, and the

shareholders will be compensated as previously discussed.

However, no shareholder who votes against the transaction is

required to accept shares in the surviving or successor

corporation. Instead, he or she may exercise appraisal rights.

Appraisal Right: The right, created by state law, of a dissenting

shareholder who objects to an extraordinary transaction (such as a

7

merger or consolidation):

(1) To have his shares of the pre-merger or pre-consolidation

corporation appraised, and

(2) To be paid the fair market value of his shares by the pre-

merger or pre-consolidation corporation.

ASSET PURCHASE

When a corporation acquires all or substantially all of the assets

of another corporation, by direct purchase, the purchasing (or

acquiring) corporation simply extends its ownership and control

over the additional assets.

The acquiring corporation does not need shareholder approval

unless the purchase is to be paid for with stock and the acquiring

corporation must issue additional shares to make the purchase, in

which case its shareholders must approve the additional shares.

Generally, the acquiring corporation only purchases the assets,

not the liabilities, of the other corporation. However, there are

exceptions when:

8

(1) The acquiring corporation impliedly or expressly assumes

the seller’s liabilities;

(2) The sale is a de facto merger or consolidation;

(3) The acquiring corporation continues the seller’s business

andretains the same personnel; or

(4) The sale is fraudulently executed in an effort to avoid

liability.

STOCK PURCHASE

Stock Purchase: The purchase of a sufficient number of voting

shares of a corporation’s stock, enabling the acquiring corporation

to exercise control over the target corporation.

A stock purchase is generally facilitated by a tender offer to the

target corporation’s shareholders. The tender offer is publicly

advertised, available to all shareholders, and offers to pay a

higher-than-market price for shares of the target corporation.

Exchange Tender Offer: An offer to give shares in the acquiring

corporation in exchange for shares in the target corporation.

9

Cash Tender Offer: An offer to pay cash in exchange for shares

of the target corporation.

A tender offer may be conditioned on receiving a specified

number of outstanding shares in the target corporation by a

specified date.

The terms and duration of, and the circumstances underlying, a

tender offer are strictly regulated by federal securities laws. In

addition, most states impose additional regulations on tender

offers.

10

TAKEOVER DEFENSES

Takeover Defenses include various measures included in a corporation’s

articles and/or by-laws that automatically take effect in the event of a proxy

fight or unfriendly takeover attempt in order to make the corporation a

substantially less attractive target for the purchaser (e.g., “golden parachutes,”

“poison pills”), as well as conscious efforts of management in response to a

particular situation (e.g., “crown jewels,” “white knights”).

TERMINATION

Dissolution: The formal disbanding of a corporation, which may occur

by

(1) Unanimous action by all shareholders,

(2) Shareholder approval of a dissolution proposal submitted by the

directors,

(3) An act by the authorized officer of the state of incorporation,

(4) Expiration of the time period set forth in the certificate of

incorporation, or

(5) Court order.

Liquidation: The process by which corporate assets are converted into

cash and distributed among creditors and shareholders according to

specific rules of preference.

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Purpose of Mergers & Consolidation

The purpose for an offer or 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 intermediary

Product;

2. To obtain economies of purchase in the form of discount, savings in

transportation costs, overhead costs in buying department, etc.;

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

(2) Revamping production facilities:

1. To achieve economies of scale by amalgamating production facilities through

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 after sale

Services;

4. To obtain improved production technology and know-how from the offered

Company

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

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 offered;

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 offered company;

6. Strategic control of patents and copyrights

(4) Financial strength :

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

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

enterprise;

3. To enhance gearing capacity, borrow on better strength and the greater assets

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 to manage

its affairs;

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

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(6) Own developmental plans:

The purpose of acquisition is backed by the offered company’s own

developmental 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 personnel’s. It has to aim at suitable

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:

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

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goodwill of each other to achieve performance heights through business

combinations.

(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. The

purpose and the requirements of the offered company go a long way in selecting

a suitable partner for merger or acquisition in business combinations.

Types of Merger

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.

(1) 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.

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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 intermediary

products, scarcity of resources and purchased products;

2. Has control over products specifications.

(2) 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.

(3) 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 acquiring company obtains

benefits in the form of economies of resource sharing and diversification

.

(4) Conglomerate combination :

It is amalgamation of two companies engaged in unrelated industries like DCM

and Modi Industries. The basic purpose of such amalgamations remains

utilization of financial resources and enlarges debt capacity through re-

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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 company’s total

portfolio of diverse products and production processes.

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

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,

manager’s 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 company’s shareholders to

another and holding investment in shares should give rise to greater values i.e.

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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 available otherwise;

(e) Better investment opportunity in combinations. One or more features would

generally be available in each merger where shareholders may have attraction

and favors merger.

(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

(3) Promoter’s gains:

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.

Mergers do offer to company promoters the advantage of increasing the size of

their company and the financial structure and strength. They can convert a

closely held and private limited company into a public company without

contributing much wealth and without losing control.

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(4) Benefits to general public:

Impact of mergers on general public could be viewed as aspect of benefits and

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

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: fir style, mergers with cash

payment to shareholders provide opportunities for them to invest 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

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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.

Such monopolists affect social and political environment to tilt everything in

their favors 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 of higher 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

PROCEDURE OF MERGERS & CONSOLIDATION

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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.

(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

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➢ The procedure for merger either voluntary or otherwise is outlined in the

respective 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 acquiring bank

and the merging bank sit together and discuss the procedural modalities 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 of directors

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 ordinary general

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 is

appointed 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.

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➢ Once the valuation is accepted by the respective banks , they send the

proposal 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

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 acquisition

agreement is signed by the bank

RBI Guidelines on Mergers & Consolidation of

Banks

➢ With a view to facilitating consolidation and emergence of strong entities and

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 empower

Reserve 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.

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➢ The request for merger can emanate from banks registered under the same

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. over of a

co-operative 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 Central Act

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

BANK PROFILE

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ICICI BANK

ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00

billion (US$ 81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion

(US$ 896 million) for the year ended March 31, 2010. The Bank has a network

of 2,009 branches and about 5,219 ATMs in India and presence in 18 countries.

