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S&P says ICICI merger beneficial

The merger of ICICI Ltd and its subsidiaries with ICICI Bank is a progression of ICICI's strategy to convert to a universal bank structure.

The merger, which will involve a share swap between existing shareholders, is subject to regulatory, statutory, and shareholder approval and is targeted to be completed by March 31, 2002.

Potential benefits stemming from the merger include improved access to low-cost retail deposits and a more unified organisational structure that will enable better penetration of the group's customer base and better utilisation of group resources.

The merger, however, is expected to introduce a range of challenges and risks for the management of the resulting entity, including the integration of distribution networks and adherence to commercial bank regulatory requirements.

In particular, Standard & Poor's will monitor for any diminution in financial strength resulting from the new organisational structure.

The ratings on ICICI continue to recognise its stand-alone business and financial profile, which is underpinned by its strong franchise as one of India's leading long-term lending institutions, diversified customer base, adequate capitalisation, and acceptable underlying profitability considering the high economic and industry risks inherent in the Indian financial institutions sector.

The negative rating outlook recognises the challenges facing the company with respect to managing its asset-quality problems, funding costs, and other profitability pressures stemming from growing competition and the volatile operating environment.

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