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One of the oldest private sector banks in the country, Bank of Rajasthan ( BoR), is set to merge with ICICI Bank, the largest private sector bank in India. BoR board, which met in Mumbai on Tuesday, has given an in- principle nod to the proposal.

“ All BoR shareholders will become shareholders of ICICI Bank,” P. K. Tayal chairman of BoR told press persons in the evening. Responding to a query he said, “ The pricing ( of BoR) is expected to be better than 1: 9 ( nine shares of BoR for each share of ICICI Bank). Give us one more day to decide.” “ The board has given its inprinciple approval for amalgamation of BoR with ICICI Bank,” G. Padmanabhan, managing director and CEO of BoR added after the board meeting.

“ ICICI Bank has entered into an agreement with certain shareholders of Bank of Rajasthan agreeing to effect the amalgamation of Bank of Rajasthan with ICICI Bank with a share exchange ratio of 25 shares of ICICI Bank for 118 shares of Bank of Rajasthan,” said ICICI Bank in a release.

“ This is based on an internal analysis of the strategic value of the proposed amalgamation, average market capitalisation per branch of old private sector banks and relevant precedent transactions,” ICICI added.

Getting the whiff of the deal the stock flared up on the market and ended with a gain of about 20 per cent at Rs 99.50, after hitting the circuit breaker on BSE. On the other hand, the ICICI Bank stock took a marginal knock of 1.45 per cent or Rs 13.05 to close at Rs 889.35.

The deal comes up a few month from the time the capital market regulator Securities and Exchange Board of India ( Sebi) and Reserve Bank of India ( RBI) initiated actions citing violations by BoR and its promoters.

On Tuesday afternoon, Chanda Kochhar, managing director ( MD) and chief executive officer ( CEO) of ICICI Bank told a TV channel that the merger deal was not finalised yet, and the right pricing was crucial for the deal from ICICI Bank’s point of view.

Haribhakti & Sons, chartered accountants, were appointed to do the due diligence, based on which the swap ratio would be decided on Sunday, Padmanabhan said.

The Tayals, who owned about 29 per cent of the BoR stake at the end of December last, had been negotiating with potential buyers, including private sector lender Axis Bank.

In early 2010, RBI has slapped a fine of Rs 25 lakh on BoR citing various violations, including irregularities in transactions and misrepresentation of documents, norms pertaining to antimoney laundering, Know Your Customer ( KYC) norms and irregularities in the conduct of accounts of a corporate group.

The banking regulator had also appointed Deloitte Haskins and Sells to conduct a special audit of the bank, which recently submitted its interim report to RBI. On March 8, 2010, Sebi had issued an interim order restraining the founders of BoR and over 100 group entities from accessing the capital markets or from dealing in securities.

With this the stock price of the bank dipped to Rs 54.60 from Rs 67.11 on March 8.

Set up in 1943, BoR has a network of 463 branches and over 20 lakh customers. It has deposits of over Rs 15,000 crore and advances of just over Rs 7,000 crore. As at end- December, 2009 its non- performing assets ( NPAs) stood at Rs 160 crore.