ICICI Bank offers a wide range of banking products and financial services to

corporate and retail customers through a variety of delivery channels and

through its specialized subsidiaries in the areas of investment banking, life and

non-life insurance, venture capital and asset management. The Bank currently

has subsidiaries in the United Kingdom, Russia and Canada, branches in United

States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai

International Finance Centre and representative offices in United Arab

Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia.

Our UK subsidiary has established branches in Belgium and Germany. ICICI

Bank's equity shares are listed in India on Bombay Stock Exchange and the

National Stock Exchange of India Limited and its American Depositary

Receipts (ADRs) are listed on the New York Stock Exchange (NYSE).

ICICI Bank started as a wholly owned subsidiary of ICICI Limited, an Indian

financial institution, in 1994. Four years later, when the company offered ICICI

Bank's shares to the public, ICICI's shareholding was reduced to 46%. In the

year 2000, ICICI Bank offered made an equity offering in the form of ADRs on

the New York Stock Exchange (NYSE), thereby becoming the first Indian

company and the first bank or financial institution from non-Japan Asia to be

listed on the NYSE. In the next year, it acquired the Bank of Madura Limited in

GGITM,BHOPAL - 25 -

an all-stock amalgamation. Later in the year and the next fiscal year, the bank

made secondary market sales to institutional investors.

With a change in the corporate structure and the budding competition in the

Indian Banking industry, the management of both ICICI and ICICI Bank were

of the opinion that a merger between the two entities would prove to be an

essential step. It was in 2001 that the Boards of Directors of ICICI and ICICI

Bank sanctioned the amalgamation of ICICI and two of its wholly-owned retail

finance subsidiaries, ICICI Personal Financial Services Limited and ICICI

Capital Services Limited, with ICICI Bank. In the following year, the merger

was approved by its shareholders, the High Court of Gujarat at Ahmedabad as

well as the High Court of Judicature at Mumbai and the Reserve Bank of India

Present Scenario

ICICI Bank has its equity shares listed in India on Bombay Stock Exchange and

the National Stock Exchange of India Limited. Overseas, its American

Depositary Receipts (ADRs) are listed on the New York Stock Exchange

(NYSE). As of December 31, 2008, ICICI is India's second-largest bank,

boasting an asset value of Rs. 3,744.10 billion and profit after tax Rs. 30.14

billion, for the nine months, that ended on December 31, 2008.

Branches & ATMs

ICICI Bank has a wide network both in Indian and abroad. In India alone, the

bank has 1,420 branches and about 4,644 ATMs. Talking about foreign

countries, ICICI Bank has made its presence felt in 18 countries - United States,

Singapore, Bahrain, and Hong Kong, Sri Lanka, Qatar and Dubai International

Finance Centre and representative offices in United Arab Emirates, China,

South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The Bank proudly

GGITM,BHOPAL - 26 -

holds its subsidiaries in the United Kingdom, Russia and Canada out of which,

the UK subsidiary has established branches in Belgium and Germany.

Products & Services

Personal Banking

Deposits

Loans

Cards

Investments

Insurance

Demat Services

Wealth Management

NRI Banking

Money Transfer

Bank Accounts

Investments

Property Solutions

Insurance

Loans

Business Banking

Corporate Net Banking

Cash Management

Trade Services

FX Online

SME Services

Online Taxes

Custodial Services

GGITM,BHOPAL - 27 -

Head Office

ICICI Bank

9th Floor, South Towers

ICICI Towers

Bandra Kurla Complex

Bandra (East)

Mumbai

Present Stock Market Position of ICICI Bank Limited

ICICI Bank Limited (the Bank) is an India-based banking company engaged in

providing a range of banking products and services to corporate and retail

customers through a variety of delivery channels. During the fiscal year ended

March 31, 2009 (fiscal 2009), the Bank had total assets of Rs. 4,826.9 billion

($94.9 billion).

Overall

Beta: 1.48

GGITM,BHOPAL - 28 -

Market Cap (Mil.): 939,926.12

Shares Outstanding (Mil.): 1,114.84

Annual Dividend: 12.00

Yield (%): 1.43

Financials

  ICBK.BO Industry Sector

P/E (TTM): 28.01 56.66 38.23

EPS (TTM): -- -- --

ROI: -- 0.00 0.64

ROE: -- 2.29 2.66

MERGER OF ICICI WITH ICICI BANK

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ICICI Bank and ICICI, along with other ICICI group companies, were operating

as a “virtual universal bank”, offering a wide range of financial products and

services. The merger of ICICI and two of its subsidiaries with ICICI Bank has

combined two organizations with complementary strengths and products and

similar processes and operating architecture. The merger has combined the large

capital base of ICICI with the strong deposit raising capability of ICICI Bank,

giving ICICI Bank improved ability to increase its market share in banking fees

and commissions, while lowering the overall cost of funding through access to

lower-cost retail deposits. ICICI Bank would now be able to fully leverage the

strong corporate relationships that ICICI has built, seamlessly providing the

whole range of financial products and services to corporate clients. The merger

has also resulted in the integration of the retail finance operations of ICICI, and

its two merging subsidiaries, and ICICI Bank into one entity, creating an

optimal structure for the retail business and allowing the full range of asset and

liability products to be offered to all retail customers.

The share exchange ratio approved for the merger was one fully paid-up equity

share of ICICI Bank for two fully paid-up equity shares of ICICI. This was

determined on the basis of a comprehensive valuation process incorporating

international best practices, carried out by two separate financial advisors and

an independent accounting firm. The equity shares of ICICI Bank held by ICICI

have not been cancelled in the merger. In accordance with the provisions of the

Scheme of Amalgamation, these shares have been transferred to a Trust to be

divested by appropriate placement. The proceeds of such divestment would

accrue to the merged entity. With the merger taking effect, the paid-up share

capital of the Bank has increased to Rs. 6.13 billion, comprising 613 million

shares of Rs.10 each.

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The merger process was complex and posed significant challenges. The merger

of a financial institution with a commercial bank to create the country’s first

universal bank had significant implications for the entire financial system. It

therefore involved extensive dialogue with the Government and Reserve Bank

of India. The merger also posed the challenge of compliance with regulatory

norms applicable to banks in respect of ICICI’s assets and liabilities,

particularly the reserve requirements. This required resources of about Rs.

