1.

1 Introduction to the Study

Globalization of economy has resulted in interlinking of financial markets in different countries into a common worldwide pool of funds to be accessed by borrowers and lenders alike. No sector of the economy seems to be more global in its orientation and

operations than finance. To succeed in an increasingly competitive environment, companies have widened their operations to produce and sell goods across a wider spectrum of markets. This resulted in active trade and economic activity. After the globalization, cross-border controls on movement of capital, technology, goods etc., were lifted. Consequently, reforms in trade, industry, and financial and other sectors were initiated. Foreign technology, goods and capital started flowing into the country posing a serious challenge to the high cost domestic industry in terms of technology, quality of resources, productivity, and price-competitiveness. It has become imperative for the domestic companies that they should achieve technological and scale of operations parity with global competitors for sheer survival. The grossly underdeveloped state of our infrastructure facilities like power, transport, communications etc. could not obviously support this mammoth effort. Companies need finance importing capital goods, raw materials, technology and services. They also require finance at the pre-shipment and post shipment stage of export. These credits should be available to the companies at very competitive rates of interest to compete in international markets. The domestic financial market is beset with number of problems. First of all the money is not enough to support large capital-intensive projects. The capital market is rather shallow. Secondly the cost of capital is very high with real interest (inflation adjusted nominal interest rate) ruling far above the global levels. Thirdly, the domestic banks have meager capital

base and are plagued by high NPA levels. Domestic banks suffer from structural deficiencies, poor asset/ liability management etc. Therefore, the cost of their intermediation is very high which they are able to meet by keeping large spreads on loans. The domestic market has a limited product range. With a view to give level playing field to the companies, Government of India came up with the necessary regulatory measures to help the Indian companies to have easy access to foreign capital at a much cheaper rate of interest. Indian companies are lining up to raise cheaper funds overseas, encouraged by the rupees resurgence that has reduced currency risk and raised the prospect of huge savings in costs. Domestic rates, despite a fall in recent times are still more than the interest prevailing in overseas financial markets. The rupees gain has been underpinned by a rise in exports, foreign direct investment/foreign institutional investments and remittances by overseas Indians. This has resulted in huge arbitrage opportunities available for the Indian corporate to avail foreign currency loan at much cheaper rate then the domestic interest rate.

1.2 Background of the Study How was foreign currency funding option introduced?
Source of foreign currency funds for the Bank. 1. FCNR (b): Non-resident Indians are permitted to open FCNR (b) deposit i.e. Foreign Currency Non-Resident (Bank scheme) deposit account. Under this scheme, the deposits are accepted in foreign currency, (USD, GBP, and EURO AND YEN); interest is also paid in foreign currency. Hence, there is no conversion of foreign currency and no exchange loss. Deposits are accepted for a period of 1 to 3 years. 2. EEFC a/c: Export Earners Foreign Currency Account. RBI has permitted beneficiaries of inward remittance and exports of goods and services to retain a portion of the remittance/export realization in foreign currency deposit in any permitted currency (USD, GBP & EURO) 3. RFC: Earlier, NRI returning to India for permanent settlement were required to surrender all the foreign currency assets held abroad as well as balances held in their NRE/FCNR (b) accounts to RBI within a period of 90 days and in turn were given- RIFEES (Returning Indian Foreign Exchange Entitlement Scheme) to be utilized for certain specific purposes. As a part of liberalization process, the Resident Foreign Currency account scheme (RFC) was introduced in April 1992 in substitution to the RIFEES. Interest on all the above foreign currency deposits are paid on the basis of prevailing international interest rates for the currency of the deposit. All the above deposits are maintained in foreign currency and are repatriable in any permitted currencies. repatriation is in the same country then there is no exchange loss. If

Deployment of foreign currency funds by the banks. 1. By converting the foreign currency into rupees, utilize the rupee funds in domestic market, but there is a risk of exchange fluctuation, i.e. conversion of rupees into foreign currency at a later date, since the funds may be required to be utilized / repatriated in foreign currency. 2. Make deposits placements with banks abroad. The yield may be sub-LIBOR, that is less than LIBOR, and the avenue abroad may be also limited due to exposure limits etc. Deployment abroad is not a good proposition since banks abroad may accept deposits for short periods, but foreign currency deposits in India are accepted till 3 years maturities.

