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Tayals, the promoters of Bank of Rajasthan, have decided to merge the bank with ICICI Bank, the country's second largest lender.
The decision was taken after the Bank of Rajasthan board approved the move.
Earlier reports had stated that the private sector banking giant, ICICI Bank, was in advanced stages of talks to acquiring Bank of Rajasthan, whose promoters ran into regulatory trouble last month.
Pravin Tayal, the key promoter of the Bank of Rajasthan, could not be contacted for comments. However, ICICI Bank informed the stock exchange that it received a communication from BoR director Sanjay Kumar Tayal about the decision.
Sources said that ICICI Bank is likely to pay thte Tayals more than the BoR's current market valuation.
The share price of the Bank of Rajasthan surged 19 per cent during the day on the Bombay Stock Exchange to the year's high of Rs 98.65. The share prices of ICICI Bank, however, fell 1.45 per cent to close at Rs 889.35.
The Tayals hold 28 per cent in Bank of Rajasthan, although according to market regulator, Sebi, the promoters' holding in the entity is around 55 per cent.
BoR, one of the oldest private sector banks in the country, plunged into a crisis early this year after Reserve Bank of India slapped a Rs 25-lakh (Rs 2.5 million) fine on the bank for alleged violation of various norms.
These include irregularities in transactions and misrepresentation of documents, norms pertaining to anti-money laundering, Know Your Customer and irregularities in the conduct of accounts of a corporate group.
The Reserve Bank also appointed Deloitte Haskins and Sells to conduct a special audit of the bank, which recently submitted its interim report to the Reserve Bank.
In March, Sebi banned 100 entities including Tayal Group firms from all stock market-related activities for fraudulently hiking the promoter holding in the bank, while conveying the impression that they were reducing their shareholding.
Incepted in 1943, BoR has a network of over 463 branches and a customer-base of over 20 lakh (2 million). In the December quarter, the bank's net profit declined to Rs 44.7 crore (Rs 447 million) as against Rs 49.21 crore (Rs 492.1 million) in the year-ago period while its total income dropped to Rs 373.7 crore (Rs 3.737 billion) from Rs 419.8 crore (Rs 4.198 million).