210.00 billion to be raised in less than six months for investment in Government

securities and cash reserves, in addition to normal resource mobilization for

ongoing business requirements. We leveraged our strong retail franchise,

including the distribution network acquired in the merger of the erstwhile Bank

of Madura Limited with ICICI Bank in fiscal 2001, to grow our retail deposit

base. We also achieved significant success in securitizing loans and developing

a market for securitized debt in India. We also adopted proactive strategies to

minimize the duration of our Government securities portfolio, in order to

mitigate the interest-rate risk arising from the acquisition of a portfolio of about

Rs. 180.00 billion in five months.

As both ICICI and ICICI Bank were listed in Indian and US markets, effective

communication to a wide range of investors was a critical part of the merger

process. It was equally important to communicate the rationale for the merger to

international and domestic institutional lenders and to rating agencies. The

merger process was required to satisfy legal and regulatory procedures in India

as well as to comply with United States Securities and Exchange Commission

requirements under US securities laws. The merger of India’s largest financial

institution with its largest private sector bank also involved significant

accounting complexities. In accordance with best practices in accounting, the

merger has been accounted for under the purchase method of accounting under

Indian GAAP. Consequently, ICICI’s assets have been fair-valued for their

GGITM,BHOPAL - 31 -

incorporation in the books of accounts. The fair value of ICICI’s loan portfolio

was determined by an independent valuer, while ICICI’s equity and related

investment portfolio was fair-valued by determining its market value. The total

additional provisions & write-offs required to reflect the fair values of ICICI’s

assets determined at Rs. 37.80 billion have de-risked the loan and investment

portfolio and created a significant cushion in the balance sheet, while

maintaining healthy levels of capital adequacy. The merger was approved by the

shareholders of both companies in January 2002, by the High Court of Gujarat

at Ahmedabad in March 2002, and by the High Court of Judicature at Mumbai

and the Reserve Bank of India (RBI) in April 2002. The challenge of

mobilization of resources for compliance with statutory reserve requirements

applicable to banks, on ICICI’s outstanding liabilities on merger, was met

successfully within the target date of March 30, 2002. While the merger became

effective on May 3, 2002, in accordance with the provisions of the Scheme of

Amalgamation and the terms of approval of RBI, the Appointed Date for the

merger was March 30, 2002.

Boards of ICICI and ICICI Bank Approve Merger

GGITM,BHOPAL - 32 -

The Board of Directors of ICICI Limited (NYSE:IC) and the Board of Directors

of ICICI Bank Limited (NYSE:IBN) in separate meetings at Mumbai, approved

the merger of ICICI with ICICI Bank.

The merger of two wholly-owned subsidiaries of ICICI, ICICI Personal

Financial Services Limited and ICICI of two wholly-owned subsidiaries of

ICICI, ICICI Personal Financial Services Limited and ICICI Capital Services

Limited, with ICICI Bank was also approved by the respective Boards. The

proposal has been submitted to the Reserve Bank of India (RBI) for its

consideration and approval, and shall be subject to various other approvals,

including the approval of the shareholders of the respective companies, the High

Courts of Mumbai and Gujarat, and the Government of India as may be

required. Consequently, the Appointed Date of merger is proposed to be March

31, 2002, or the date from which RBI's approval becomes effective, whichever

is later. The Scheme of Amalgamation ("the Scheme") approved by the

respective Boards envisages a share exchange ratio of one domestic equity share

of ICICI Bank for two domestic equity shares of ICICI. As each American

Depositary Share (ADS) of ICICI represents five domestic equity shares while

each ADS of ICICI Bank represents two domestic equity shares, the ADS

holders of ICICI would be issued five ADS of ICICI Bank in exchange for four

ADS of ICICI.

The share exchange ratio approved by the Boards of the two entities was based

on a valuation process incorporating international best practices in respect of a

merger of two affiliate companies. JM Morgan Stanley was appointed by ICICI

to advise it on a fair exchange ratio, while ICICI Bank appointed DSP Merrill

Lynch for the same purpose. Thereafter, ICICI and ICICI Bank jointly

appointed the leading accounting firm, Deloitte, Haskins & Sells to recommend

the final share exchange ratio to the Boards of the two entities. The share

exchange ratio has been determined in accordance with best practices in

GGITM,BHOPAL - 33 -

valuation, using the relative market prices, discounted cash flows and book

values. Davis Polk & Wardwell are the international legal counsel and

Amarchand & Mangaldas & Suresh A. Shroff & Co. are the domestic legal

counsel for the merger.

The Scheme will be filed before the High Courts of Mumbai and Gujarat and

subsequently placed for approval at the meetings of shareholders of the

respective companies. ICICI and ICICI Bank have submitted to RBI the

proposal for the merger and compliance with regulatory norms applicable to

banks, and would adhere to RBI's decision in the matter.

The merged entity would be the second largest bank in India with total assets of

about Rs. 95,000 crore (proforma at September 30, 2001), 396 existing

branches/ extension counters of ICICI Bank, 140 existing retail finance offices

and centres of ICICI, and 8,275 employees. The merged entity would leverage

on its large capital base, comprehensive suite of products and services,

extensive corporate and retail customer relationships, technology-enabled

distribution architecture, strong brand franchise and vast talent pool. The retail

segment will be a key driver of growth for the merged entity, with respect to

both assets and liabilities. The merged entity's competitive edge in the financial

system is reflected in the combined cost-to-income ratio of 27 per cent

(proforma for the half-year ended September 30, 2001), which compares

favourably with that of other Indian banks of comparable size and scale of

operations.

The merger is expected to be beneficial to shareholders of both entities. The

merger would enhance value for shareholders of ICICI through the merged

entity's access to low-cost deposits, greater opportunities for earning fee-based

income and the ability to participate in the payments system and provide

transaction-banking services. The merger would enhance value for shareholders

of ICICI Bank through the large capital base and scale of operations, access to

GGITM,BHOPAL - 34 -

ICICI's strong corporate relationships built up over five decades, entry into new

business segments, higher market share in various business segments,

particularly fee-based services, and access to the vast talent pool of ICICI and

its subsidiaries. The process of integration between ICICI Bank and ICICI is

expected to be smooth due to the strong synergies between the two entities.

