ICICI Bank told to repay foreign loans

Govt wants bank to repay or prepay foreign currency borrowings guaranteed by it.

The central government has directed ICICI Bank to repay or prepay overseas loans guaranteed by it or arrange for alternative guarantees.

The country's largest private sector bank had government-guaranteed loans and bonds worth Rs 3,396.67 crore outstanding as on March 31, 2007.

This constitutes around 4.8 per cent of the total borrowings (including subordinated debt) of ICICI Bank at the end of March 2007. The government's letter is dated May 31, 2007. 

THE PILE-UP
	Commercial borrowings	Multilateral borrowings
2005
Amount (Rs cr)	8,688.60	2,508.00
% to total	77.60	22.40
2006
Amount (Rs cr)	16,652.40	2,403.40
% to total	87.40	12.60
2007
Amount(Rs cr)	30,613.60	2,374.00
% to total	92.80	7.20
Amount ($mn)	7,103	551

"We are in the process of replying to the Government of India in connection with this matter,'' said the bank in its filing with the Securities and Exchange Commission.

These loans and bonds were raised or issued by the erstwhile Industrial Credit and Investment Corporation of India (ICICI), a development finance institution, which was not allowed to raise deposits as its primary source of funding.

Prior to ICICI's reverse merger with its subsidiary ICICI Bank, the sources of funds for development finance institutions were retail bonds and rupee borrowings from a wide range of institutional investors.

ICICI had also raised funds through foreign currency borrowings from commercial banks and other multilateral institutions like the Asian Development Bank and the World Bank, which were guaranteed by the Government of India.

With regard to these government guarantees for purposes of obtaining foreign currency borrowings, the Government of India has now instructed the bank to take steps to either repay or prepay such foreign currency borrowings for which guarantees have been provided or substitute the guarantees with other acceptable guarantees.

ICICI Bank's borrowings increased to Rs 61,660 crore ($ 14.3 billion) at the end of March 2007 from Rs 45,000 crore ($10.4 billion) at the end of March 2006, primarily due to the increase in foreign currency borrowings, said the SEC filing. The bank's primary source of funding is deposits and, to a smaller extent, borrowings.

Deposits accounted for 63 per cent of the bank's total liabilities at the end of 2006-07 compared with 62.2 per cent a year earlier. Its borrowings accounted for 15.6 per cent of the total liabilities at the end of 2006-07 against 16.2 per cent a year earlier.

In contrast to rupee loans, a large proportion of the bank's foreign currency loans are floating rate loans. These loans are generally funded with floating rate foreign currency funds. The fixed rate foreign currency loans are generally funded with fixed rate foreign currency funds.

The bank converts all its foreign currency borrowings and deposits into floating rate dollar liabilities through the use of interest rate and currency swaps with leading international banks.

The foreign currency gaps are generally significantly lower than rupee gaps, representing a considerably lower exposure to fluctuations in foreign currency interest rates, said the bank in its filing.