Private sector ICICI Bank plans to raise Rs 4,000 crore of capital through Upper Tier-II and Tier-I perpetual bonds to support business growth.
The country’s largest private lender will issue Upper Tier-II bonds for up to Rs 2,000 crore and Tier-I hybrid bond for the same amount.
Rating agency Crisil has assigned AAA/Negative to the banks’ Upper Tier-II and Tier-I perpetual bonds, while reaffirming the rating on the its existing bond issues at AAA/Negative.
The bank has a healthy overall capital adequacy ratio (CAR) of 17.7 per cent and Tier-I CAR of 13.3 per cent as on September 30. These levels made it one of the most well capitalised banks in India, the rating agency said.
The ratings reflects the bank’s healthy capitalisation, strong market position, and the demonstrated capabilities of its management. These rating strengths are partially offset by the expectation of continued pressure on its core earnings and asset quality.
The bank had a sizeable net worth of Rs 51,300 crore. Its advances growth is expected to remain muted in 2009-10. Therefore, capital adequacy will remain strong enough in medium term to support growth in advances.
ICICI Bank is the second-largest lender in India, with an asset base of Rs 3.66 lakh crore as on September 30, constituting around 8 per cent of the banking sector’s assets.
It is one of the top lenders in secured retail financing. Retail assets constituted 45 per cent of its total advances as on September 30. With its group companies, the bank has a strong presence across other financial segments, such as project and corporate finance, life and general insurance, asset management, investment banking, retail broking and private equity.
However, over the past 18 months, the bank has adopted a conscious strategy of moderating advances growth, which has led to around 9 per cent decline in its asset base during this period ended September 30.
The bank’s growth is expected to remain muted in 2009-10. Nevertheless, Crisil expects the bank’s market position to remain strong, given its presence across segments and the plan for addition of 580 branches during the year. The ratings are also supported by the bank’s strong management, which has transformed ICICI Bank into a full-service universal bank today, from a predominantly corporate-focused one in 2002.
The management is now consolidating the bank’s position, by growing its low-cost deposit base, conserving capital, controlling costs, and monitoring credit quality. The management’s ability to maintain a strong market position will be a key factor for rating.
Its core profitability could remain constrained in the near term because of tightening fee income and higher provisioning. During the six months ended September 30, the bank made loan-loss provisions of Rs 2,395 crore as against Rs 1,716 crore in the corresponding period of the previous year.
Limited growth in retail assets, coupled with reduced merger and acquisition activities in the corporate sector, has adversely affected the bank’s fee income during the first half of 2009-10. Its fee income declined to Rs 2,706 crore from Rs 3,834 crore during the corresponding period of the previous year.
