ICRA reaffirms highest credit quality ratings to debt programmes of ICICI Bank Limited
ICRA has reaffirmed the LAAA (pronounced L triple A) rating with stable outlook for the Subordinated Debt Programme and the existing Long-Term Bonds Programme of ICICI Bank Limited (IBL), indicating highest credit quality. The rated instruments carry lowest credit risk. ICRA has also reaffirmed the MAAA (pronounced M triple A) rating, indicating highest credit quality for the bank‘s Term Deposit Programme and the A1+ (pronounced A one plus) rating, also indicating highest safety in the short term, for the Rs. 500 billion Certificates of Deposit Programme of IBL.
The ratings for the debts taken over by IBL from the erstwhile ICICI Limited have also been retained at LAAA with stable outlook and MAAA, respectively. The highest credit quality ratings are supported by IBL‘s position in the Indian financial system as the second largest commercial bank, its sound capitalization levels (Tier 1 capital 11.03%, Rs. 425.91 billion) as on September 30, 2008) and its extensive corporate relationships, besides the bank‘s retail franchise. ICRA has taken note of the pressure on the profitability of the bank as a result of deterioration in retail asset quality, increase in cost of funds and increase in provisions on its investment book (mostly on account of international operations). IBL has taken several steps to improve its asset quality like shifting away from higher loss retail segments (such as small ticket personal loans and two wheeler loans), reducing the pace of fresh asset creation and tightening credit norms and processes. In ICRA‘s opinion these steps are likely to help the bank in improving the asset quality over longer term; however their efficacy would be linked to the operating environment.
In ICRA‘s view IBL‘s large net worth (as a result of which NPAs as % of Net worth at a moderate 8.70%) would give protection to debt holders. IBL‘s efforts to increase the retail deposits and CASA (current and saving accounts) deposits could help it arrest the increase in cost of funds. As for the provisions / losses on investment book, closure / pre closure of ?non India linked derivative book‘ undertaken by the bank, reduction in positions in certain markets and improvement in market conditions could reduce the eventual losses for the bank. ICRA has also taken note of the increase in the asset liability mismatch as on September 30, 2008 vis a vis March, 2008. Steps taken by RBI to address the liquidity at systemic level and IBL‘s own efforts would be important to improve its liquidity profile. ICRA would continue to monitor the liquidity of the bank closely and expects it to reduce the dependence on bulk deposits and borrowings to improve its ALM profile over the medium term. Overall, it would be critical for the bank to maintain capitalization levels and net NPAs as % of net worth at an acceptable level and improve its liquidity profile.
BANK PROFILE – IBL is the largest private sector bank and the second largest commercial bank in India. For the year ended March 31, 2008, ICICI Bank reported net profits of Rs. 41.57 billion on assets of Rs. 3,998 billion and a regulatory capital adequacy of 13.97% (Tier I:11.76%). For the six months period ended September 2008, ICICI bank reported net profits of Rs. 17.42 billion on total assets of Rs. 3850 billion and a regulatory capital adequacy of 14.01 % (Tier1: 11.03%). With a presence in the banking, insurance, asset management, investment banking and private equity sectors, the ICICI Group is an important and large player in the Indian financial system
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