In view of the above shortcomings, RBI has come out with the following schemes:

1. FCLR Foreign Currency Loans to Resident Constituents. FCLRs are permitted to

a) Extending loans to residents constituents for meeting their Foreign Exchange requirements or for the rupee working capital / Capital expenditure needs subject to the prudential / inherent rate norms, credit discipline and credit monitoring guidelines in force. b) Extending credit facilities to Indian wholly owned subsidiaries / joint ventures in which at least 51% equity is held by a resident company, subject to the guidelines issued by RBI. As per the scheme: Borrowers principal liability to the bank to be denominated in terms of foreign currency, at all times, during the tenure of the loan and similarly, interest liability is also to be denominated in terms of foreign currency. Thus the borrower assumes the foreign currency risk exposure. In other words, depending

upon the movements in the exchange rate of the currency in rupee terms his rupee cost towards repaying of the loan or interest on the loan varies. Bank disburses the foreign currency to the borrowers by granting the foreign currency loan. If the borrower intends to generate rupee resources for working capital / capital expenditure, as soon as the loan is disbursed, it has to be converted into rupees by applying banks Spot TT buying rate, unless the loan disbursements which is at the disposal of the borrower, is required to be used in foreign currency towards retirement of his import bill. Rate applicable is LIBOR plus margin. When compared to rupee advance where the minimum rate is banks Prime Lending Rate (PLR) the interest rate for FCLR works out cheaper. Therefore taking into account the forward premiums of say around 1 rupee for 12 months, if Forward Contract covers the FCLR repayment, works out cheaper.

2. PCFC: Exporters are granted pre-shipment credit known as Packing Credit (PC). This
advance is made to exporters to purchase the raw materials, processing, packing etc i.e. before the goods are shipped. This is granted in Indian rupees and at a concessional rate for a period of 180 days. The foreign currency amount advanced is converted into rupee at the spot TT buying rate; no forward premium is passed on to the exporter, as he is enjoying the benefit of lower interest.

3. EBR: Export Bills Rediscounted. This is post shipment finance for exports in foreign
currency. When pre-shipment finance is in rupees, then the PC is converted in Bills Purchased (BP) in Indian rupees i.e. export bills are discounted / negotiated / purchased and the proceeds in rupees is debited to BP and credited to PC. Similarly, if the preshipment finance is in PCFC, then the advance is converted into EBR a/c at the banks.

ROI is charged based on LIBOR plus margin, i.e. LIBOR applicable to the usage f the bill. The advance is adjusted out of the proceeds of the export bill realized on due date.

Advantages of Foreign Currency Funding External funding is cheaper because of lower intermediation costs of an international lender and the competition pressures. Under the new dispensation, domestic companies can borrow from international financial markets up-to USD 100 million under the automatic External Commercial Borrowing route of RBI without any hassles at a much cheaper rate of interest. Where the project outlay is large and the domestic market conditions come in the way of mobilizing the needed resources, foreign currency debt/loans can help in meeting huge funding requirements. Foreign currency funding options permit the companies to keep domestic borrowing options as a buffer for meeting local rupee needs. They pave the way for creating global name recognition for the borrower for meeting future needs at competitive pricing and help in forging strategic future global alliances.

Foreign Currency Funding can come in variety of ways. The borrower will have many alternative routes and various options to choose from. Some of easily accessible options are as under:

1. EQUITY ROUTE Global Depository Receipts (GDR) American Depository Receipts (ADR) International Depository Receipts (IDR)

2. DEBT MARKET External Commercial Borrowings under automatic route of RBI Floating Rate Notes Loans Short term Suppliers Credit Buyers Credit for imports. Foreign Currency Option for Exports Pre-shipment Credit in Foreign Currency Export Bill Rediscounting Scheme FCNR (b) Loans

3. FORFEITING

EQUITY ROUTE Companies raise funds by selling ownership right through equity or A convertible bond (known as debentures in India and exchangeable into equity on a specific date in future) issues. Under equity route, companies can opt for a direct NRI issue as part of the domestic public offering or access international capital markets through depositary route. Straight equity issues in the international markets are made in the form of depositary receipts. Depositary Receipts are negotiable US security that generally represents a companys publicly traded equity or debt. Depositary Receipts are created when a broker purchases the non- US Companys shares on the home stock market and delivers those to the depositarys local custodian bank, which then instructs the depositary bank to issue depositary receipts. In addition, depositary receipts may also be purchased in the US, secondary trading market. Depositary receipts may trade freely, just like any other security, either on an exchange or in the over-the-counter market and can be used to raise capital. Three types of depositary receipts commonly used are:

