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ICICI's key is integration

Our Bureau

CHENNAI, Oct. 24

AMONG the universal bank aspirants, ICICI has been, arguably, the most keen on an integrated unit offering different kinds of financial intermediation. Other dominant financial services groups, HDFC, for example, feel that it may be better to operate wit h different companies catering to different markets because of the presence of multiple regulators in financial services.

Different strategies on universal banking exist because insurance, commercial banking, stock broking and housing finance are areas with their own regulators and capital requirements. In this backdrop, HDFC appears to be inclined to bring about synergy in the group's operations but continue as different companies. All the entities in the group extract the most out of the goodwill associated with the brand, HDFC, but pursue business as independent entities.

DFIs and commercial banks have a single regulator, Reserve Bank of India (RBI). Their regulatory requirements are however different and a merger between a DFI and a commercial bank requires a bit of smoothening there. But other critical areas such as ins urance and housing finance are not likely be part of a single merged entity at the moment because of differences in regulators as well as requirements.

Given the large bad loans DFIs are saddled with and the problem of having to rely on an increasingly cagey market to raise resources, commercial banks with the lowest cost of funds in the financial sector have looked an attractive target. ICICI has toyed with the idea of a reverse merger in the past too, calling its investors to apprise them of the possibilities last year. Following the current move to initiate reverse merger, the ICICI group appears to have decided that potential benefits more than off set dealing with regulatory concerns.

Meanwhile, the other potential universal banks such as HDFC and IDBI groups have decided to operate as independent entities, though under one umbrella. Well, at least for the moment.