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ICICI Bank (Bombay Stock Exchange: 532174) (formerly Industrial Credit and Investment Corporation of India) is India's largest private sector bank and second largest overall in terms of assets. Together with its subsidiaries, ICICI Bank offers a complete spectrum of financial services and products ranging from commercial banking to investment banking, mutual fund to insurance. As on September 30, 2008 the bank had total assets of Rs. 3,849.70 billion and profit after tax Rs. 17.42 billion for the half year ended September 30, 2008. ICICI Bank is also the largest issuer of credit cards in India.
In the absence of retail deposits, the bank’s dependence on high-cost wholesale deposits has grown, bringing down its net interest margin (the spread between the cost of funds and its earnings on such funds). Its low net interest margin is partly compensated by its high fee income, about 40% of its total income, the highest among Indian banks and comparable with global banks. To raise its fee income, it has exposed itself to complicated, structured derivative products both in India and overseas. The high-growth business model has also forced it to frequently raise equity from the market. The bank is constantly under pressure to keep its growth momentum as otherwise the return on its expanding equity shrinks. Between 2004 and 2007, its balance sheet has grown at more than 40% every year. It has also aggressively expanded its overseas presence in past few years, setting up offices 18 countries and building $25 billion (Rs 1.1 trillion) of assets, roughly one-fourth of its book.
This business model worked wonderfully in a booming economy, in 2008, the market conditions have changed. Investors rushed to dump ICICI’s stock, fearing it had huge exposure to Lehman Brothers Holdings Inc., which filed for Chapter 11 bankruptcy in the US. ICICI stock lost about half its value due to the global financial turmoil. ICICI Bank’s exposure to Lehman was actually relatively minuscule, but that did not put a lid on rumours of bank directors selling their stocks and depositors withdrawing money. As declared by ICICI's Joint MD, ICICI Bank is well capitalized with a total capital adequacy ratio of 14% in 2008, which confirms with the Basel II Norms.subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. The bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai.
In the quarter ended September 30, 2008, the bank reported a 42% year-on-year increase in core operating profit. The bank's current and savings account (CASA) ratio increased to 30% in 2008 from 25% in 2007. ICICI's earnings and net income have grown continuously -- its income increased by a compound annual growth rate (CAGR) of 58% from1999-2008 to Rs 31.15 billion. Its interest income has grown at CAGR 56% from 1999-2008. This growth has been sustained in part by achieving robust growth in its fee income from both corporate and retail businesses. Its fee income, about 40% of its total income, is the highest among Indian banks and comparable with global banks. The growth has also been fueled by strengthening its deposit franchise and significantly scaling up its international banking operations.
|Key Financial Metrics (in Rs. billions)||2008||2007||2006|
|Net Interest Income / Total Funds (%)||1.96||1.89||2.24|
|Business Per Employee||0.1008||0.1027||0.0905|
Source: Company reports
ICICI Bank is the largest provider of retail credit in India. Its total retail portfolio was Rs. 1,316.63 billion at March 31, 2008, constituting 58% of total loans at that date. ICICI has continued its focus on strengthening its retail deposit franchise to create a stable funding base. Its current and savings account (CASA) deposits as a percentage of total deposits increased from 22% at March 31, 2007 to 26% at March 31, 2008, with savings account deposits increasing by 36% during fiscal 2008. During the year, it also expanded its branch network substantially. At March 31, 2008, it had 1,262 branches & extension counters compared to 755 branches & extension counters at March 31, 2007, including the addition of about 200 branches through the merger of Sangli Bank. Its branch network has further increased to 1,367 as of May 31, 2008.
During fiscal 2008, ICICI's small enterprises customer base increased by 26% to about 1.1 million accounts. It has introduced its service offerings in over 400 new branches, increasing its coverage to over 1,000 branches. During 2008, ICICI focused on product specialization including investment banking for SMEs.
ICICI offers a complete range of corporate banking products including rupee and foreign currency debt, working capital credit, structured financing, syndication and transaction banking products and services. Fiscal 2008 saw continued demand for credit from the corporate sector, with growth and additional investment demand across all sectors. Making use of its rich international presence, during fiscal 2008, ICICI was involved in 75% of outbound mergers and acquisitions deals from India. It is now a preferred partner for Indian companies for syndication of external commercial borrowings and other fund raising in international markets and has been ranked number one in offshore loan syndications of Indian corporates in calendar year 2007.
Project Finance is the financing of long-term infrastructure and industrial projects based upon a complex financial structure where project debt and equity are used to finance the project, rather than the balance sheets of project sponsors. ICICI has the lead arranger position across a variety of project finance transactions in diverse sectors. In 2008, it also forayed into select international project finance transactions.
In 2001, ICICI identified international banking as a key opportunity. This business segment is ICICI's highest growth segment (95.6% year-on-year growth). ICICI's international strategy is focused on building a retail deposit franchise, diverse wholesale funding sources and strong syndication capabilities to support its corporate and investment banking business, and achieving the status of a non-resident Indian (NRI) community bank in key markets.
ICICI Bank is a the preferred partner for a large number of Indian companies that need to raise debt from foreign credit markets in the form of external commercial borrowing (ECB). The aggregate external commercial borrowing by Indian companies increased by a CAGR of 59.1% between 2004-07. ICICI Bank is the preferred lead arranger for a large number of these transactions and this revenue stream should continue to boost ICICI’s fee income.
ICICI Bank is currently the best-placed Indian bank to cater to Indian companies’ increasing appetite for international mergers and acquisitions. During fiscal 2008, ICICI was involved in 75% of outbound mergers and acquisitions deals from India. It is now a preferred partner for Indian companies for syndication of external commercial borrowings and other fund raising in international markets and has been ranked number one in offshore loan syndications of Indian corporates in calendar year 2007.
The RBI approved 587 new deposit-taking branches for ICICI Bank in 2008. In 2007, it had approved 450 branches for ICICI. Bank branch expansion in India is regulated by RBI and banks cannot expand their branch network without RBI’s approval. As low-cost deposits are directly tied to the size of the branch network, the number of branches a bank has, is a key success factor for any bank in India. While public sector banks (state owned banks) enjoy a pre-eminent position in terms of low-cost deposit base (also called CASA deposits in India – stands for Current Accounts and Savings Account), private-sector banks have been increasing their CASA base steadily over the years. ICICI Bank has expanded its CASA market share by 218% over the period of 2003-2007. The bank’s CASA deposits have grown at a CAGR of 61% over the same period, compared with a growth of 17.1% for public-sector banks, 32.5% for private sector banks and 29% for foreign banks in India.credit markets have caused its borrowing costs (over LIBOR) to widen. The global currencies- American dollar and euro have also appreciated with respect to the Indian Rupee, increasing their borrowing costs. An inability to improve the funding mix in favour of low cost deposits hampers the bank’s ability to improve its net interest margins in line with the competition. Prolonged dependence on wholesale deposits will cause the net interest margins for the bank to be volatile and could result in some loss of market share, especially in the retail lending portfolio.
In the domestic market, RBI had tightened domestic liquidity conditions in 2007 and first half of 2008 through cash reserve ratio increases, repo rate hikes and other mechanisms. Interest rates have been eased in the last quarter of 2008 and this should further boost the bank’s net interest margins.
|Total Deposits||Total Advances||Net profit||Total Assets||Branches|
|State Bank of India||4,355.21||3,373.36||45.41||5,665.65||10,186|
|Punjab National Bank||1, 398.60||1,990.48||20.48||1,990.48||4,500|
|Bank of Baroda||1,520.34||1,067.01||14.35||1,795.99||2,800|