CASE STUDY ANALYSIS

EXTERNAL ENVIRONMENT ANALYSIS: PESTEL

ANALYSIS FOR POLITICAL, ECONOMIC & LEGAL

Economic
Infra. Push of
INR. 65 Tril.

PESTEL
Analysis

Political
BJP as ruling Legal
Govt. Stressing Regulatory
on economic changes in favor
growth through of long term
Infra. bond issuance
development
CHAIN OF EVENTS:
Political change – Modi Got.
Elected in 2014
Hence, the RBI circular
allowing banks to issue long
Focus on Economic Growth & term bonds
higher GDP growth rate

Hint : in 2014 budget –Banks

would be allowed to raise
Big push for Infrastructural
long term finance to meet
development (INR. 65 Tril.)
long term infra funding

In order to achieve Infra.

Dream – Around, 24% of Infra
Big contribution has to come spending has been financed
from Infra. Related lending & by comm. Banks.
spending
ICICI BANK: CHANGE OF STRATEGY
POST-2008 CRISIS
Like other banks , ICICI Bank
also faced some heat during the
crisis time.

Emergence of five “C” strategy

under leadership of Kochhar.

Cost Credit Credit Customer

CASA quality growth service
Reduction

Share of CASA By 2014, major growth

43% in total came from Infra. Lending
deposit CAGR of 27.8%
 WHY REQUIREMENT OF LONG TERM BONDS?
OR LONG TERM MATURITY INSTRUMENTS
Infrastructure – projects are
having long gestation period
such as 7-10 years, 15-20 years
also.

Hence, Infra. Companies need

long term financing/funding

But, Banks & other lenders are

not able/willing to extend long
term financing/funding

Unwillingness
Inability
1. Long term projects are
1. Lack of avenues to raise
more risky due to
long term funding
uncertainty
2. Under –developed
2. Capital is tied up for too
markets for raising long
long may lead to missing
term funds
out on other opportunities.
WHY RBI CAME UP WITH CIRCULAR?

Two intentions of RBI’s

circular

First & most important To encourage banks to

reason – this circular was
result of what Govt.
announced in the July-
2014 budget – to give
legitimate structure
borrow long term and
remove liquidity mismatch
between short term
liabilities and long term
assets
RBI CIRCULAR

RBI Circular No size limits

Dated: 15th –July-2014 to borrowings

Minimum Without PUT With Fixed

Unsecured INR Maturity of 7 or CALL or Floating
bond denominated years options interest rate

For funding purpose of Infra. projects & affordable housing

THE KEY QUESTION

Should ICICI Bank exploit the

recently circulated regulatory
changes for issuance of long term
bond or not??
DECISION:

Should ICICI Bank exploit the

If recently circulated regulatory If No
Yes changes for issuance of long
term bond or not??

Exception from
CRR & SLR Bank will
safeguard it self
Relaxation from from
priority sector
lending norms slow down in Infra.
sector
Helps in better
liquidity Mgt. & risk,
Also for Basel-III interest rate risk
norms
BOND PLACEMENT : TARGET SEGMENT

Whole-sale Investors: Eg.

LIC, EPFO, Pension
funds etc.

Bond Placement Foreign Inventors: More

interested in safe- PSU
bonds

Retail Investors:
Fixed rate needed,
matching term deposits
rate of 9% & above