ICICI Bank takes $264-m hit on overseas credit exposure

ICICI Bank has suffered marked to market losses of $264.3 million (about Rs 1,056 crore) on account of exposure to overseas credit derivatives and investments in fixed income assets, it was disclosed in the Rajya Sabha on Tuesday.

These losses are as on January 31, 2008, said Mr Pawan Kumar Bansal, Union Minister of State for Finance, replying to a question in the upper house.

Marked to market losses happen when the current market value of an asset is lower than its acquisition value, requiring the holder of the asset to make a provision equivalent to the difference.

Following this disclosure by the Minister, ICICI Bank shares tanked by 9.3 per cent to Rs 929 intra-day but recovered substantially later on clarification issued by the bank.

The stock ended the day at Rs 971.60, down 5.16 per cent from the previous close.

A notice to the stock exchanges later in the day said, ICICI Bank and its overseas banking subsidiaries have an aggregate exposure of $2.2 billion in credit derivatives. As on January 31, 2008, the marked-to-market losses on this portfolio were $155 million. Of this, $88 million has been provided for in its quarterly December 2007 financials.

In addition to this, the bank and its overseas banking subsidiaries have fixed income investments, whose marked-to-market losses are $108 million as on January 31, 2008. Of this, $101 million has been accounted for in the financial statement for the December quarter. “These are not sub-prime losses. We do not have any direct exposure to sub-prime market,” said Ms Chanda Kochhar, Joint Managing Director, ICICI Bank.

“We have some portfolio called CDO-CLN (collateralised debt obligation and credit linked notes) which is nothing but loans given out to corporates but held [by ICICI] in the form of securities. Since they are held in the form of securities, we have to mark them to market every quarter if interest rates go up or down. Because of the sub-prime crisis, since interest rates are moving up and spreads are widening, we have to take marked-to-market losses on these securities.”

The overseas losses of ICICI come from its investments in overseas credit derivatives and from its overseas subsidiaries’ investments in fixed income assets. These may be recoverable assets, but their current market value is lower than the price at which they were bought and the bank had to make provision for it. In other words, if ICICI has to sell these assets at today’ prices it would suffer the losses that the Minister talked about, said an analyst.

ICICI Bank Q3 net up 35%, I-Sec IPO gets nod

ICICI Bank today reported a 35% increase in net profit at Rs 1,230 crore for the third quarter ended December 31, 2007 when compared with Rs 910 crore in Q3FY07.

Total income increased 36% to Rs 10,338 crore from Rs 7,581 crore in Q3FY07.

The board today approved a proposal for the initial public offering (IPO) of ICICI Securities, and private placement of shares to one or more institutional investors.

Peninsula sold two buildings with a total space of 7 lakh sq feet at Rs 15,000 per sq feet, raising nearly Rs 1,050 crore and will rent a building of

ICICI Bank, the country’s biggest private lender, expects overseas business to account for at least one-fourth of its balance sheet in 2008 and is targeting a place among the world’s top 10 banks within five years.

“If there ever be an Ivy League of global banks, I believe, in 5-10 years, we have to have a few banks from China and a few from India in that league,” ICICI Bank Managing Director and CEO K V Kamath said.

“The target is that we will try to do it in less than five years. China has done it and their three banks are in the top 10. Three years ago, none of us would have given them any change of getting there,” he said.

While attributing the current position of Chinese banks to the economic uptrend that started there 10 years ago, he said “within six years, as an Indian bank, we should also enjoy similar change in attributes”.

Kamath said he did not see slackening of the India growth story for another 15 years and if the GDP grows at 10-11 per cent, banks and financial services sector should grow at 30 per cent every year.

“If you look at that possibility, you are really looking at doubling your size every three years. Then in six years, it should be a size where most Chinese banks are today — in the top 10,” said the head of India’s most valued bank.

ICICI Bank’s Joint MD and Chief Financial Officer Chanda Kochhar said the bank was already India’s biggest in terms of overseas business and was looking at a contribution of at least 25 per cent from its international business in 2008.