Consequent to the merger of ICICI with ICICI Bank, the Board of Directors of

ICICI Bank is proposed to be reconstituted in compliance with the Banking

Regulation Act, 1949 and in accordance with best practices in corporate

governance. It is proposed that the Board of Directors of the merged entity

would be headed by Mr. N. Vaghul as the non-executive Chairman. The

executive management at the Board level would comprise Mr. K. V. Kamath as

Managing Director and Chief Executive Officer, Mr. H. N. Sinor and Mrs.

Lalita D. Gupte as Joint Managing Directors and Mrs. Kalpana Morparia, Mr. S.

Mukherji, Mrs. Chanda D. Kochhar and Dr. Nachiket M. MOR as Executive

Directors. The executive management at the Board level would not constitute

more than one-half of the total strength of the Board.

ICICI currently holds 46% of the paid-up equity share capital of ICICI Bank.

This holding would not be cancelled under the scheme of amalgamation. It is

proposed to be held in trust for the benefit of the merged entity, and divested

through appropriate placement in fiscal 2003. The proceeds from the divestment

will accrue to the merged entity.

At the time of the merger, ICICI Bank would align the Indian GAAP accounting

policies of ICICI to those of ICICI Bank, including a higher general provision

against standard assets. Further, in accordance with international best practices

in accounting, ICICI Bank has decided to adopt the "purchase method" of

accounting, which is mandatory under US GAAP, to account for the merger

under Indian GAAP as well. ICICI's assets and liabilities will therefore be fair

GGITM,BHOPAL - 35 -

valued for the purpose of incorporation in the accounts of ICICI Bank on the

Appointed Date.

Full compliance with the prudential norms applicable to banks on all of ICICI's

existing liabilities is likely to have some adverse impact on the overall

profitability of both entities in fiscal 2002.

In 1998, ICICI had set up the Special Asset Management Group for focus on

recovery and resolution of credit exposures, where the operations of the

borrower companies had been adversely impacted due to systemic or other

factors. This initiative has yielded significant benefits, due to the creation of a

focused team of professionals and development of the specialized skill sets

essential for asset resolution. ICICI is exploring several options for the creation

of an asset reconstruction company, which would own and manage non-

performing loans. ICICI proposes to work actively with the Government of

India, RBI and other institutions and banks to create an enabling framework for

an industry-wide mechanism that would maximize the economic value of

distressed assets in the financial system.

GGITM,BHOPAL - 36 -

IMPACT OF MERGER OF ICICI BANK WITH ICICI

LIMITED

• Retail Banking

• Wholesale Banking

• Project Finance & Special Assets Management

• International Business

• Corporate Centre

The Project Finance Group comprises our project finance operations for

infrastructure, oil &gas, manufacturing and shipping sectors. The Special Assets

Management Group is responsible for large non-performing loans and accounts

under watch. The International Business Group is responsible for ICICI Bank’s

international operations as well as coordinating the international strategies and

alliances of its subsidiaries and affiliates

The Corporate Centre comprises all shared services and corporate functions,

including finance and secretarial, investor relations, risk management, legal,

human resources and corporate branding and communications.

GGITM,BHOPAL - 37 -

Retail Banking

The retail business is the key driver of ICICI Bank’s growth strategy, with the

objective of diversifying the asset portfolio and building a low-cost stable

resource base. With a complete product suite across both asset and liability

products as well as a wide range of banking services, ICICI Bank is today a

retail financial supermarket with the ability to cross-sell the entire range of

credit and investment products and other banking services to our customers. The

key dimensions of our retail strategy are products, channels and processes,

under a strong customer focus. Changing demographics and the trend towards

upward migration in income levels coupled with existing low retail credit

penetration levels have created a major growth opportunity in retail finance.

ICICI Bank’s retail assets business is capitalizing on this opportunity with a

competitive positioning and strategy comprising innovative products, wide

distribution, strong credit controls and high customer service standards and

rapidly growing volumes in each segment to achieve economies of scale. ICICI

Bank’s retail portfolio (including the portfolio of ICICI Home Finance

Company Limited, its wholly-owned subsidiary) at March 31, 2002 was over

Rs. 76.00 billion, as compared to the combined retail portfolio of ICICI and

ICICI Bank of about Rs. 29.00 billion at March 31, 2001. Our retail asset

products include mortgages, automobile and two-wheeler loans, commercial

vehicles and construction equipment financing, consumer durable loans,

personal loans and credit cards.

In the mortgages business, we expanded our reach to more than 140 locations

across the country. We were the first to introduce adjustable rate home loans,

with interest rates linked to a floating prime lending rate. This product received

excellent response from customers cross the country and was a key driver of

growth in the mortgages segment. It also enabled us to price loans competitively

GGITM,BHOPAL - 38 -

and achieve better asset-liability management. Other products and product

variants introduced this year included loans against existing property as well as

several value-added features – retail property services and home insurance

policies bundled with the loan. During fiscal 2002 we emerged as a leading

player in the mortgages business.

During fiscal 2002 we consolidated our position as clear market leaders in

automobile loans. We expanded our distribution network to 145 cities and

towns across the country. The key drivers of growth were the strength of our

corporate relationships with leading automobile manufacturers, strong

distribution capability and customer service focus. We rapidly increased our

presence in other segments as well. We expanded our two-wheeler business to

over 140 locations. ICICI Bank partners manufacturers in distributing their

products and therefore enjoys preferred status with them. We were able to offer

competitive products to our customers by leveraging economies of scale

resulting from the rapid growth in operations. In the credit cards business we

expanded our distribution to 36 locations. The total number of cards in force

increased by 450,000 to about 650,000 at the end of fiscal year 2002. During the

year we launched two co-branded cards, with Hindustan Petroleum Corporation

Limited (HPCL) and BPL Mobile respectively. We also entered the merchant

acquiring business during the year. ICICI Bank is the largest incremental issuer

of cards (including both debit and credit cards) in India. ICICI Bank’s “Ncash”

debit card is a deposit access product that allows cash withdrawals through

ATMs and also enables purchases at merchant establishments with point-of-sale

terminals. The card is valid internationally and earns loyalty points on usage.

Wealso introduced a domestic debit card variant primarily for our payroll

customers. As at March, 31, 2002, ICICI Bank had issued about 600,000 debit

cards. During fiscal 2002, ICICI Bank also implemented two smart card

projects, at a corporate worksite and an educational institution.

