Icici To Park 46% Bank Holding In Spv

ICICI's shareholding of 46 per cent in ICICI Bank will be transferred to a special purpose vehicle (SPV) prior to the reverse merger of the financial institution into the bank. In the merged entity, the stake will shrink to 15 per cent.

ICICI chief financial officer Bala Swaminathan said this would help prevent shrinkage of capital, which would otherwise have been extinguished as a result of the merger. Swaminathan said that for a financial institution or bank, preserving capital was important as it would ensure capital adequacy. The new entity created will have a capital adequacy ratio of 11.25 per cent.

Swaminathan confirmed that Tier I capital will contribute 7.5 per cent and Tier II would be3.75 per cent towards the adequacy ratio.

K V Kamath, ICICI managing director and chief executive officer, said the divestment of the institution's stake held in trusteeship with the SPV would take place in fiscal 2003. ICICI holds 10 lakh shares in ICICI bank, which will be transferred to the SPV at the price at which ICICI bought the shares (Rs 12 per share). Subsequently, the shares vested with the SPV would be privately placed with strategic investors. Profit on the proceeds from the sale would accrue to the SPV, which in turn would be credited to the new entity's profit & loss account.

Analysts point out, however, that capital adequacy may not be much of an issue initially, as most of the incremental assets will have to be SLR bonds, which carry zero risk weightage. ICICI executive director Kalpana Morparia said that she does not envisage the need for an equity dilution as a result of the merger.

The shareholding pattern in the new entity will be as follows: the financial institutions (GIC, LIC and UTI) 20 per cent, FIIs 47 per cent, public 17 per cent and the SPV would have 16 per cent till it divests its holding in favour of existing shareholders.