Currently, global assets account for 22-23 per cent of its balance sheet, Kamath said.

Talking about the bank’s international expansion plans, Kochhar said after getting a licence in the US, it was not looking at merely foraying into other countries. “In each of the 18 countries we are present, we have a lot of deepening and widening to do. This can happen in many ways. For some it can be expanding the role of the branches,” she said.

“Our overseas growth would be driven around three platforms — Indian retail customers, Indian corporate customers and our niche cost-competitive areas... As we get into the next year, our international side of balance sheet would be about 25 per cent of the total.”

With more than $19 billion of overseas assets, ICICI is the largest international bank in India, she said. ICICI Bank played a role in 88 per cent of total number of outbound merger and acquisition deals by Indian companies during 2007, while in terms of value of these deals, the share was 65 per cent, she said. The involvement was largest in terms of value and second-largest in terms of volume.

Indian companies would invest up to $700 billion over the next few years. While a major part of it would come from their own internal accruals equity issue, a large portion would be through borrowings in local and foreign markets.

“We saw this as a coming opportunity two years ago and we calibrated our skills to be able to take large market share in this business. We have strengthened our investment banking capability and also international capability, so that we can not only give them loans but also syndicate a large part of loans for Indian corporates,” Kochhar said.

ICICI Bank currently ranks as a leading arranger of foreign currency loans for India Inc. This was an area dominated by foreign banks till some time ago, Kochhar noted.

She said in India also ICICI Bank was looking to have a role in 25 per cent of the investment pipeline worth about $500 billion likely to come from the corporates in the next three-four years.

“Our current balance sheet is over $100 billion and we are talking of a little over doubling the balance sheet in the next three-four years,” she said.

Kamath said 100 per cent growth was not the way to go for banking business, but even at 30 per cent growth the size would double every three years. There were also inorganic opportunities, he added.

When asked which other banks from India he expected in the global top 10, Kamath hinted at the country’s biggest lender State Bank of India. “At least one large government bank is clearly capable of entering into that league,” he said.

“In China also, it is the government banks that have got into that league... I think any other bank will take time because I do not see the scaling-up that is required being done as yet elsewhere,” he noted.

“Ten years down the lane, an Indian bank would have to be there. Our endeavour is to see how much quicker we would achieve that... One thing is sure that an Indian bank would reach that Ivy League,” Kamath said.

ICICI Bk to unlock value, list 4 biz: Kamath

Looking to unlock shareholder value across the group, ICICI Bank will list at least four subsidiaries, and the process could commence within six months starting with its brokerage arm ICICI Securities, managing director and CEO K V Kamath said today.

Asked whether the first of the subsidiaries would hit the market in the next 3-6 months, Kamath told PTI in an interview: "I would think that the six-month period is a fair expectation... We have not yet taken board approval."

Noting that ICICI Securities could be the first of the lot to hit the market, he said it could be soon followed by two insurance arms - the life insurance unit ICICI Prudential and general insurance arm ICICI Lombard - and the bank's housing finance arm.

Kamath said that listing of insurance and mutual fund subsidiaries would be subject to the previously proposed holding company for these businesses not coming through. The proposal for this is awaiting RBI clearance.

When asked whether the bank would look at listing other subsidiaries as well, Kamath said there could be two more probable listings - of the mutual fund arm and the private equity business ICICI Ventures, but they could take some time.

"At current levels, we are undervalued... If you look at embedded value, clearly there is scope for valuation to look different... Value is visible in insurance and asset management company, while there is value embedded in securities and home loan subsidiaries," Kamath said.

"Every company needs to consider unlocking of value at various points of time. At this point of time, it would be appropriate to start considering opportunities to unlock (value in subsidiaries)."

While declining to make any forward looking statements regarding the possible valuations of the subsidiaries ICICI Bank is looking to list separately, Kamath said the issues would be deliberated in due course.

The bank would seek approval from the board and other statutory requirements at the appropriate time.