ICICI moves ahead for Sangli Bank

India’s largest private sector bank ICICI has moved in to takeover one of the country’s smallest banks, Sangli Bank. This may be the result of the lost chance in UWB (United Western Bank) bid in which ICICI lost the bid to IDBI. Sangli bank is also a seek bank and waiting for RBI’s order to sale. ICICI has taken fast step to takeover this bank before RBI invites the interested bidder to acquire this bank.

This deal will cost ICICI Rs 300 crore. The book value of ICICI bank as on March 31, 2006 was at Rs. 248 crore. There are many advantages for ICICI in this deal. Snagli bank has 194 branches which will give inorganic growth to the bank. Again the bank has a good presence in rural India with 96 braches representing the bank in rural and semi urban regions. The bank has presence in Karnataka, Gujrat, Andhra Pradesh, Tamil Nadu, Goa and Delhi along with wider presence in Maharastra. This is an added advantage for the acquiring bank.

One of the reasons behind banks going for inorganic growth is the restrictions imposed by RBI in opening of the new branches. By acquiring the seek banks the acquiring bank get the advantage of the branches operated by the seek bank. The valuation of the seek bank is done looking at its number of branch and the locations. In this deal each branch is valued between 75 lakhs to 1.5 crore.

If we look at the financial position of the Sangli bank, it is quite evident that the bank isnot in a position to solely operate for a long time. It is necessary to merge this bank with a strong bank. As on March 3, 2006 the net loss for the bank was Rs. 29.27 crore when the net worth of the company stood at Rs. 25 crore. Deposit was at around Rs. 1,990 crore. The NPA of the bank was at around Rs. 62 crore (4.3%) while the NPAs were at around Ts. 21 crore (2.34%).

ICICI has acquired Madura bank earlier. This bank is quite experienced in the acquisition and it will be able to sustain its earlier success. So if RBI approves this acquisition this will give strength to the growth of the ICICI bank.