RBI Approves ICICI Bank-BoR Merger - Analyst Blog

On Thursday, ICICI Bank Limited (IBN) received approval from the Reserve Bank of India ("RBI") to acquire Bank of Rajasthan ("BoR"). RBI said that the merger was allowed in accordance with the Sub-section (4) of Section 44A of the Banking Regulation Act, 1949.

With the integration of BoR, the total number of ICICI Bank branches will increase 25% to around 2,500 across the country. All branches of BoR will start functioning as branches of ICICI Bank effective August 13. The acquisition will also lead to an increase in the total turnover of the company, which is expected to cross INR4,000,000 crore (US$854 billion).

On May 25, ICICI Bank and BoR announced the proposed merger and fixed a share swap ratio of 1:4.72. Hence, an investor with 118 shares of BoR will receive 25 equity shares of ICICI Bank.

While ICICI Bank had the merger approved in its June 20 extraordinary general meeting, the BoR approval was an uphill task, with stiff resistance from its employees and legal hurdles. However, with the consent of the shareholders, both the parties had asked RBI for regulatory clearance on June 25.

This will be the third acquisition for ICICI Bank following Bank of Madura in 2001 and Sangli Bank in 2007. The first acquisition helped the company to expand in south India while the second one in west India. The BoR acquisition will enable the company to further expand its footprints in western and northern India.

Though we are concerned about ICICI Bank's highly-competitive operating environment, we anticipate continued synergies from the company's global syndication network, cost containment measures and operational efficiency. The acquisition of BoR will further strengthen the company's revenue base and is expected to be accretive to earnings in the upcoming quarters.

ICICI Bank currently retains a Zacks #4 Rank ('sell').

 
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