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Asia-PacificMarch 3 2004

Riding India’s growth wave

Foreign investors are bullish on India’s banks and ICICI especially. By Kala Rao and Stephen Timewell in Mumbai.
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ICICI Bank, India’s largest private sector bank by assets, plans to raise fresh capital by selling shares worth around Rs30bn ($665m) at current market prices. The equity will be sold in the local stock market and the price will be fixed in a bid-auction slated for mid-April.

ICICI CEO and Managing Director K V Kamath says: “The growth potential in the Indian economy over the next three to four years is strong, and the new capital will anchor the next phase of the bank’s growth.

“We will use the capital to meet the growing demand for consumer credit, our insurance businesses and ICICI’s expansion overseas.”

ICICI, which is largely foreign owned and has expanded enormously in recent years plans to grow organically, and Mr Kamath says he is not looking at any local acquisitions.

Consumer credit in India is currently growing at around 45%-50% annually, and considering that the Indian economy is expected to grow at around 8% this year, demand for consumer loans is expected to remain strong.

In addition, consumer credit is growing from a modest base of under 5% of India’s GDP, unlike higher leverage levels in countries such as Korea, and there is plenty of room for growth, Mr Kamath points out.

At ICICI, retail assets grew 85% in 2003 to Rs282.65bn ($6.2bn), and they constitute 24% of its total assets. The bank has a 33% market share of consumer credit, and the bank’s retail loan book is structured in a way that the risk is minimal.

Half of its consumer loans are home loans backed by mortgages, while unsecured credit in the form of credit cards comprises just 1% and personal loans total 15% of its retail loan book.

National expansion

The bank has 10 million customers, up from just 100,000 five years ago, and 450 branches across the country and customer acquisition is the fastest in the country at 250,000 per month. Mr Kamath, however, is not interested in domestic acquisitions and prefers organic growth. “I do not find opportunities here which would add to our position.”

Two insurance joint ventures – with Prudential of the UK for life insurance and with Lombard for general insurance – are key areas for future growth. ICICI’s global presence has been strengthened over the last two years. The bank set up subsidiaries in the UK and Canada late last year; it has off-shore banking centres in Singapore and Mumbai and another planned in Bahrain. It has representative offices in the US, Dubai and China. It has partnered with banks in the United Arab Emirates, Canada and Saudi Arabia to tap the Indian expatriate remittance market. “We are building our global business in a measured way. It is a business we do not yet know well,” says Mr Kamath.

The bank’s shares are listed on the New York Stock Exchange (NYSE) and around 25% of them are held as American Depository Receipts by overseas investors. Foreign portfolio investors registered in India owned around 45.25% of its shares at the end of December 2003.

In mid-February Temasek, the investment arm of the government of Singapore, raised its shareholding in ICICI Bank to 7.3% from 6.7%, making it the second largest shareholder in the bank after a state-run life insurance firm.

Foreign inputs

Foreign shareholders own 72% of ICICI’s shares and on February 13, under a new rule announced in January that caps foreign ownership at 74% in private Indian banks, the central bank directed that no further purchases of shares of ICICI Bank could be made by foreign investors. ICICI’s equity expansion in April will bring the level of foreign ownership in the bank down, and allow room for more foreign investment, say analysts.

For the third quarter ended December 2003, ICICI posted a 33% rise in profit after tax compared with the third quarter of the previous fiscal year. Net interest margin improved to 1.8% in the nine months this fiscal year compared with 1.4% in the last fiscal year. Total equity capital is Rs 6.1bn, or 11.32% of its assets adjusted for risk, of which Tier I capital is 7.18%. Net non-performing assets are 4.7% of its total Rs1,168bn assets.

The Indian stock markets are on a roll; the benchmark Bombay Stock Exchange Sensex has doubled since May last year. Foreign investors who pumped $6.7bn into the local stock market last year, are bullish on banks. Several state banks such as Vijaya raised capital last year, and their shares have more than doubled.

Bank of Maharashtra, a state bank, was in the market in late February to raise Rs 2.3bn in equity capital. The Indian government kicked off a $3bn sale of shares of state companies on February 17.

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