Staff issues key for ICICI in Sangli buy
ICICI Bank’s planned acquisition of Sangli Bank is yet another example of how market forces lead to consolidation in the banking sector. In Sangli Bank, ICICI has found a perfect fit in its strategy to focus on the rural/agricultural sector. The strong expansion in ICICI’s balance sheet is one of the reasons for its thrust on the rural sector. ICICI has an ever-growing need to meet its priority sector lending and directed agriculture loan exposures, as its total assets are growing by about 50% on an expanded base.
ICICI Bank needs to maintain 50% in priority sector lending, as opposed to the normal 40% applicable to others on incremental advances. This was one of the conditions of the reverse merger with ICICI. This seems to be the logic behind the deal. During FY06, ICICI had a direct exposure of Rs 9,832 crore to the agri sector, comprising around 11% of the bank’s credit, short of the stipulated 18%.
Sangli Bank’s total advances of around Rs 888 crore are too small to really make any impact. What will matter is the 194 branches it will acquire. With half of Sangli’s branches spread across rural and semi-urban locations, ICICI will be able to scale up lending to the sector. But Sangli is focused on Maharashtra, with a small presence in Karnataka.
Numbers apart, it will be a test case of ICICI’s ability to integrate Sangli’s workforce with itself. Its experience in previous mergers like Bank of Madura will prove handy. A new private sector bank’s culture and that of a bank like Sangli will be vastly different. ICICI is looking at deploying Sangli’s workforce in its thrust to expand its rural lending, since they have the experience in lending to that segment. Employee integration, and the speed at which it happens, hold the key to the success of the merger. Success could embolden it to look at other states for similar targets
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