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ICICI Bank- Corporation Bank, possible future merger ? - Views on News from Equitymaster
 
 
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  • Mar 16, 2000

    ICICI Bank- Corporation Bank, possible future merger ?

    ICICI Bank has entered into a strategic alliance with Corporation Bank. Through this alliance ICICI Bank will provide Corporation Bank with technology edge and in return get to use Corporation Bank's large customer base via their widespread branch network.

    ICICI Bank, a subsidiary of ICICI reported a turnover of Rs 6.3 bn as at March'99. Ina span of five years of operations its branch network has expanded to 55. Its capital adequacy ratio was 11.06% as at March'99.

    This move on part of ICICI Bank besides using Corporation Bank's branch network could be to take a stake in future in this efficient public sector bank. As ICICI Bank has been on the takeover prowl for sometime now it could well be that this strategic alliance could be a first step towards a possible future merger too. However this would depend on the government's decision of reducing its stake in Corporation Bank to nil. It would also depend on the reaction of employees of the bank on a possible takeover and also how this alliance between them eventually works out.

    On the other hand it could also be seen as a strategic move by Corporation Bank to ward off takeover possibilities by other private sector banks. Apparently HDFC Bank has recently made a presentation to ministry of finance to pick up government's stake in Corporation Bank.

    ICICI Bank and Corporation Bank are setting up a common group to decide on the areas on which they would be working together. This is expected to cover areas beyond correspondent and relationship banking and could also go onto joint strategy on both assets and liabilities.

    The customers of both the banks will benefit from this strategic alliance as they will be able to use 125 ATMs of ICICI Bank and 5 ATMs of Corporation Bank. ICICI Bank has a branch network of 600 as compared to Corporation Bank's 20,000, hence ICICI Bank can leverage on this instead of opening more branches on its own. This would help it control its establishment costs.

    They also plan to set up a credit information bureau jointly and hence they both would be able to access information on customers and corporates.

    This alliance in the banking sector could pave way for many such tie-ups in future. The Indian banking sector could be entering a phase of consolidation as many private sector banks are on the prowl for future takeovers and mergers. It could also imply that whenever a merger is not workable banks will enter into alliances instead.

    Globally mergers are on the increase and one of the reasons for this is internet banking. Internet banking reduces the need for higher branch network and as the cost of delivery is lower its also helps to reduce overall costs. Though net banking in India is yet to take off in a big way many banks are already positioning themselves to be a major player in this segment. Therefore banks are likely to enter into tie-ups or enter into mergers to increase reach and also to reduce their overall costs. In this case Corporation Bank will take advantage of ICICI's entry into net banking.

    Market View:
    ICICI Bank has good growth prospects and is a technology savvy bank. Its on the "BUY" list of many analysts.

     

     

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