GGITM,BHOPAL - 39 -

In order to reduce our funding cost and create a stable funding base, we

continued our focus on retail deposits in fiscal 2002. The number of customer

accounts increased from 3.2 millionto over 5 million. ICICI Bank’s life stage

segmentation strategy offering differentiated liability products to various

categories of customers (kid-e-bank for children, bank@campus for students,

Power Pay for salaried employees, ICICI Select for high net worth individuals

and Business Multiplier for businessmen) contributed significantly to the rapid

growth in the retail ability base. They have developed a successful third party

distribution model with a growing market share in distribution of mutual funds,

Reserve Bank of India relief bonds and insurance products

.

This allows us to meet all customer needs through products that are

complementary to those that we offer directly, while leveraging our distribution

capability to earn fee income from third parties. They also provide online

trading facilities through www.ICICIdirect.com. ICICI direct provides complete

end-to-end integration for seamless electronic trading on the stock exchanges

and has been rated “TxA1” by CRISIL, indicating highest ability to service

broking transactions. ICICI direct has also launched India’s first Digitally

Signed Contract Notes (DSCN), which allows a customer to view and print their

contract notes online. ICICI Bank has pioneered a multi-channel distribution

strategy in India, giving our customers24x7 access to banking services. The

enhanced convenience that this offers the customer has supported our customer

acquisition efforts and migration of customer transactions from branches to

lower-cost technology-enabled channels. During the year, ICICI Bank

continued to expand its non-branch channels aggressively and successfully

migrated customer transaction volumes to these channels. Only 35% of

customer induced transactions now take place at branches. ICICI Bank set up

over 500 new ATMs during fiscal 2002, taking the ATM network to over 1,000

ATMs. Master, Cirrus and Maestro cards can now be used on all our ATMs.

GGITM,BHOPAL - 40 -

Other new initiatives on ATMs include multilingual screens, bill payments and

prepaid mobile card recharge facility.

ICICI Bank now has over one million retail Internet banking accounts. Retail

Internet banking customers can view their bank accounts, transfer funds

between their own accounts and to any other ICICI Bank account. ICICI Bank

also offers the facility of transferring funds to accounts in any branch of any

bank, in eight cities through Cheques, India’s first Internet based inter-bank

fund transfer facility. Customers can also open a fixed or recurring deposit,

make a stop-cheque request and inquire into the status of a cheque online.

Customers can write to the account manager through the secure channel and

subscribe to account statement by e-mail. ICICI Bank offers its customers the

facility of paying utility bills online in over 120cities in India. All major online

shopping services are linked to ICICI Bank’s online payments facility. ICICI

Bank has also focused on the call centre as a key channel. ICICI Bank’s call

centre can now be accessed by customers in 100 cities, and is India’s largest

domestic call centre. The call centre is a single point of contact for customers

across all products. It provides various self-service options and also

personalized communication with customer service officers for a full range of

transactions and account and product related queries. The call centre is now

evolving into a complete relationship management channel not only for

complaint resolution but also for cross-selling on inbound calls. The call centre

uses state-of-the-art voice-over Internet-protocol technology and cutting-edge

desktop applications to provide a single view of the customer’s relationship.

ICICI Bank’s mobile banking services provide the latest information on account

balances previous transactions, credit card outstanding and payment status and

allow customers to request a chequebook or account statement.

GGITM,BHOPAL - 41 -

Corporate Banking

ICICI Bank’s corporate banking strategy is based on providing customized

financial solutions to clients, tailored to meet their specific requirements. The

corporate banking strategy focuses on careful management of credit risk and

adequate return on risk capital through risk-based pricing and proactive

portfolio management, rapid growth in fee-based services and extensive use of

technology to deliver high levels of customer satisfaction in a cost effective

manner. Our focus in fiscal 2002 was on expanding the range and depth of our

corporate relationships, acquiring new clients and cross-selling all our corporate

banking products and services to the existing client base. We continued to focus

on working capital finance for highly-rated clients ,structured transactions and

channel financing. In longer-term loans, in the absence of traditional capital

expenditure financing opportunities and limited corporate-credit growth, ICICI

Bank has taken advantage of emerging opportunities in the public sector

disinvestment process, through structuring and advisory services. We focused

strongly on transaction banking services such as cash management and non-

fund-based facilities such as letters of credit and bank guarantees to increase our

market share in banking fees and commissions. We have already achieved

significant success in cash management services, with total volumes of Rs.

1.72trillion for fiscal 2002. We also targeted high value current accounts to

reduce our cost of funding. We implemented a customer-level profitability-

based pricing model. As the pioneers of securitization in India, we were

successful in creating a market for securitized corporate debt, which would help

to expand and deepen the debt markets .During the year we enhanced our

technology-based delivery platforms and expanded the scope of our web-based

services. ICICI Bank provides Internet banking services to its wholesale

banking clients through ICICImarkets.com, a finance portal that is the single

point web-based interface for all our corporate clients. The Corporate Internet

GGITM,BHOPAL - 42 -

Banking (CIB) platform of ICICI markets allows clients to conduct banking

business online in a secure environment. Clients can view accounts online,

transfer funds between their own accounts or to other accounts, and avail of

other such services. ICICI Bank offers forex trading through the Internet on FX

Online and Government of India securities trading through Debt Online. The

corporate banking business is organized into special relationship groups for the

Government and public sector, large corporate, emerging corporate and agri-

business. ICICI Bank has strong linkages with several large public sector

companies, and is leveraging

CORPORATE STRATEGY

These relationships expand the range of services that it is offered to them. ICICI

Bank has also established relationships with several state governments, having

financed state-level enterprises. Besides, ICICI Bank has been empanelled in

eight states for collection of sales tax. ICICI Bank is also involved with several

other state government initiatives. In the corporate client segment, ICICI Bank

is focusing on increasing its share of banking business with its corporate clients.

In the emerging corporate segment, ICICI Bank’s focus is on establishing

structured financing arrangements and implementing a liability-led business

strategy, providing sophisticated banking services to its clients. ICICI Bank has

also developed several innovative structures for agri-business, including dairy

farming. ICICI Bank is working with state governments and agri-based

corporate to evolve viable and sustainable systems for financing agriculture.