1. American Depositary Receipts (ADR) Certificates issued by a U.S. depository bank,

representing foreign shares held by the bank, usually by a branch or correspondent in the country of issue, ADR is meant to facilitate public issues and trading in the US. One ADR may represent a portion of a foreign share, one share or a bundle of shares of a foreign corporation. ADR issues are therefore subject to stringent accounting, regulatory and disclosure requirements of the US Securities Exchange Commission (SEC).

2. International Depositary receipts are meant to facilitate issues and trading in Europe. 3. Global Depositary receipts (GDR) are used in the case of issues in the offshore market
combined with private placement in the US (to professional investors under Rule 144A of the SEC). Being offshore issues, and only eligible for private placement with professional

investors in the US, there are few regulatory requirements for GDR issues. The primary and secondary market is mainly in London; while issues are formally required to be listed in London/Luxembourg; most of the trading is on an over-the-counter basis.

The depositary receipts are issued, not by the company, but an international bank acting as a depositary. Each depositary receipts represents a given number of the companys shares which are physically held by a custodian appointed by the depositary bank in the country of the company which is the ultimate issuer of the shares: in the companys books, the depositary banks name appears as the holder of the shares. The depositary gets the dividends from the company (in local currency) and distributes them to the holders of the DRs after converting into dollars at the on going rate of exchange. Like offshore bonds, GDRs too are bearer securities and trading / settlements are done by book entries through CEDEL or Euro clear. The DRs are exchangeable with the underlying shares either at any time, or after the lapse of a particular period of time. The exchanged shares could then be traded on the local stock market. The issue price of DRs depends on the market price of the underlying share at the time of issue. The underlying fees and

commissions typically work out to around 3.75% with the other expenses being similar to those in case of bond issues.

DEBT MARKET Under Debt market the commonly used options are: A. EXTERNAL COMMERCIAL BORROWING ROUTE As far as external debt is concerned, all fresh loans are subject to approval of the Ministry of Finance. Some powers for approving loans have also been delegated to RBI. In general, if rupee interest rates are low, the attractiveness of ECB to corporate diminishes. It is noted that, where the funding requirements are large, as in the case of some infrastructure projects, these just cannot be financed in the rupee market, irrespective of the rate of interest. In such cases therefore, recourse to ECB becomes unavoidable.

Under the ECB guidelines, external commercial borrowing refers to: a) Debt bonds bonds including Foreign Currency Convertible Bonds (FCCBs), Floating Rate Note (FRNs) b) Loans c) Supplier Credit d) Buyers Credit The government of India as a source of finance permits ECBs for Indian corporate for funding expansion of capacity as well as fresh ventures. Corporate can raise Foreign

Currency from international lenders under the automatic route up-to 50 million USD. ECBs may be raised from any internationally recognized source such as banks, export credits, agencies, suppliers of equipment, foreign collaborators, foreign equity holders, international capital markets etc. under the automatic route. The loan raised is to be for a minimum of 3 years. For post facto approval, ECB form in duplicate with loan agreement has to be submitted to RBI through the authorized dealer.

The attractiveness of the ECB route to the borrowers lies in the lower cost. Since interest rates prevailing abroad are lower than the domestic rates, the cost differential is significant. The interest rates on these loans are pegged at a premium over LIBOR or SIBOR. ECBs are to be repaid in foreign currency over a period of time, and in order to hedge the currency exchange rate risk on the repayments; most of the corporate will be covering a portion of the repayment by means of forward booking. Some big corporate hedge payment of installments and interest by way of long term currency and interest swaps. Floating Rate Notes: It is a type of bond where the interest is indexed to a base rate, which may be LIBOR and therefore varies with the movements in the base rate. The floating interest rate has two components the base rate and a spread, which represents the risk premium. These are the bonds without a fixed rate of interest, the coupon being set

