ICICI BANK ISSUE Data Points In Summer 2007 ICICI Bank planned to raise capital of around Rs.
200 billion ($4.9 BILLION USD) 18 months before ICICI carried out a public issue in India and US simultaneously to aggregate a capital of around Rs.82 billion. 20 months prior to this they had a Rs.30 billion public issue in India. Banking regulations required ICICI Bank to maintain a minimum ratio of capital to risk adjusted assets and off-balance sheet items which accounts for around 9% of the total capital and half of which must be Tier 1 Capital. Basel II norms would be implemented in India from March 31st 2008 the announcement for which came in April 2007. Tier-1 Capital Adequacy Ratio was raised to 6% from 4.5% There was also introduction of capital for operational risk The risk weights for loans without external rating was increased from 100% to 150% Capital Adequacy Ratio=(Tier1 Capital + Tier2 Capital)/Risk Weighted Assets it is also called CRAR Tier 1 Capital which can absorb losses without a bank being required to cease trading and tier two capital which can absorb losses in the event of a winding up and provides a lesser degree of protection to depositors Currently this CRAR stands at 9% as per RBI but the Government has mandated CRAR of 12% with 8% as Tier 1 Capital ICICI Bank at the time of this event had a Capital Adequacy of 11.7% as on March 31st 2007 with the Tier-1 Capital Adequacy Ratio of 7.4% Tier-1 Capital consists of Core Capital ,Paid-up capital , Free Reserves, Equity Investments Tier-2 Capital cannot exceed 50% and Tier 1 Capital. It consists of subordinate debt which is subject to progressive discounts The objective of the firm going ahead with the issue despite having a comfortable capital adequacy ratio is due to facilitate future asset growth. The increasing capital requirements like loans and investment portfolio due to the growth of Indian Economy, compliance with regulatory requirements and for other general corporate purposes Capital adequacy regulation implied that unless equity is raised at regular intervals, a bank with high asset growth rate like ICICI cannot sustain that growth. Bank is growing at 25% to 30% the sustainable growth rate is around 5% Sustainable growth rate is estimated based on dividend discount model which assumes future growth entirely by way of internal accruals net of dividend pay-out International Banking accounts for around 19% of total consolidated banking assets of Rs.3446.58 billion as on March 31st 2007 Merger with a development financial institution which were less appropriate for a bank Total Advance Portfolio of around 47% in FY 2006-07 with 60% coming from retail segment and out of the retail segment’s contribution 50% came from home loans. Due to hardening of interest rates retail credit portfolio grew at a lower rate
20 in 2006 to 26334 in 2007 Advances increased from 1562603. particularly the retail credit segment.
ICICI Prudential earned a premium income of about Rs.6.79 billion but recorded a loss of Rs. ICICI Bank expects the growth rate to slow down to 20-25% from 30-35% in this segment.6% Higher TIER 1 ratio of 11.9 Cost of funds has increased from 5.98 as a percentage of total assets Deposits have grown at 39.3 to 8.20 to 2113994 Bills for collection reduced Yield has increased from 8.5% but the fact that the scope for growth is more in the case of HDFC as they have not yet penetrated the market Capital Adequacy ratio of ICICI is around 14.30% Quality of loans is better in ICICI Higher Share of PAT at 10% when compared to HDFC at 3.6% in 2006 and 6% in 2007 when compared to 2006.95% for ADS holders
Statements Net Profit raised from 23990.92% as compared to HDFC which has it around 13.7% although they are still growing
.8 to 6.5 billion in 2007 ICICI Lombard is a general insurance segment recorded a revenue of Rs30 billion but generated a very small profit
OUTLOOK FOR 2007 Higher Interest Rates and Rising Property prices expected to lead to a slowdown in growth of banking.32% when compared to HDFC at 10.11% Deutsche bank holds the highest shareholding of 24. This when compared to HDFC 47.71 to 0.6 indicating the riskiness of the firm’s cash flows Spread has reduced NPA indicating careless lending has increased from 0. International segments are expected to have the highest growth of more than 100% Expectations of a spill over effect of US housing downturn It is believed that the firms issue equity when the management believes that a particular issue is overpriced
Pre-Issue Shareholding Structure LIC holds the highest shares amongst the government controlled shareholding of 12.