Rbi Clears Icici Bank Merger

The Reserve Bank of India (RBI) today cleared the merger of the ICICI and two of its wholly-owned subsidiaries, ICICI Personal Financial Services Ltd and ICICI Capital Services Ltd, into the ICICI Bank. This makes way for the birth of India's largest private sector bank with an asset base of around Rs 106,000 crore. The new entity will come into existence on May 1, when the ICICI will officially cease to exist. But the date for the merger remains March 30, 2002.

The ICICI Bank is now required to file approvals by the RBI and the respective High Courts with the registrar of companies. It might do so on April 29, sources said.

 

The ICICI Bank board is meeting on May 3 to approve the consolidated balance sheet. The new entity will have a capital adequacy ratio of around 10.5 per cent.

The RBI has given concessions to the new bank in terms of priority sector lending and equity exposure requirements. But it has added some riders also.

The bank had complied with the 25 per cent statutory liquidity ratio (SLR) and 5.5 per cent cash reserve ratio (CRR) requirements, ICICI executive director Kalpana Morparia said.

But since the new bank will not be able to meet the 40 per cent priority sector lending target at inception, the RBI has directed it to maintain an additional 10 per cent priority sector lending over and above the requirement of 40 per cent on its incremental advances. This will be till it reaches the stipulated priority sector lending of 40 per cent on its outstanding advance portfolio.

The bank will be required to invest half of the incremental credit in priority sector advances. The ICICI Bank will take about five years to achieve the 40 per cent target.

The RBI also allowed the ICICI to keep its equity investments in projects, as part of project finance as on the date of merger, outside the stipulated equity exposure ceiling of 5 per cent of advances for five years.

This was done to avoid an adverse impact on the viability or the expansion of a project. However, any incremental accretion to the project finance category of equity investments will be reckoned within the 5 per cent ceiling.

However, the ICICI Bank will have to mark to market these instruments and provide for any loss in their value.