MUMBAI: Faced with angry regulators, the Tayal family, which controls Bank of Rajasthan (BoR), has decided

to merge the old private sector bank with the country's second-largest lender, ICICI Bank. This would be the third acquisition by ICICI Bank in the last decade. Both the bank boards have given an inprinciple nod to the merger. ICICI Bank has started a due diligence exercise on BoR from Tuesday. ET had first reported the merger talks between the two banks in its edition dated May 6. Speaking to ET, ICICI Bank MD & CEO Chanda Kochhar said, "We have reached an indicative pricing with the promoters on a swap ratio of 25:118. (A BoR shareholder will receive 25 ICICI shares for every 118 BoR shares held.) This is, however, subject to due diligence. Our understanding of the strategic value is that it would have taken us three years to build the current account and savings account relationships. Also, the deal prices the market capitalisation per branch in the range of around Rs 6.5 crore, which is similar to other old private sector banks." In the case of HDFC Bank, which acquired Centurion Bank of Punjab, the price per branch was around Rs 26 crore. "It was a brief board meeting. An in-principle approval has been taken to amalgamate the bank with ICICI Bank. The majority shareholder is looking at swapping his official shareholding of 28.60% with ICICI Bank shares. Other details on valuation and share swap will be decided on May 24," said BoR MD & CEO G Padmanabhan. The Tayals, who acquired BoR a decade ago in a messy transaction, are believed to be under pressure to sell the old private bank amid regulatory action by Sebi and RBI. Mr Padmanabhan was appointed by RBI, which recently slapped a fine on BoR for a string of violations including deletion of records in the IT system, shady property deals and irregularities in a particular corporate group account. Sebi, on the other hand, has put a question mark on the shareholding of BoR. Though BoR promoters say they hold a 28.60% stake in the bank, Sebi has put the promoter shareholding at 55.01%. In March, Sebi had banned 100 entities allegedly holding BoR shares on behalf of the promoters from all stock market activities. Under the circumstances, Tayals may have to sort out the issues with Sebi to execute the deal with ICICI. The indicative price of Rs 188 according to the share swap would be a steep jump compared with the current market price. The ICICI Bank scrip on Tuesday closed at Rs 889.35 on the Bombay Stock Exchange, down by 1.45% while the BoR scrip rose sharply by 19.95% to Rs 99.5. The current market capitalisation of the bank is around Rs 1,604 crore and a price of Rs 188 would value BoR at Rs 3,032 crore. Given ICICI Bank's market capitalisation of Rs 99,125 crore, the bank will have to dilute its equity by less than 3%. ICICI Bank will propose a share-swap transaction with BoR. According to Ms Kochhar, "CASA (current and savings account) is the main driver of growth and it is really going to be driven by branch network. We are at a stage where we are continuing to grow our branches. The deal will give us another 500 branches and some of it are in locations where we are not present. After the Bank of Madura merger, our branch presence in the South improved substantially, while post the Sangli Bank merger our presence in Maharashtra improved. This deal will help us improve our presence in north India. It will also give us the ability to grow CASA and push inclusive banking."