Picture this, till August 2008 ICICI Bank was the most valuable bank with a market capitalisation above that of SBI and HDFC Bank. When Lehman story arrived, SBI overtook it and with further bad news pouring it, HDFC Bank overtook it to become the most valued private sector bank in India. Infact, SBI now has a m-cap twice that of ICICI.
ICICI has become the first Indian bank to have come under pressure from the global financial crisis. This has mostly been due to the risk in international exposure it has in various global banks.
ICICI has $9bn in assets in UK and $5bn in Canada. It has exposure to overseas loans of $12bn (which is around one-fourth of its total loans). It has a debt of $76m in Lehman Brothers debt. The UK subsidiary has $3.5 billion investment in various instruments of which around 18% are in US papers, which is believed to have taken a beating after the US meltdown.
However ICICI Bank’s capital adequacy ratio is 13.4% much above the mandatory 9%. It has liquidity of Rs.12000 crores and has option of utilising 1% more pledged with RBI. The latest CRR cut will also give it additional Rs 2500 crore to meet with any contingency.
Also, unlike US and European banks, Indian banks are not that leveraged due to regulatory constraints and as such it is highly unlikely that they will meet the same fate as their western peers.
ICICI Bank is always signaled out first under any bad news due to the high growth rate the bank witnessed in past years and many people felt that their aggressive business would have led to many sub prime assets. So for a bank like ICICI to become bankrupt is highly unlikely, more since the ICICI Management, PM, FM and RBI Governor have issued clarifications many times.
But according to Udayan Mukherjee of CNBC-TV18, the stock fall may have some other interpretations as according to him there is something which the market knows and you & I don’t know, as the same story happened in Wall Street Banks.