Thursday, May 20, 2010

ICICI Bank's Risk Appetite

Everyone knows that ICICI Bank's appetite for business volume and therefore for risk is humongous. So nobody is surprised that ICICI Bank is keen to take over Bank of Rajasthan (BoR) with the latter's warts and all. BoR is any regulator's nightmare.The quality of its credit portfolio is suspect and its reputation is in tatters. How come ICICI Bank is interested?

BoR has 463 branches, most of them in Rajasthan where ICICI Bank wants to strengthen its footprint. For a bank that has only recently opened its 2.000th branch, acquiring 463 branches at one go is apparently attractive. But agreeing to pay nearly Rs.6.7 crore per branch and 4.8 times BoR's Book Value even before due diligence is completed is indicative more of desperation for business than of eagerness for profits. Topline growth does not guarantee growth in bottomline and in fact is likely to increase the pressure on profitability.

ICICI Bank had earlier taken over Bank of Madura Ltd and Sangli Bank. Therefore ICICI Bank must have the expertise to manage the transition without hassles. It can easily optimise the utility of nearly 4,500 employees of BoR. However it should be conscious that it is walking into a regulatory quagmire.

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