ICICI may not need FIPB nod for BoR merger

ICICI Bank, may not need a go-ahead from the Foreign Investment Promotion Board (FIPB) to complete the intended merger with Bank of Rajasthan (BoR). The foreign holding in ICICI is 67 per cent.

Banking sources said the government’s Consolidated Foreign Direct Investment Policy, effective April, stipulated that in case of Indian companies in sectors such as banking, where foreign investment is capped at 74 per cent, FIPB approval will be required if control of an Indian entity (BoR in this case) is passed on to a non-resident entity.

Sources said ICICI Bank might have got a new classification as an Indian-controlled foreign bank, but it is not a non-resident entity as defined by the Foreign Exchange Management Act.

In addition, they said, another clause in the new FDI policy document allowed a merger of Indian companies once a court approved it. There was, however, a rider that the foreign shareholding in the new entity should not breach the sectoral cap.

In case of ICICI Bank, foreign holding is estimated at 67 per cent and following the merger with BoR, this would only decrease. In contrast, foreign investment in banking companies is capped at 74 per cent.

Banking sources said that given the stipulations, ICICI Bank may not need FIPB approval for the transaction. In any case, they note, the Reserve Bank of India will vet the transaction and will also look at compliance with the sectoral cap.

The issue is also expected to be discussed by the ICICI Bank board when it meets on Sunday to finalise the swap ratio for the merger.

Based on the preliminary agreement between the country’s largest private bank and some shareholders of BoR, anyone holding 4.7 shares of the old-generation private sector lender will get one share of ICICI Bank.

In this form, the deal, if approved, would increase ICICI Bank’s equity capital by 3.07 per cent, to 1.15 billion shares. The final swap ratio will, however, be based on the valuation and due diligence done by Haribhakti & Co, the valuer appointed jointly by the two banks.