periodically according to a predetermined formula typically tied to a short-term interest rate in an appropriate market. Referred to as FRNs. Loans: General Purpose Loans can be raised in the Euro-markets by top rated companies by way of syndicated loans, where the size of the loan is large. The loan is pegged to certain spread over Fixed or Floating LIBOR. Since the loan is for a longer duration companies normally use the currency swap and interest swap to hedge theyre underlying foreign currency exposure for repayment. With the present LIBOR at an all time low and the hedging cost is around 2%, availing syndicated foreign currency loan is very attractive when compared to the domestic interest rate, which is around 11%. Suppliers Credit: This represents credit sales affected by the supplier on the basis of accepted bills or promissory notes with or without a collateral security. Under current regulations Indian importers are free to enjoy a credit period of 180 days from the date of shipment from foreign suppliers on their imports provided the interest rate does not exceed

50 basis points over 6 months LIBOR on the date of negotiation. Prior approval from Authorized Dealers is required if the credit period exceeds 180 days from the date of shipment. Many foreign offices of Indian Bank negotiate documents presented by the

foreign supplier as per RBI guidelines for the benefit of the Indian importer. Buyers Credit: A buyers credit is one where the importer (buyer) also acts as direct borrower of funds to cover his foreign purchases. BC may be raised as a short-term trade financing facility or financing projected capital goods imports. BC can be arranged for any period and normally up to 3 years. The rate of interest is pegged to LIBOR. It should not be more than 50 basis points for credit up to 1 year and 125 basis points for credits more than 1 year. BC is normally arranged from foreign offices of Indian banks / financial institutions. If credit is arranged from any other than non-Indian financial institutions, it attracts withholding tax of 15% over the interest rate payable. That is the interest has to be paid net of

withholding tax. BC can be availed for any usance period. BC is extended on the strength of Usance Letters of Credit established by Indian Banks in favor of the foreign beneficiary. The letter of credit will be normally restricted to the bank, which extends credit. On the strength of the LC / Letter of Comfort the lending bank abroad negotiates the documents presented as per LC terms and pays the beneficiary at sight and claim reimbursement from the importers bank on the due date at the agreed rate of interest. The rate of interest is pegged to certain spread over 6 months LIBOR prevailing on the date of negotiation. For availing BC the importer has to take a quote from the foreign lender before establishing Letter of Credit and submit ECB application form in triplicate to the Authorized Dealer for approval.

B. FOREIGN CURRENCY OPTION FOR EXPORTS

In order to make available to the Indian exporter, export credit at international rate of interest. RBI introduced two schemes of export credit in foreign currency, like Pre-shipment Credit in Foreign Currency (PCFC) and Export Bill Rediscounting Scheme (EBR). These schemes are very attractive now for the exporters as the LIBOR and spread has come down substantially. There is arbitrage opportunity available in the USD/Indian Rupee Market.

Pre-shipment Credit In Foreign Currency (PCFC) It is a pre-shipment advance given to the exporter in foreign currency. The loan is converted into rupees at spot TT buying/forward rate. PCFC can be availed in USD, GBP, YEN and EURO. Interest chargeable is 0.75% over 6 months LIBOR. PCFC is carved out of EPC limit with inter-flexibility. Exporters availing PCFC should invariably avail EBR (Export Bill Rediscounting Facility for discounting export bills. Running account facility is permitted. PCFC can be utilized for payment of import bills. PCFC is operated like cash credit account with balances in foreign currency. Interest on PCFC will be arrived in foreign currency and the rupee equivalent thereof will be recovered at monthly intervals. Transaction cost of USD 25 in rupee equivalent is recovered for each PCFC withdrawal. Forward Contract can be booked for PCFC withdrawal. When PCFC is outstanding, the relative export bills cannot be sent on collection basis but should be discounted under EBR to liquidate the PCFC. PCFC can not be liquidated with the proceeds of the bills in respect of which neither PCFC nor EPC was availed in case of running account facility. Only

designated branches handle PCFC business. The exporters pay no withholding tax, as the line of credit is arranged through our foreign offices.

