ICICI is set to buy
private-sector rival Bank of Rajasthan in a deal worth around
$660m, in the process increasing its branch network by around a
quarter to almost 2,500 outlets. In particular, the purchase will
enhance ICICI’s presence in India’s lucrative northern and western
regions. Douglas Blakey reports.
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ICICI, India’s largest
private sector bank, is to acquire the 463-branch-strong Bank of
Rajasthan in a deal worth around $660m, subject to due diligence
and regulatory approvals.
In little over a year, ICICI’s
rapid branch expansion programme resulted in an increase of almost
500 units – to 2,009 outlets – by the end of March, but the bank’s
network remains relatively under-strength in the prosperous
northern and western Indian regions.
Acquiring the Bank of Rajasthan’s
2m customers solves that dilemma at a stroke and strengthens
ICICI’s core strategy of expanding its retail deposit base.
ICICI’s drive to increase low-cost
retail deposits paid off impressively in the 12 months to the end
of March.
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By GlobalDataThe bank’s current account and
savings account (CASA) ratio increased to 41.7% at the end of the
fourth quarter of fiscal 2010 from 28.7% at the beginning of the
year.
CASA deposits increased by 34% to
INR842bn ($18.1bn) from INR626bn during the year, with savings
account balances and current account deposits increasing by
INR122bn and INR94bn respectively.
An Indian banking analyst told
RBI that ICICI was paying “way over the odds for Bank of
Rajasthan, paying around 2.9 times book value and well in excess of
the current sector average of around 1.8 times book value”.
In a note to clients,
Barclays Capital said it was “concerned about potential integration
risks”.
But on a price per branch basis –
ICICI is paying around $1.42m per branch – the Bank of Rajasthan
deal represents a discount to the most recent major Indian banking
acquisition, when HDFC Bank snapped up 310-branch-strong Centurion
Bank of Punjab for $2.2bn in 2008.
Others concerns relate to Bank of
Rajasthan’s recent run-ins with the Reserve Bank of India, relating
to allegedly weak corporate governance and failing to comply with
lending rules.
The growth outlook for the Indian
economy has improved significantly in recent months, with GDP
growth for the second half of 2009 of around 6.7%. The Indian
central bank has forecast GDP growth of around 8% for the 12 months
to March 2011.
ICICI reported net profits of
INR40.2bn for the 12 months to 31 March – up 7.1% from the previous
year – but the bank’s domestic retail banking unit posted a loss of
INR13.3bn compared with a profit of INR580m in fiscal 2009.
In a presentation to analysts at
the end of April, ICICI executive director and CFO NS Kannan said:
“New customer segments have emerged. These distinct customer
segments require specialised strategies [and] we are transitioning
from a product centric to a customer centric structure to deliver
value propositions to identified customer segments.
“The bank will also focus on
leveraging its branch network to increase its retail deposit base
[and] focus in capitalizing on certain select credit segments
including home loans, other secured retail loans and project
finance.”
Bank of Rajasthan’s most recently
reported results, for the nine months to 31 December, showed a net
loss of INR98.3m compared with a net profits of INR1.15bn for the
year-ago period.
The bank’s retail unit posted a loss before tax of INR128.7m for
the first nine months of fiscal 2010 from profits before tax of
INR470.6m in the corresponding period a year earlier.
|
DISTRIBUTION |
|
|
India – leading banks ranked |
|
|
State Bank of India |
10,500 |
|
Punjab National Bank |
4,668 |
|
Central Bank of India |
3,563 |
|
Bank of Baroda |
3,129 |
|
Bank of India |
3,101 |
|
Canara Bank |
3,043 |
|
Union Bank of India |
2,805 |
|
Allahabad Bank |
2,287 |
|
Syndicate Bank |
2,125 |
|
ICICI |
2,009 |
|
Indian Overseas Bank |
1,950 |
|
UCO Bank |
1,920 |
|
Indian Bank |
1,756 |
|
HDFC Bank |
1,725 |
|
United Bank of India |
1,510 |
|
Oriental Bank of Commerce |
1,422 |
|
Vijaya Bank |
1,158 |
|
Axis Bank |
1,040 |
|
Source: RBI |
|
