International
ratings agency Fitch Ratings has assigned a long-term foreign currency rating
of 'BB+' to ICICI Bank, in addition to a short-term foreign currency rating
of 'B', an individual rating of 'C/D' and a support rating of '3'. The outlook
on the ratings is 'stable'. ICICI
Bank's ratings reflect its strong management and improved financial condition
compared with its earlier incarnation, ICICI Ltd, which was primarily a project
financing institution. ICICI's management has proactively diversified the
institution's activities, which culminated in its merger with its commercial
banking arm, effective March 2002. The new ICICI Bank has grown aggressively
in consumer banking, and consumer loans now account for 61 per cent of the
bank's loan book. While
ICICI Ltd predominantly relied on market borrowings for its funding, ICICI
Bank has rapidly grown its low-cost customer deposit base, improving the bank's
net interest margin (NIM) to 2.4 per cent as at December 2004, from below
2 per cent previously. While this is lower than most other Indian banks, it
should further improve as its legacy high-cost borrowings progressively mature.
Technologically, ICICI Bank is among the most advanced in India, which enables
it to compete effectively not only with its local peers but also against well-established
foreign banks. Thanks
to aggressive provisioning and write-offs, together with sustained recovery
efforts, ICICI Bank's asset quality has significantly improved; the bank's
net NPL ratio was 2.3 per cent at December 2004, compared with 4.9 per cent
in March 2003. But some legacy asset quality problems remain, with net 'restructured
performing loans' exceeding the bank's reported gross NPLs as at December
2004.
Its relatively new and unseasoned consumer portfolio combined with
the breakneck speed at which the bank has been growing its loan portfolio
could pose some asset quality problems in future. However, so far the
bank has not experienced major problems related to its consumer portfolio,
with the net NPL ratio at about 0.6 per cent as at December 2004. After
raising common equity worth about Rs32 billion ($700 million) in April 2004,
ICICI Bank's capital position has strengthened considerably. Its total capital
adequacy ratio (CAR) and Tier-1 ratio were 13.5 per cent and 8.62 per cent,
respectively, as at December 2004. The bank's relatively strong capital position
should help address its latent asset quality problems and meet with unexpected
loan losses in future, apart from funding its growth. ICICI Bank is listed
on the New York Stock Exchange and has good access to international capital
markets, both for equity and debt, which improves its financial flexibility.
As
the second-largest bank in India, the likelihood of government support is
high, although ICICI Bank's long-term rating is largely a result of its superior
standalone financial condition compared with most Indian banks. Fitch recognises
the considerable progress that the ICICI management has achieved in strengthening
the bank's balance sheet compared with previous
years. Barring unforeseen circumstances, the bank's individual rating should
improve in the near future.
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