ICICI Bank to raise Rs 4000 cr

CARE assigns highest level rating, triple-A, to hybrid instruments.

Private sector ICICI Bank has decided to raise Rs 4,000 crore via issuance of upper tier-II bonds. The bank recently raised Rs 1,500 crore via non-convertible debentures (NCDs) at a coupon rate of 8.60 per cent and Rs 2,000 crore via tier-II subordinated debt.

Credit rating agency, CARE has assigned a 'CARE AAA' (triple-A) rating to these instruments. The rating assigned is the highest level of grading, assigned to medium and long-term instruments.

Under specified conditions, the lock-in clause of hybrid instruments provides for deferral of regular interest payment and principal repayment on maturity. This is one of the key factors affecting the rating sensitivity.

ICICI Bank's strong market position and proven track record in capital raising activities, comfortable capital adequacy levels are few factors which largely offset the additional risks arising from the instrument.

Apart from this, the rating issued by CARE also takes into consideration, the bank's asset quality, capabilities under asset securitisation and risk management measures.

IBL's continuing ability to maintain comfortable Tier I capital adequacy in light of impending new capital adequacy framework for banks, fast growing advances portfolio and effectively managing it's asset liability position are the key rating sensitivities.

During the previous financial year, the bank's asset base increased significantly by 34 per cent from Rs 1,25,229 crore as on March 31, 2004 to Rs1,67,659 crore as on March 31, 2005.

The bank's capital adequacy ratio has increased to 14.53 per cent as on December 31, 2005 from 11.78% as on March 31, 2005.

Recently, UCO Bank tapped the market to raise Rs 200 crore via a hybrid upper tier-II bond. As per the terms of the instruments, the bond carrying 15- years of maturity offers 8.75 per cent.

The various hybrid instruments allowed by the RBI include innovative perpetual debt instruments, eligible for inclusion as tier-I capital; debt capital instruments eligible for inclusion as upper tier-II capital, perpetual non-cumulative preference shares eligible for inclusion as tier-I capital, and redeemable cumulative preference shares eligible for inclusion as tier-II capital.

These instruments are referred to as hybrid since they have various features of equity built into them which take them closer to equity in substance and gives the regulator the comfort that these will be available to absorb losses, when required.

At the same time, the features of debt present in these instruments - such as maturity, call option and coupon helps the issuer to raise funds through these instruments at a cost lower than that of equity.