ICICI Bank’s dedicated Structured Products & Portfolio Management Group,

with access to expertise in financial structuring and related legal, accounting

and tax issues, actively supports the business groups in designing financial

products and solutions. This Group is also responsible for managing the asset

GGITM,BHOPAL - 43 -

portfolio by structuring portfolio buyouts and sell-downs. The enhanced capital

base consequent to the merger will significantly increase ICICI Bank’s ability to

leverage its strong corporate relationships and provide non-fund-based facilities

and trade finance services to its corporate clients. ICICI Bank is leveraging

technology to set up centralized processing facilities to process large transaction

volumes, thereby benefiting from economies of scale. A dedicated Corporate

Operations & Technology Group has been set up for developing and managing

back-office processing and delivery capabilities.

Treasury

The principal responsibilities of the Treasury include management of liquidity

and exposure to market risks, mobilization of resources from domestic and

international financial institutions and banks, and proprietary trading.

Additionally, the Treasury is leveraging its strong relationships with financial

sector players to provide a wide range of banking services in addition to its

liability products. The Treasury is also responsible for ICICI Bank’s capital

markets and custodial services operations.

During fiscal 2002, the focus was on the challenge of meeting regulatory

reserve requirements on ICICI’s liabilities prior to the merger for meeting the

reserve requirements and managing the interest-rate risk arising from the

acquisition of Government securities aggregating about Rs. 180.00 billion in an

environment of low interest rates. Yields on Government securities reached

historic lows during 2001-2002 as a consequence of the easy liquidity

environment and RBI’s soft-interest-rate policy. To minimize the risk of

adverse mark-to-market impact on any rise in interest rates, ICICI Bank adopted

GGITM,BHOPAL - 44 -

a strategy of acquiring securities of lower duration. A significant portion of the

requirement of Government securities was acquired through active participation

in primary auctions of floating-rate bonds and short-maturity Treasury bills. \

Prior to the merger, in addition to its resource mobilization from the wholesale

segment, ICICI had raised a foreign currency loan of USD 75 million at LIBOR

+ 70 basis points, setting a new benchmark for a five-year borrowing by an

Indian entity in the international markets after the Asian currency crisis. ICICI

had also borrowed USD 50 million from Kreditanstalt fur Wiederaufbau (KfW),

a German financial institution, for twelve-and-a-half years.

This was the first borrowing by ICICI from KfW without a Government of

India guarantee. ICICI also entered into an agreement with Asian Development

Bank (ADB) for availing a 25-year USD 80 million loan for housing finance,

and with DEG, Germany for an 8-year USD 25 million loan. The focus of

trading operations was active, broad-based market-making in key markets

including corporate bonds, Government securities and interest-rate swap

markets. Substantial reduction in interest rates provided an opportunity to

capture gains in the fixed-income market by active churning of the trading

portfolio.

Project Finance and Special Assets

ICICI BANK project finance activities include financing new projects as well as

capacity additions in the manufacturing sector and structured finance to the

infrastructure and oil, gas and petrochemicals sectors. Over the years, we have

developed considerable expertise in financing complex project finance

transactions and effectively allocating the associated risks. Our presence has

been viewed by most sponsors as critical to the success of their projects, on

account of our proficiency in developing enforceable contract models,

GGITM,BHOPAL - 45 -

syndicating requisite funds and working out complex issues related to

Government regulations. Our project finance business is focused on structuring

and syndication of financing for large projects by leveraging our expertise in

project financing, and churning our project finance portfolio to prevent portfolio

concentration and to manage portfolio risk. We view our role not only as

providers of project finance but as arrangers and facilitators, creating

appropriate financing structures that may serve as financing and investment

vehicles for a wider range of market participants.

Infrastructure Sector

The infrastructure sector has not witnessed the anticipated growth, mainly due

to policy-levelis sues and delay in closure of various projects. While there were

few opportunities in the power sector, the telecom and road sectors witnessed

considerable activity. Guarantees to Department of Telecommunications on

behalf of various telecom companies for basic, cellular and national and

international long-distance licenses presented a significant non-fund based

business opportunity. We have also capitalized on opportunities in the road

sector, in both annuity and toll-based projects, including lead arranger mandates

for four road projects of National Highway Authority of India (NHAI). The

pace of growth in the road sector is expected to increase both due to NHAI’s

National Highway Development Programme and the larger state-level projects.

Going forward, we expect ports and urban infrastructure sectors, in addition to

telecom and roads, to provide significant business opportunities.

Corporatization has already been initiated for five out of twelve major ports.

Ports would also require significant expansion and modernization of facilities.

We were appointed lead arrangers for a chemical port terminal project. The

power sector is also expected to pick up with opportunities in the privatization

GGITM,BHOPAL - 46 -

of distribution, financial closure of select private projects with competitive

tariffs, capacity additions in the public sector and its own reform and

restructuring. We provided advisory services to the Ministry of Power,

developing a comprehensive blueprint for private sector participation in

hydropower. The Managing Director & CEO was a member of the Distribution

Policy committee which submitted a report improving efficiency in power

distribution in the country.

Manufacturing Sector

Fiscal 2002 saw few new projects in the manufacturing sector on account of

lower economic growth and existing over-capacities in several commodities.

Our focus in this sector is on projects sponsored by entities that have proven

ability to commit the required financial resources and implement projects

successfully within planned time-frames. We are also implementing tighter

security measures, such as security interests in project contracts and escrow

accounts to capture cash flows. We also believe that there is significant scope

for consolidation in several segments in the manufacturing sector, which

presents opportunities for structuring and syndicating acquisition financing.

Special Assets Management

Liberalization and integration with the global economy have posed major

competitive challenges for Indian industry. Cyclical downturns in commodity

demand and prices have adversely affected the performance of several sectors.

This has impacted asset quality in the financial system. ICICI Bank’s efforts at

asset resolution are driven by the Special Assets Management Group (SAMG),

set up to manage large non-performing loans and large accounts under watch

GGITM,BHOPAL - 47 -

that require close monitoring. SAMG’s approach includes operational and

financial restructuring, completion of projects under implementation, sale of

unproductive assets and catalyzing consolidation. In respect of exposures to

unviable and essentially uneconomical projects, we adopt an aggressive

approach aimed at out-of-court settlements, enforcing collateral and driving

consolidation. The accent is on time-value of recovery and a pragmatic

approach towards settlements. During fiscal 2002, SAMG was strengthened by

the induction of some of our highest-rated performers into the group.

