ICICI Bank Issues Clarification They are Financially Sound
The Indian banking sector has remained relatively insulated from the global credit crisis and has seen mark-to-market losses of around Rs 400 Crore or US$100 Million due to investments in instruments of troubled US financial giants Lehman Brothers, AIG, Washington Mutual or Wachovia. About 75 per cent of this is borne by ICICI Bank alone. ICICI Bank has an estimated Mark to Market loss of Rs 309 crore or about a US$70 Million loss, according to a senior Finance Ministry official.
Mark-to-market is an accounting practice based on the market value of underlying securities and is variable. A mark-to-market loss is a notional loss, one that is reflected on the balance sheet.
Some state-owned banks also had exposure to instruments of troubled US financial institutions. This exposure is estimated to be around Rs 234 crore or US$52 Million across all banks. Even if you add up total losses to all Indian lenders so far, the amount is little more than a pittance when compared to write downs of over US$500 Billion, and with total losses expected to add up to over US$1 Trillion.
The London subsidiary of ICICI Bank had $80-million exposure to senior bonds of Lehman Brothers. ICICI Bank Joint MD Chanda Kochhar had said the investment by the subsidiary constituted less than 1 per cent of its total assets and less than 0.1 per cent of the consolidated total assets of the ICICI group. On June 30, 2008, ICICI Bank and its subsidiaries had consolidated total assets of Rs 484,643 crore or US$113 Billion.
ICICI Bank clarified further on Monday that its UK subsidiary had “zero” exposure to subprime US assets either directly or indirectly and had a high rating on 98 per cent of its $3.5-billion non-India investment book. The bank came out with a clarification after its shares plunged by over 12% to Rs. 493.30 or US$10.91 on worries about the bank’s mark-to-market exposure through various credit instruments was dangerous. ICICI Banks ADR’s also tumbled in overnight New York trading closing down over 12% at US$ 21.83, though the Dow Jones Industrial Average closing over 700 points down could not have helped.
ICICI Bank’s shares have lost about 60% this year, eroding its market capitalization by Rs 82,222 crore or US$18 Billion. The bank’s shares had reached a record Rs 1,465 or US$31.84 in mid-January this year. The private sector lender is largely owned by foreign institutional investors.
“ICICI Bank UK PLC has zero exposure to U.S. sub-prime credit, whether directly or through credit derivatives such as collateralised debt obligations (CDO), credit linked notes (CLNs) and credit default swaps (CDS),” the ICICI Bank statement said. The lender’s U.K. subsidiary has only 18 per cent exposure to the U.S. in its non-India investment book. Also, about 89 per cent of its investments are rated “A” and above by global rating agencies, the bank said.
“Further, ICICI Bank UK holds cash equivalent instruments, inter-bank placements and certificates of deposit of $1.1 billion, where it has no exposure to U.S. banks. ICICI Bank UK has a capital adequacy ratio of 17.4 per cent as of June 30, and a total balance-sheet size of $8.5 billion,” it said.
The clarification was the result of its stock price being hammered along with the broader market during Monday’s trade due to rumours presumably by short sellers , although ICICI Bank also experienced a mini bank run in Hyderabad as well yesterday with a few depositors lining up to withdraw their funds.
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2 Responses to “ICICI Bank Issues Clarification They are Financially Sound”
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If the depositors have faith clarifications do not matter, it just playing with the psyche of the people
If the service is good, people will remain provided that are having faith in the bank
Faith my friend is the key word, if people lose faith then the bank will fail and that is why ICICI issued its clarification so that depo9sitors and creditors keep their faith