ICICI Bank to raise over $6 billion

ICICI Bank needs to raise over $6 billion (Rs 244 billion) overseas in the current financial year to fund its international business, said Deputy Managing Director Chanda Kochhar.

"The need for resources is pretty large. Therefore internationally, even today our strategy is not just asset-based, it's quite focussed on liabilities also," Kochhar told in an interview to NewsWire18.

"Last year (2006-07), the bank raised $6 billion, but this year it's going to be more than that because our growth itself is more." The two major sources of raising resources overseas are debt issuances and retail deposits, she said. Recently, the bank raised $1.5 billion (Rs 61 billion) via syndicated loan overseas.

Kochhar agreed the bank's global asset growth will be higher following the slowdown in demand for loans in the local market.

Even domestically, need for deposits continue to be strong to meet the large asset base of the bank.

"Domestically, even if the rate of growth (of loans) doesn't continue to be very large, the base itself is very large. So we do need domestic liabilities to fund domestic assets," said Kochhar said.

ICICI Bank now expects its credit growth to be around 20 per cent in the current financial year compared with 34 per cent last year.

GLOBAL FEE INCOME
Kochhar, in charge of the bank's global and corporate business, expects fee income to continue to drive the bank's global business. "It (global operation) is largely fee-income driven than interest income. Apart from M&As, loan syndication, there are other kinds of fee income as well, like swap derivatives," Kochhar said.

Most of ICICI's global fee income comes from managing merger and acquisition deals of companies, loan syndication, and remittance income from retail investors.

Although Kochhar declined to reveal the exact ratio of fee income to interest income in the bank's total global business, she admitted that fee income contributes to more than 50 per cent.

Kochhar also expects global business to continue contributing around 20 per cent to the bank's income and net profit in the current financial year. Overall, corporate fee income contributes to 40 per cent of total fee income of the bank, she said. In 2006-07, ICICI Bank handled 70 per cent of Indian companies' outbound M&A deals in terms of value.

"This year too, we expect to play a role in 70 per cent of M&As value-wise," Kochhar said. Kochhar expects outbound M&As to be at least around $35 billion (Rs 1.4 trillion) in 2007-08, of which $20 billion (Rs 810 billion) has already taken place in the first half.

CORPORATE LOAN RATES
Despite a glut in liquidity since May, there has been no downward correction in corporate loan rates, Kochhar said.

"On lending side, the demand continues to remain strong, so while liquidity is there, there is also demand."

On whether corporate loan rates could come down soon, she said: "There is enough liquidity in the market and there is also good demand. It will depend on what they (RBI) want to achieve. My feeling is currently the inflation worry is higher in their mind than the priority of allowing interest rates to come down."

So, until inflation comes under control, even if liquidity is available, it will be held back from the market, Kochhar said.

But clearly, with retail loan growth slowing, the bank is now stepping up its corporate loan book.

"It's not that we are moving away from one (retail) and focusing on the other (corporate). It's just that, growth scenario has changed. Last few years retail growth rate itself was substantial and there was no growth really on corporate side. Now retail growth has come down and corporate growth has picked up."

The bank's loan book internationally is growing at over 50 per cent from a year ago.

These loans comprise mostly corporate loans, Kochhar said. "Currently, we were playing a more important role in the international side because I think it was a more efficient side of funding for the corporate sector. Now, we would see how the domestic side of corporate would grow," she said.

The bank's total corporate loan growth rate is expected to be 25 per cent in 2007-08, almost flat from the first quarter of 2007-08. "The domestic loans growth is likely to be around 15-20 per cent."

FOREIGN FUNDS INTEREST
There continues to be strong investment interest by foreign institutions, indicated by the huge response to the bank's follow-on issue in June.

The other indication is from the lending side as was noted in the $1.5 billion loan syndication that was done by 23 banks, Kochhar said.

Even now, foreign investors are evincing interest to pick up stake in ICICI Bank in the secondary market, she said.

Foreign institutional investors own 72.5 per cent in the bank, almost near the maximum limit of 74%.

ICICI Bank shares closed at Rs 910.90 on the National Stock Exchange, down 0.99 per cent from Friday. Price target of ICICI Bank is Rs 1,100 a share, analysts said.

DEFAULT WORRY
Kochhar doesn't see the default rate in the bank rising, despite lending rates not coming down.

"Even if interest rates have gone up, the EMIs (equal monthly instalments) have not been increased. Also, income levels are increasing substantially. However, since interest rates are higher, people will not be able to afford that much of a bigger house. So growth rates would get impacted, and we have already seen that," Kochhar said.

In ICICI Bank, the average age of home loan customers is 30-35 years, and so in most cases the tenure of the loan has been increased and not the EMI, she said.

"We had to increase the EMIs of about 15 per cent of customers," Kochhar said. LENDING RATES
The bank has no plans of cutting lending rates, as the cost of funds are still high, Kochhar said.

"As of now, given the cost of funds the way it is and deposit rates the way they are, one has to maintain a decent profitability, I don't see much scope for reduction," Kochhar said.

Recently, some banks such as Housing Development Finance Corp, Bank of Baroda, and Allahabad Bank reduced the interest rates on home loans by 50 bps as a festive season offer. State Bank of India may also offer similar discount from next week.

"We would like to watch that the current fall in deposit rates is a sustaining trend or not, otherwise it doesn't make sense to tweak with the interest rates so often," Kochhar said.

ICICI Bank aims to maintain its net interest margin at around 2.3 per cent in 2007-08 (Apr-Mar). Recently all banks have reduced their deposit rates following the surge in liquidity by 25-50 bps.