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ICICI Bank Management Wakes Up

August 27, 2008

The Management of ICICI Bank has finally woken up fulfill customers and shareholders needs. It is now focused on improving its operating efficiency. Here are the details of Management views at a roadshow in Singapore.

Asset Growth:
Balance sheet growth will moderate further to 5-10% in FY09 for standalone bank from current growth rates of 13%. This is is lower than consensus estimate of 15% in FY09.Retail disbursements are down 30% Y-o-Y due to: (1) increased booking of mortgage business under the housing finance subsidiary; and (2) cautious lending to two-wheeler and unsecured retail segments.

International Business:
ICICI is steadily growing its balance sheet outside India and the international balance sheet currently contributes to ~29-30% of the loan book on consolidated basis (~24% of standalone book).International banking is clearly the new growth frontier for ICICIB, particularly Indian corporate-linked banking and NRI banking. The retail banking experience in the UK and Canada has been encouraging so far.

Operational Costs:
ICICI has initiated various cost-cutting measures and is focused on optimising the same. Expenses directly linked to loan growth (sourcing expense etc) are slowing down, due to 30% decline in retail disbursement in last quarter. The bank is aiming to maintain operating expenses growth within 10% Y-o-Y.

Asset Quality deterioration:
Nearly 20% of retail assets which comprises of unsecured loans contribute to ~65% of retail NPA, suggesting high delinquencies in personal loans and credit cards segment. Delinquencies will continue to rise, driven by stress in two-wheeler and unsecured personal loan portfolios, which are expected to peak only in Q4FY09. Additions to NPA should decelerate as bank sees complete wind down of its small ticket personal loan (STPL) book (roughly INR 10bn).

Growth outlook on the non-banking subsidiaries:
The bank expects new business growth to remain at ~35-40% (in line with our assumption) for FY09. It expects more capital infusion in the next one-two years and intends to place ~5% through private placement, if the sector does not open in one year.

Looks like ICICI is analogus to American sub-prime in a mini way 😉

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