Export Bill Rediscounted (EBR) Scheme

EBR is export bill rediscounting scheme under which the exporters bills are discounted at the post shipment stage and simultaneously rediscounted abroad by the bank for raising foreign currency funds to liquidate PCFC loan. Rate of interest for 6months is LIBOR plus 0.75%. EBR facility is normally for a maximum period of 180 days. PCFC will be liquidated with the discounting of bills under EBR scheme. EBR advance will be

eventually closed when the overseas buyer pays the bill. Both sight and usance bills are discounted under EBR scheme. Transaction cost of USD 25 in rupee equivalent is charged for every EBR. EBR finance can be availed without availing PCFC. However the usance bill will be converted at the spot TT buying rate only without taking the forward premium. If any export bill discounted under EBR is returned unpaid, a sale entry is to be passed at spot TT selling rate. Crystallization under EBR is same as rupee export bills. At the times of crystallization, interest is 3% over 6 months LIBOR from due date of the bill.

C. FOREIGN CURRENCY NON-RESIDENT (BANK SCHEME) LOANS Introduced by RBI for financing Working Capital and Term Loan requirement of resident companies out of FCNR (B) deposits of the banks. Banks have freedom to fix interest rates, tenor and purpose of the loan. These loans are not used for personal loans. RBI/GOI approval not required for availing loan. Loans are given to manufacturing and trading units depending upon their credit ratings. Loans are disbursed to companies in substitution of their Working Capital / Term loan rupee outstanding. Loan is availed in foreign currency and repaid in foreign currency. Loans can be in USD, GBP, EURO and YEN. Facility in designated branches only. FCNR (b) demand loans will be for 1 to 12

months. FCNR (b) term loans can be availed for 1-5 years in substitution of outstanding in rupee term loan. Minimum amount: USD 100,000 or equivalent. Interest pegged to certain spread over relative LIBOR depending on the tenor of the loan. Transaction cost is 2000/per availment of loan. Repayment will be on due dates from export receivables, balances in EEFC accounts or rupee equivalent at the currency TT selling rate. Prepayment of the loan permitted with a penalty of 1.5% on the amount of loan prepaid, computed from the unexpired period of loan. Banks may insist on booking forward contracts for repayment of principal and interest. Benefits Low interest cost Sanction and disbursement is very fast Simple documentation Forward contracts can be booked easily. Existing WC/TL can be converted to FCNR (b) DL/TL

There is an excellent opportunity available to the corporate for availing FCNR (b) loans because of arbitrage opportunity.

FORFEITING Forfeiting is another source of external finance for at least some of the developing countries. Forfeiting is the purchase, at a fixed rate, of medium term claims of an exporter on the foreign buyer, without recourse to the former. The claims are generally represented by promissory notes or bill of exchange payable by the importer on maturity. Depending on the standing of the importer and the country risk, a guaranteed of the importers bank may be needed, usually on the face of the promissory note or the bill of exchange itself. Forfeiting is a commercial source of finance and no credit insurance or other costs are involved as in export credits. The advantage of forfeiting to the exporter is that the forfeiting bank purchases his claims on the buyer without recourse to him. Therefore, as far as he is concerned, a transaction that was a credit sale has now become a cash sale. He has no further credit risks; he, of course, remains liable for any deficiencies in the goods supplied.

Design of the study

Statement of the problem Different banks have got their different volumes of business in fc. The study lays stress on two of the banks and the reason of their different volumes in trade. Scope of the study;

Need of the study:

Objective of the study:

1. To examine the features of the various foreign currency options available in India with reference to a few banks in Bangalore. 2. To ascertain the normal rate of interest charged by various banks for providing foreign currency loans. 3. To examine the changing trend of LIBOR rate from past 3years of study period. 4. To examine the reasons why a company has gone for foreign currency funding options instead of rupee currency loans. 5. To analyze how advantageous is foreign currency loans compared to rupee currency loans.
Research design: Sample designSource of data- based on the secondary data Operational definition of the study

LIBOR: London Inter-bank Offered Rate or the rate at which banks are offering
funds. Rates exist for overnight, one month, three months, six months, etc., up to five years, and for euro currencies.

SIBOR: Singapore Inter-bank Offered Rate FCLR: Foreign Currency Loans to Resident Constituents

 PCFC: Pre shipment Credit in Foreign Currency GDR: Global Depositary Receipts ADR: American Depositary Receipts EBR: Export Bills Rediscounted. FCNR(b): Foreign Currency Non-Resident (bank scheme) SEC: Securities Exchange Commission ECB: External Commercial Borrowings Arbitrage: It is the simultaneous buying and selling of foreign currency in the same
market or different markets to make profit.

