Once through, it will be for the third year in succession that the central bank will be doing so, and the ball has been set rolling with ICICI Ltd being given a one-year breather to bring down its stake in ICICI Bank to 40 per cent.

ICICI Ltd on Thursday said it had sold 4.99 per cent or 10,992,000 equity shares of ICICI Bank to Prudential Assurance Company Ltd, a sub-account of Prudential Portfolio Management Ltd for a consideration of Rs 173 crore.

With this sale, ICICI now holds 50.60 per cent in ICICI Bank. But more importantly, the financial institution (FI) stated that "it had requested the RBI to permit completion of the balance dilution by the end of fiscal 2001-2002".

A senior ICICI official confirmed that the FI had approached the RBI seeking an year's extension in the deadline to bring down its stake in ICICI Bank to 40 per cent set for end-March 2001, and that the RBI has given an "oral" go-ahead with a formal response due any time now.

A senior RBI official added that while no policy circular had been issued on the subject, it would be correct to assume that a blanket extension would be given to all private banks.

IDBI Bank, IndusInd Bank, Centurion Bank, Global Trust Bank (GTB), and UTI Bank all have promoter holdings in excess of 40 per cent - the level to which it is to be reduced to by end-March, 2001. Promoter-holding in UTI Global Bank - post-merger of UTI Bank with GTB - will be as per the norm, but with the slated merger to take time, it is now clear that the end-March, 2001 deadline cannot be adhered to.

The same goes for others like IDBI Bank, IndusInd Bank, and Centurion Bank who just cannot rush in with an equity offering by the end of this fiscal.

Further, given the turbulence on the bourses, and the general belief that private banks had over-extended themselves to capital market operations, equity offerings will get a muted response. Chief executives of few of these banks were "surprised" with the extension given to ICICI Bank, and were categorical that they will also seek a similar response from the central bank.

ICICI, meanwhile said that in the current financial year, it intended to reduce its holding in ICICI Bank to about 47 per cent. This would result in ICICI Bank ceasing to be a subsidiary of ICICI.

ICICI Bank would then be consolidated as per the equity method of accounting for ICICI's US GAAP consolidated financial statements. ICICI added that given the consolidation opportunities in the Indian banking sector, ICICI Bank would continue to consider selective acquisition opportunities after careful assessment. The sale of 4.99 per cent shareholding to Prudential Assurance Company Ltd was carried out on the National Stock Exchange (NSE) at an average price of Rs 170. This represents a premium of about 13 per cent to the average closing share price of the last six months and a premium of about 4 per cent to the average closing share price of the last three days.

ICICI has reduced its holding in ICICI Bank over a period of time from 100 per cent to 55.59 per cent as a result of the offer for sale by ICICI in 1997, issue of American Depository Shares (ADS) by the Bank in 2000 and the merger of Bank of Madura with ICICI Bank. As a result of the above ICICI Bank has a diversified shareholder base with about 120,000 shareholders.

"ICICI had been in discussions with the RBI to determine whether and to what extent ICICI may be required to further reduce its interest in ICICI Bank.

The RBI has reiterated its requirement of reduction of ICICI's holding in ICICI Bank on February 8, 2001 and advised ICICI to draw up a firm plan for dilution of ICICI's stake", ICICI said. One way out for ICICI Bank is to issue fresh equity capital to dilute ICICI's holding in ICICI Bank.