International Business

ICICI BANK have already established a presence in the international markets,

primarily in the areas of information technology, investment banking and

banking products and services for the This posed the dual challenge of raising

resources for meeting the reserve requirements and managing the interest-rate

risk arising from the acquisition of Government securities aggregating about Rs.

180.00 billion in an environment of low interest rates. Yields on Government

securities reached historic lows during 2001-2002 as a consequence of the easy

liquidity environment and RBI’s soft-interest-rate policy. To minimize the risk

of adverse mark-to-market impact on any rise in interest rates, ICICI Bank

adopted a strategy of acquiring securities of lower duration. A significant

portion of the requirement of Government securities was acquired through

active participation in primary auctions of floating-rate bonds and short-

maturity Treasury bills. Prior to the merger, in addition to its resource

mobilization from the wholesale segment, ICICI had raised a foreign currency

loan of USD 75 million at LIBOR + 70 basis points, setting a new benchmark

for a five-year borrowing by an Indian entity in the international markets after

the Asian currency crisis. ICICI had also borrowed USD 50 million from

GGITM,BHOPAL - 48 -

Kreditanstalt fur Wiederaufbau (KfW), a German financial institution, for

twelve-and-a-half years. This was the first borrowing by ICICI from KfW

without a Government of India guarantee. ICICI also entered into an agreement

with Asian Development Bank (ADB) for availing a 25-year USD 80 million

loan for housing finance, and with DEG, Germany for an 8-year USD 25

million loan. The focus of trading operations was active, broad-based market-

making in key markets including corporate bonds, Government securities and

interest-rate swap markets. Substantial reduction in interest rates provided an

opportunity to capture gains in the fixed income market by active churning of

the trading portfolio.

Credit Rating

During the year, ICICI became the first Indian company to be rated higher than

the sovereign rating for India by Moody’s Investor Service, when its senior and

subordinated long term foreign currency debt was rated Ba1 i.e. one notch

above the sovereign rating for India. The same rating has been assigned to

ICICI Bank post-merger. ICICI Bank’s credit ratings as per various credit rating

agencies (including ratings assigned to debt instruments issued by ICICI now

transferred to ICICI Bank on merger) are given below:

Agency Rating

– Foreign currency debt Ba1

– Foreign currency deposits Ba3

Standard & Poor’s (S&P) BB

Credit Analysis & Research Limited (CARE) CARE AAA

Investment Information and Credit Rating Agency (ICRA) LAAA

GGITM,BHOPAL - 49 -

Human Resources

ICICI Bank views its human capital as a key source of competitive advantage.

Consequently the development and management of human capital is an essential

element of our strategy and a key management activity .Human resources

management in fiscal 2002 focused on smooth integration of the employee sand

human resource management systems in the context of the merger, as well as on

continuous improvement of recruitment, training and performance management

processes. The process of integration involved defining the organizational

structure of the merged entity people placement in various positions across the

business and corporate groups, and integration of the grade and remuneration

structure for the employees of the four entities. The organizational structure was

announced in February 2002 and became effective on May 3, 2002. The people

placement process was based on appropriate competency profiling tools and

matching employee profiles to job specifications. The grade integration process

has also been success fully completed, using job evaluation techniques. While

ICICI Bank is India’s second-largest bank, it had just over 7,700 employees at

March 31, 2002, demonstrating our unique technology-driven, productivity-

focused business model.

The recruitment process has been streamlined and a uniform recruitment policy

and process implemented across the merged organization. Robust ability-testing

and competency -profiling tools are being used to strengthen the campus

recruitment process and match the profiles of employees to the needs of the

organization. ICICI Bank continues to be a preferred employer at leading

business schools and higher education institutions across the country, offering a

wide range of career opportunities across the entire spectrum of financial

services. In addition to campus recruitment, ICICI Bank also undertakes lateral

recruitment to bring new skills, competencies and experience into the

GGITM,BHOPAL - 50 -

organization and meet the requirements of rapidly growing businesses. A Six

Sigma initiative has been undertaken for the lateral recruitment process to

improve capabilities in this area. ICICI Bank encourages cross-functional

movement, enriching employees’ knowledge and experience and giving them a

holistic view of the organization while ensuring that the bank leverages its

human capital optimally. The rapidly changing business environment and the

constant challenges it poses to organizations and businesses make it imperative

to continuously enhance knowledge and skill sets across the organization. ICICI

Bank believes that building a learning organization is critical for being

competitive in products and services and meeting customer expectations. ICICI

Bank has built strong capabilities in training and development to build

competencies. Training on products and operations is imparted through web-

based training modules. Special programmes on functional training and

leadership development to build knowledge as well as management ability are

conducted at a dedicated training facility. ICICI Bank also draws from the best

available training programmes and faculty, both international and domestic; to

meet its training and development needs and build globally benchmarked skills

and capabilities.

ICICI Bank seeks to build in all its employees a total commitment towards

exceptional standards of performance and productivity, adaptability to changing

organizational needs and the demands of the business environment and a

willingness to learn and acquire new capabilities. ICICI Bank believes in

defining clear performance parameters for employees and empowering them to

achieve their goals. This has helped to create a culture of high performance

across the organization. ICICI Bank also has a structured process of identifying

and developing leadership potential the focus on human resources management

as a key organizational activity has resulted in the creation of an exceptional

pool of talent, a performance-oriented organizational culture and has imparted

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agility and flexibility to the organization, enabling it to capitalize on

opportunities and deliver value to its stakeholders.

ORGANIZATIONAL EXCELLENCE

ICICI Bank recognizes the importance of organizational excellence in its

business. Developing and deploying world-class skills in a variety of areas such

as technology, financial engineering, transaction processing and portfolio

management, credit evaluation, customer segmentation and product design, and

building and maintaining deep and enduring relationships of trust with our retail

and wholesale customers are essential elements of our strategy. Different

businesses across the ICICI group have over the past few months used

successfully the Six Sigma methodology to focus on customer satisfaction and

enhanced efficiency in operations. Application of Six Sigma techniques in

regional processing centres, branch layout and design, and the home finance and

demat services businesses have reduced turnaround time and significantly

improved operational efficiency. In recognition of the critical importance of

excellence in internal processes and delivery to customers, we have set up an

Organizational Excellence Group headed by a Senior General Manager

reporting to the Managing Director & CEO. This group will be responsible for

institutionalization of quality initiatives, including Six Sigma, and for building

the skills necessary for implementing and accelerating quality initiatives,

reporting to the management the progress and value generated from these

initiatives and replicating the successes across ICICI Bank as well as group

companies.