Basis Points (BPS): One basis point is the last decimal in the quotation of an
exchange rate, and 0.01% when referring to interest rates or yields.

Hedge: A transaction that reduces the price risk of an underlying security or

commodity position by making the appropriate offsetting derivative transaction.

Hedging tools: The following are some of the tools commonly used Forward Contracts: An agreement between two parties two that obligates one party
to buy and other party to sell a financial instrument, a currency, equity or a commodity at a future date at the price now agreed.

Currency Option: The option to buy or sell a specified amount of a given currency at a stated rate at or by a specified date in the future.

Foreign currency option: An option that conveys the right (but not the obligation) to
buy or sell a specified amount of foreign currency at a specified price within a specified time period.

Interest Options: Option to pay, or receive, a specified rate of interest on or from a

predetermined date.

 Swaps: A contractual agreement to exchange a stream of periodic payments with a

counter party. These may be fixed for floating interest rate commitments (plain vanilla swap), one currency for another (currency swap), or both of these together.

Option premium: The price, which the buyer of an option pays to the writer or seller
of the option.

Limitation of the study:

Profile of the sample units VIJAYA BANK The late Sri A.B.Shetty and other enterprising farmers founded Vijaya Bank on 23rd October 1931 in Mangalore, Karnataka. The objective of the founder fathers was essentially to promote banking habit, thrift and entrepreneurship among the farming community of Dakshin Kannada district in Karnataka state. The bank became a Scheduled Bank in 1958. Vijaya Bank steadily grew into a larger All India Bank, with nine smaller banks merging with it during 19631968. The credit of the successful execution of the merger plan should go to late Sri M.Sunder Ram Shetty, who was then Chief Executive of the Bank. Initially, the banks operation was then Chief Executive of the Bank. Initially, the banks operation was confined to Dakshin Kannada district and later on extended to other centers in Karnataka followed by expansion in other states. The Bank was nationalized on 15th April 1980. At the time of nationalization, the Bank had 571 branches with a deposit base of Rs. 390.44 crores. By the end of March 2000, the branches network had grown to 837 with a deposit base of Rs. 11592.88 crores. Growth Profile of the bank

Vijaya Bank has many pioneering achievements. It was the first Public Sector Banks to offer ATM-cum-Credit Card. It was also the first bank to open a fully computerized Capital Market Services branch and Funds Transfer Services branch. The Bank is one of the first Banks to pioneer the credit cards business in the country. The Bank has introduced several customer friendly deposit schemes viz.

Vijaya Shree Units Scheme Vijaya Cash Certificate Scheme V-Star Savings Bank Scheme

The Bank also launched several retail lending schemes, viz. Trade Finance Scheme Housing Finance Scheme Planters Card V-Cash V-Equip V-Rent Loans Against Motor Vehicles Liquidity Finance to SSI

ICICI

ICICI Bank is India's second-largest bank with total assets of about Rs. 1 trillion and a network of about 540 branches and offices and over 1,000 ATMs. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital, asset management and information technology. ICICI Bank's equity shares are listed in India on stock exchanges at Chennai, Delhi, Kolkata and Vadodara, the Stock Exchange, Mumbai and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing mediumterm and long-term project financing to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project finance to a diversified financial services group offering a wide variety of products and services, both directly and

through a number of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. After consideration of various corporate structuring alternatives in the context of the emerging competitive scenario in the Indian banking industry, and the move towards universal banking, the managements of ICICI and ICICI Bank formed the view that the merger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities, and would create the optimal legal structure for the ICICI group's universal banking strategy. The merger would enhance value for ICICI shareholders through the merged entity's access to low-cost deposits, greater opportunities for earning fee-based income and the ability to participate in the payments system and provide transaction-banking services. The merger would enhance value for ICICI Bank shareholders through a large capital base and scale of operations, seamless access to ICICI's strong corporate relationships built up over five decades, entry into new business segments, higher market share in various business segments, particularly fee-based services, and access to the vast talent pool of ICICI and its subsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved the merger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI Personal Financial Services Limited and ICICI Capital Services Limited, with ICICI Bank.

ANALYSIS AND INTERPRTATION: