ICICI's rural loans dip 50%

ICICI Bank, the country's largest private sector lender, has pressed the pause button on its rural growth strategy following significant losses suffered by the bank in its warehouse receipts financing business last year.

As the bank reviews its rural business operations and prepares for a relaunch, the bank's rural loan book has shrunk 50 per cent to Rs 10,000 crore at the end of September 2007 from Rs 20,000 crore at the end of March 2007.

For the banking sector as a whole, the outstanding credit to agriculture and allied activities increased by 24.4 per cent as on August 17, 2007, to Rs 2,20,534 crore from a year earlier.

In 2006, the bank was cheated of Rs 200 crore at the central and state government warehouses in Kolhapur district, where it had not engaged any third-party collateral managers.

In 2006-07, ICICI Bank made a provision of Rs 93 crore for losses from frauds pertaining to the warehouse receipt-based financing for agricultural products.

At the bank's recent analysts' call, Rakesh Jha, deputy chief financial officer, ICICI Bank, said, "As we have mentioned earlier, pursuant to certain fraudulent transactions that we had seen last December, we have been in the process of reviewing all our processes for the rural loans and are relaunching the business."

"(ICICI Bank's) strategy continues to look at growth on the rural side, especially on the retail side, through micro-finance institutions, commodity-based financing and farmer equipment financing," he told analysts.

The growth had been lower than what one would have anticipated, maybe 12 or 18 months ago. But again, there is a need to look at it as a longer-term strategy. So over the next three to five years, the rural book would increase by close to 15 per cent of the overall book, added Jha.

The bank's rural portfolio is now held by V Vaidyanathan, the bank's executive director, who also manages the bank's retail portfolio.

Vaidyanathan was given charge of the rural portfolio after Nachiket Mor decided to quit the bank and take charge of the bank's ICICI Foundation.