While assigning the highest safety rating for the short run (A1+) to the Rs 500 crore certificates of deposit (CD) programme of ICICI Bank, rating agency Icra today warned that the bank's merger with ICICI could put pressure on the merged entity's profitability in the near-to-medium term.
"While ICICI Bank Ltd's merger with ICICI would bring long-term benefits to the merged entity, meeting the SLR requirements on ICICI's higher level of term liabilities could put pressure on the merged entity's profitability in the near to medium term," an Icra (Investment Credit Rating Agency) release said.
To meet the statutory requirements, the merged entity would have to deploy significant resources into government and approved securities, while curtailing credit growth, it added. Both ICICI and ICICI Bank are looking at raising resources through deposits, asset sales and CDs for meeting the statutory requirements.
The rating agency also said that ICICI Bank's operating expenses are on the higher side though they are expected to decline as a percentage of assets deployed once the asset base expands and the benefits of initial investments in retail and technology initiatives start accruing.
Icra said the bank is comfortable on the profitability and liquidity fronts and has good control over its asset quality. It, however, added that the ability to control non-performing assets would determine the future performance of the bank. The bank's NPA level was estimated at 2.52 per cent at the end of September 2001, as against 2.11 per cent at the end of March this year.
"Besides, the highest rating also factors in the technology and retail initiatives of the bank, which have increased ICICI Bank's potential to increase its fee-based income apart from enabling it to raise deposits at low cost," it added.
