ICRA assigns LAAA rating to ICICI Bank

THE INVESTMENT Information and Credit Rating Agency (ICRA) has assigned an LAAA rating to the Rs. 350 crore subordinated bonds programme of ICICI Bank (IBL). The rating takes into consideration the strong parentage of the bank, the strategic importance of the bank to the parent, its comfortable profitability and capital adequacy, and the rapid growth in asset base along with a good control on asset quality. The rating also takes into consideration the technology and the retail initiatives of the bank, which have resulted in a rapid growth in deposits and a lower cost of deposits, and the potential that these initiatives provide in earning fee-based revenue through cross selling of financial products. IBL is also expected to benefit from the branch network of Bank of Madura (BoM), which it acquired in March 2001.

IBL was promoted by ICICI in 1994. In March 2000, the bank raised capital through an issue of American Depository Shares, which enhanced its equity capital from Rs. 165 crores to Rs. 197 crores and share premium to Rs. 769 crores from Rs. 38 crores. The issue has helped augment the resource requirement of the bank, its capital adequacy and liquidity. Its asset base has grown from Rs. 3,280 crores as on March 31, 1998 to Rs. 19,740 crores as on March 31, 2001 and it is the largest among the new private sector banks, and comparable to some of the medium-sized public sector banks. IBL has been able to leverage on ICICI's relationship with the Indian corporate sector in building up its asset book and garnering fee-based income.

IBL's focus increasingly has been to enhance its lending to higher credit quality borrowers and gain larger share of fee- based revenues. The increase in its capital, the implementation of risk evaluation methods and the steady decline in the cost of deposits have helped the bank to improve the quality of its credit portfolio. NPAs have been under control. The increase in net NPAs (including credit-like instruments) from 1.14 per cent of net advances (including credit-like instruments) as on March 31, 2000 to 1.44 per cent as on March 31, 2001 was mainly due to the NPAs from BoM. Management's control on asset quality will be the key to the future performance. The quality of new exposures, implementation of the risk management systems and management's control on asset quality mitigates the risk of the bank's lending business.

The bank's focus on the retail sector has helped it mobilise deposits while bringing down the cost of deposits. Retail deposits have grown rapidly and constitute nearly 61 per cent of its deposit base thus lending stability to its deposit base. The bank's ATM network of 510 as on March 31, 2001 is the largest single bank ATM network in the country. Its customer base has increased from about 6 lakhs to 2 million in 2000-01 and the number of accounts as on March 31, 2001, including those of BoM 3.2 million.

The bank intends to capitalise on its customer base to generate fee-based revenue by cross selling financial products such as debit cards, fixed income instruments, mutual fund products and insurance. Operating expenses of the bank are higher as compared to other new private sector banks on account of investment in IT infrastructure, customer acquisition costs and to retail initiatives for increasing the retail deposit base. However, in future with increase in business from these segments, the operating expenses as a percentage of assets deployed would decline resulting in a favourable contribution to the IBL's profitability.

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Section  : Business
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