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.
Find this article at: http://www.labnol.org/india/knowledge/icici-bank-is-there-more-to-it-than-the-share-fall/4906/
web: http://www.labnol.org/ email: amit@labnol.org
Reader Comments
October 13, 2008
Dear Sir/ Madam,
We greatly value your relationship with us. In the context of the developments in the international financial markets, we thought it pertinent to bring to you our perspective of the prevailing situation.
We would like to bring to your attention that the Indian banking system is well regulated and significantly insulated from global developments. This is because it is mandatory for all Indian Scheduled Commercial Banks to retain 34% of the deposit base in the form of Government Securities (SLR) and cash with RBI (CRR). Besides, sound policies of RBI have ensured prudent credit practices in the Indian Banking system.
ICICI Bank is already compliant with the BASLE II requirement in respect of risk management practices and capital adequacy. At 13.4%, ICICI Bank has one of the highest capital adequacy ratios in the Indian banking industry. Last year, ICICI Bank raised Rs. 20,000 crores (US $ 5 billion) of equity capital, which almost doubled our equity capital base. We have a net worth of over Rs. 47,000 crores (US$ 10 billion), again one of the highest in the banking industry in India We have consolidated total assets of over Rs. 4,84,000 crores (over US $ 105 billion), which is diversified across a wide range of asset classes across retail, wholesale and rural banking.
ICICI Bank is amongst the most profitable banks in India. In FY 08, ICICI Bank made a profit of Rs. 4,158 crores (US$ 900 million).
ICICI Bank has the highest credit ratings in the Indian financial sector. We have AAA ratings for our instruments, such as senior bonds, subordinated bonds, and deposits. We have the highest foreign currency bond ratings assigned to any Indian bank from Moodys and S&P.
We continue to invest in growth, indicating our confidence in the opportunities in the Indian market. In 07-08, ICICI Bank added 650 new branches, taking the total strength to over 1400 branches.
We thank you for reposing trust in us over the years. We look forward to setting new benchmarks in service levels in India and to create a bank that you will continue to be proud of.
As a testimony to the above, please find below the clarification given by Reserve Bank of India.
Date : 30 Sep 2008
RBI Statement on ICICI Bank’s Financial Position
There are reports in some sections of the media that based on rumours regarding the financial strength of ICICI Bank, depositors are withdrawing cash at its ATMs and branches in some locations.
It is clarified that the ICICI Bank has sufficient liquidity, including in its current account with the Reserve Bank of India, to meet the requirements of its depositors. The Reserve Bank of India is monitoring the developments and has arranged to provide adequate cash to ICICI Bank to meet the demands of its customers at its branches/ ATMs.
The ICICI Bank and its subsidiary banks abroad are well capitalised.
Alpana Killawala
Chief General Manager
Press Release : 2008-2009/412
Sincerely,
Nazia Sayeed
Office of Head Service Quality
ICICI Bank Ltd.
Written by ICICI Bank Service Team on 10.13.08
They say - There’s no smoke without fire but I guess here we have to take an exception.
Its being battered more because of the world wide poor sentiments and their aggressive policies have just added some more fuel to it.
I believe, once this dust will settle, ICICI will be one of first and quickest to bounce back.
Written by VJonDalalStreet on 10.23.08