ICICI Bank has appointed accounting firm Deloitte, Haskins & Sells to revalue the assets of its parent ICICI, which it is taking over.
Deloitte is revaluing all the assets of ICICI, including that of its subsidiaries, before the merger. The objective is to arrive at a fair value of the assets.
ICICI Bank will adopt the purchase method of accounting which is mandatory as per US generally accepted accounting principle (Gaap) for the merger.
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ICICI's assets and liabilities will therefore be fair valued for the purpose of incorporation in the accounts of ICICI bank on the appointed date.
Essentially, this will give ICICI Bank an opportunity to revalue the purchased assets at fair market value in its books.
In one stroke, it can pare the non-performing assets. But by doing so it will also dent the capital adequacy ratio of the new entity as it will draw down from the reserves to write down the NPAs.
According to sources, if after revaluing all the assets, there is a net negative figure this would be written down against the reserves. As on September 30, 2001 ICICI had reserves of Rs 7,992 crore while the net non-performing assets was at 5.2 per cent or Rs 3,183.
ICICI will retain only 11 of its current 24 subsidiaries. These include the two insurance companies -- ICICI Lombard General Insurance Company and ICICI Prudential Life Insurance Company.
It will also retail ICICI Securities and Finance Company, ICICI Brokerage Services, ICICI Securities Holdings Inc, ICICI Securities Inc, ICICI Venture Funds Management Company and ICICI Home Finance Company.
Meanwhile, the Reserve Bank of India has appointed C R Muralidharan, chief general manger, department of banking operations and development, as the coordinator for the reverse merger.
The RBI has completed the audit for the ICICI and ICICI Bank for the year ended March 31, 2001. JM Morgan Stanley was appointed by ICICI to advise it on a fair exchange ratio, while ICICI Bank appointed DSP Merrill Lynch.
Both ICICI and ICICI Bank jointly appointed Deloitte, Haskins & Sells to recommend the final share exchange ratio.