ICICI Bank, the country's second-largest bank but biggest in terms of market value, is set to acquire Sangli Bank, a 90-year-old, financially weak, small private sector bank.
The boards of both banks will meet tomorrow to consider the proposal. The acquisition of Sangli Bank will provide ICICI Bank access to the rich rural and semi-urban sugar economies of south-western Maharashtra.
ICICI Bank (with 614 branches at the end of March 2006), has not able to add more branches for almost a year with the Reserve Bank of India (RBI) putting a freeze on its expansion plans as a penalty for being found guilty in the initial public offer allotment scam.
The RBI had last month lifted that freeze and permitted ICICI Bank to open about 100 branches, mostly in rural and semi-urban areas.
The RBI had put some restrictions on Sangli Bank, which derives its name from the town where it has its headquarters, when it reported sometime in September 2006 that its capital adequacy had fallen to 1.64 per cent at the end of March 2006 from 9.30 per cent a year earlier. The capital adequacy has since turned negative.
According to analysts, the purchase price for buying Sangli Bank, which has 186 branches across seven states, could be around Rs 75 crore (Rs 750 million).
Sangli Bank, which had capital plus reserves of Rs 82.36 crore (Rs 823.6 million) on March 31, 2006, reported a loss of Rs 29.27 crore (Rs 292.7 million) for 2005-06, compared with Rs 31.31 crore (Rs 313.1 million) in 2004-05.
The bank had also failed over the last couple of years to take steps to raise its net worth to Rs 300 crore (Rs 3 billion), the minimum stipulated by the RBI for all private sector banks.
Banking sources said the two banks had already reached an agreement in principle, probably brokered by the RBI, and the board meetings were expected to be just a formality.
ICICI Bank today issued a one-line statement that the bank's board would meet tomorrow to consider acquiring Sangli Bank, but did not give more details. Sangli Bank will be the first case of a weak bank being acquired by a stronger bank without the RBI putting it under a moratorium.
Two other old private sector banks from adjoining districts, United Western Bank and Ganesh Bank of Kurundwad, were recently merged based on schemes of amalgamation announced by the RBI after putting them under moratoriums.
United Western Bank was merged with Industrial Development Bank of India and Ganesh Bank with Federal Bank.
IDBI had paid Rs 150 crore (Rs 1.50 billion) for United Western Bank, which had a net worth of around Rs 300 crore. Ganesh Bank's net worth was minus Rs 3.05 crore (Rs 30.5 million) and was amalgamated with Federal Bank through a scheme that did not involve any payments to Ganesh Bank shareholders.
