ICICI Bank in focus again on credit derivatives

Lender to make $70 mn more provisioning in current quarter.

ICICI Bank, the country's second largest lender, on Tuesday said it would have to make an additional provisioning of $70 million in the current quarter for mark-to-market (MTM) losses on exposure to credit derivatives of its overseas branches and subsidiaries, with spreads widening further on continuing impact of the sub-prime crisis.

The total depreciation losses as on January 31, 2008, on collateralised debt obligations (CDOs) and credit-linked notes (CLNs) held in its overseas operations amount to $264 million.

CDOs are securities backed by pools of other securities and bought by investors wanting exposure to the income from a set of loans or bonds, but not direct exposure to them.

ICICI Bank has an aggregate exposure of $2.2 billion to credit derivatives overseas. As of January 31, 2008, the mark-to-market negative on this portfolio due to movement of credit spreads was about $155 million, of which $88 million had been provided for in the financial statements of the bank and its subsidiaries for the nine months ended December 31, 2007.

In addition, ICICI Bank has fixed income investment portfolios, which have a mark-to-market negative due to widening of credit spreads. As of January 31, 2008, this negative was about $108 million, of which $101 million had been accounted for in the financial statements as of December 31, 2007.

This includes mark-to-market on the portfolio available for sale, which has been accounted for in the shareholders' equity.

ICICI Bank Joint Managing Director Chanda Kochhar clarified that the bank had no exposure to US sub-prime securities.

The price of ICICI Bank shares fell sharply after the Parliament was informed of the provision that the bank would have to make because of depreciation in investment portfolio due to the sub-prime crisis.

ICICI Bank shares fell 5.16 per cent to end the day at Rs 971 a share on the Bombay Stock Exchange (BSE).

Minister of State for Finance Pawan Kumar Bansal, in a written reply, had said: "The bank had a mark-to-market loss of $264 million as of January 31 on account of exposure to credit derivatives and investments. Following the sub-prime crisis overseas, ICICI Bank's overseas operations had reported the mark-to-market loss.'' He added, "There is no information about the sub-prime crisis in India.''

Kochhar said, "ICICI Bank has no material direct or indirect exposure to the US sub-prime credit."