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Benefits of merger

Forward leap in the hierarchy of Indian banks

A discontinuous jump in size and scale

Achieve size and scale of operations

Leverage ICICI’s capital and client base to increase fee income

Higher profitability by leveraging on technology and low cost

structure

Offer a complete product suite with immense cross-selling

opportunities

ICICI’s presence in retail finance, insurance, investment

banking and venture capital

Access to the ICICI group’s talent pool improved ability to

further diversify asset portfolio and business revenues Lower funding costs

Ability to accept/ offer checking accounts

Availability of float money due to active participation in the

payments system

Diversified fund raising due to access to retail funds Increased

fee income opportunities

Ability to offer all banking products

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Competitive advantages of the merged

entity

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After the merger, the combined entity would be the second-largest bank in

India, with an asset base of over Rs. 1 trillion

Merger process of ICICI BANK AND ICICI LIMITED -

highlights

1. Valuation

Independently appointed investment bankers

ICICI - JM Morgan Stanley

ICICI Bank - DSP Merrill Lynch

Jointly appointed independent accountant to recommend the final

exchange ratio

Deloitte, Haskins & Sells appointed

Recommended one share of ICICI Bank for two shares of

ICICI, which was approved by the respective Boards

2. Transfer of ICICI’s shareholding in ICICI Bank to an SPV prior

to the merger

Divestment in FY2003 by way of appropriate placement

3. Consolidation of retail operations

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Merger of ICICI PFS and ICICI Capital Services with ICICI Bank

Merger process - regulatory issues

Merger effective on

March 31, 2002 or the date of RBI approval, whichever is later

Shareholders’ approval

High court approval

Accounting for the merger in line with international best practices

Purchase method, mandatory under US GAAP, to be adopted under Indian

GAAP as well

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RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem.

Research methodology constitutes of research methods, selection criterion of

research methods, used in context of research study and explanation of using of

a particular method or technique so that research results are capable of being

evaluated either by researcher himself or by others. Why a research study has

been undertaken, how the research problem has been formulated, why data have

been collected and what particular technique of analyzing data has been used

and a best of similar other question are usually answered when we talk of

Research methodology concerning a research problem or study. The main aim

of research is to find out the truth which is hidden and which has not been

discovered as yet

The research methodology that I undertook for the purpose of this study is

enumerated below-

RESEARCH DESIGN: DESCRIPTIVE

Descriptive studies are well structured, they tend to be rigid and its approach

can not be changed every now and then. Descriptive study can be divided in two

categories:

(A) Cross sectional

(B) Longitudinal

Descriptive study is undertaken in many circumstances:

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1. When the researcher is interested in knowing the characteristics of certain

groups such as age, profession.

2. When the researcher is interested in knowing the proportion of people in

given population who have behaved in a particular manner, making

projection of certain things.

I have taken descriptive because my research includes the knowing the merger

and consolidation of ICICI bank and ICICI limited.

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SCOPE OF THE STUDY

Each and every project study along with its certain objectives also has scope for

future. And this scope in future gives to new researches a new need to research

a new project with a new scope. Scope of the study not only consist one or two

future business plan but sometime it also gives idea about a new business which

becomes much more profitable for the researches then the older one.

Scope of the study could give the projected scenario merger and consolidation

of ICICI bank and ICICI limited.

Whatever scope I observed in my project are not exactly having all the features

of the scope which I described above but also not lacking all the features.

We highlight the major themes to emerge from the study. We looked the key

findings from the areas of production, survey of executive opinion in global

organizations, within which we examined major operation, including staffing,

performance management, rewards, development, and career management and

knowledge and learning.

Factors which I observed while doing project study are following-

1. Working management.

2. Quality of services provided by the bank.

3. Satisfaction of the bank customer.

4. Strategy of bank after merging.

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FINANCIAL REPORTS

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FINDINGS

a) Performance of ICICI BANK. After merger with ICICI LTD. being

effective in comparison of other bank. It increases their

performance.

b) Most the customer is satisfied by the services provided by the ICICI

BANK after merger. It increase the value of the bank in their customer

c) Merger of ICICI BANK & ICICI LTD. are provide a multitude of ways

to increase efficiency ICICI BANK LTD.

d) ICICI BANK LTD. provides the facility as per the expectations of

their customer. In this way they become successful to achieve their

goal.

e) This merger successfully faces the competition of other bank.

f) Merger of ICICI BANK with ICICI LTD. increases the share value

of ICICI BANK LTD.

g) Most of the customers are attracted by new scheme of ICICI BANK

LTD. after merging. This schemes for attract the customer and it

also help to make a distinct image of ICICI BANK LTD. in the

competition of present scenario.

h) Merger of ICICI BANK with ICICI LTD. help full for growth of Indian

economy.

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CONCLUSION

Merger and acquisition is nothing new in the Indian banking industry. But there

has been a change in impetus. Earlier, with the banks firmly under the control of

RBI, mergers were forced upon to save weak banks from collapsing. The

gradual privatisation and globalisation of the banking industry has now forced

banks 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 mergers can lead to prosperity both

for the shareholders of the merged company and for the economy as a whole.

The true catalyst of a successful merger is the top executive whose pragmatic

and dynamic leadership and a clear foresight can help a merger click. The trick

is to neutralise the expected pitfalls while bringing the best out of operational

synergies. The making of ICICI Bank into a ‘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 conglomerate(s)’

by exploiting the present favourable business environment and also to de-risk

their operating environment

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BIBLIOGRAPHY

Periodical: Business World

Economics time

ICICI BANK Annual Report 2002

Research Methodology: C.R.Kothari, 2nd edition.

S.N Murty and U Bhojanna

Website Address: www.icici.org.com

www.icici bank.com

www.economictime.com

www.google.com

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