Merged Entity Stands To Gain Financially: Rating Agencies

Rating agencies -- Credit rating and Information Services Ltd (Crisil) and Investment Information and Credit Rating Agency (Icra) and Credit Analysis & Research Ltd (CARE) - expect the reverse merger between ICICI and ICICI Bank to improve the financial health of the merged entity.

Icra said that it has taken a note of the merger plan, but declined to make any change of the rating profile of the two companies. Crisil placed the debt instruments of both the entities under rating watch with developing implication. CARE said that it will review the impact of the merger on the rating only after the terms of merger and the exact impact of regulatory requirement are known.

 

ICICI and ICICI Bank enjoys highest safety rating from all the rating agencies for their all debt instruments.

Crisil said that it is presently in discussion with the management of the ICICI group to make a detailed assessment of the merger. It will take into account the regulatory response and the strategies to be adopted to meet the regulatory requirement of statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirement.

Icra said the overall credit risk profile of the merged entity is expected to improve with substantial increase in the government securities investment and increased opportunity for business diversification. The rating agency, however, feels that in the short to medium term the growth in the asset base of the merged entity will be lower. "It will remain critical for the management to maintain strict control on asset quality and prevent slippages," the rating agency said.

CARE feels the merging entities will not have any problem as far as integration of operations is concerned, but said the asset quality and asset liability mismatches will remain a key challenge for ICICI.