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The major objective behind the merger between ICICI and ICICI Bank was to get synergy in the form of lower cost of funds. The merger makes the bank, second largest in India only after the State Bank of India. Now after the merger the bank is trying to provide almost all financial services to its customers under one roof. Analysts feel that the new entity has all the positive attributes of a big, bold and competitive financial intermediary; a tech savvy platform, an array of products, a strong retail base and a good corporate banking background. But different regulators for different services may create some problems for the ICICI Bank. The higher NPAs after the merger is also one of the biggest negative factors for the bank.
"The problems faced by the Development Financial Institutions (DFIs) now or in the immediate future, do require attention, but their conversion into universal banks, by itself, is neither a necessary nor a sufficient option to overcome the difficulties," YV Reddy, Deputy Governor of the Reserve Bank of India (RBI), pointed out, while presenting a discussion paper on Universal Banking at a seminar in the year 1999. It made a red herring to convert our DFIs to universal banks without showing concern for the real problems, they were facing. However, the mindset of the RBI indicated a reversal of trend, as it held discussions with the FIs and the Government. It asked the institutions, desirous to become universal banks, to prepare a road map and to submit it to the RBI. ICICI happened to be among the frontrunners for such a transition.
Analysts believe that Saturday, March 30, 2002 was the most cheerful day in the history of the ICICI Group. That was the appointed date for the merger of ICICI Ltd. and two of its subsidiariesICICI Personal Financial Services and ICICI Capital Services with ICICI Bank. A green signal given by the Bombay High Court on March 26 was the reason behind the jubilant mood prevailing at ICICI's headquarters at Bandra-Kurla complex in Mumbai. N Vaghul, Chairman, ICICI said: "The merger has achieved our vision of becoming a universal bank. We will continue to be guided by our core principles of corporate governance and shareholders value as we go forward."
The Industrial Credit and Investment Corporation of India was founded in the year 1955 (later, it was renamed as ICICI). Its main objective was to provide long-term capital to the industry in the form of debt and equity that would lead to more industrialization and development of the Indian economy. The total assets of ICICI grew from Rs. 233 bn on March 31, 1996 to about Rs. 706 bn on March 31, 2002. Kalpana Morparia, Executive Director, ICICI highlighted about the growth strategies as she stated, "Growth in the wholesale banking business had been driven by the complete suite of products offered including term loans, working capital loans, investment banking services and venture capital funding, and several fee-based services including cash management, advisory, loan-syndication, letter of credit, custodial services and corporate risk management services. ICICI has also introduced several global standard products and services to the Indian financial sector such as securitization and long-term rupee-dollar swaps to more effectively meet the needs of its wholesale clientele." On the retail front, she highlighted, "This is further aided by the efficient click and brick distribution network with a customer-centric focus. ICICI offers the customer a choice of delivery through physical distribution channels such as branches and ICICI centers, and through electronic distribution channels, such as ATMs, the Internet, call centers and mobile phones." Regarding the growth achieved by this entity, Gopalan Ramachandran, Chief Executive, Business Economics and Risk Management, while commenting about the growth achieved by this entity said, "Considering the fact that it was established at a time when India had a stock market but not a reliable capital market to supply long-term debt and equity, the growth of ICICI is wonderful." In contrast, while the balance sheet of IDBI had grown at a rate of 9.28%, that of IFCI grew at 6.85%. |
