Sep 3, 2001|
ICICI: Before becoming a bank
ICICI has already indicated its plans to become a universal bank in the next 12-18 months. The biggest benefit would be access to low cost funds but in turn the institution will have to follow the norms for CRR and SLR requirements like any other banks.
However, ICICIís large number of subsidiaries could slowdown its plans of merging with the bank. The existing Banking Regulation Act specifies that in the process of transition to a bank, the financial institution would have to de-link such activities in which subsidiaries may be engaged, which are not in consonance with activities specified for bank subsidiaries.
As per the annual report of FY01, ICICI has 31 subsidiaries engaged in the areas of insurance, personal finance, software, broking and investment banking. The institution has already pruned its number of subsidiaries to 24 as on July 2001 (by consolidating Infotech subsidiaries). This has facilitated ICICI to enter into non-life insurance business. (Cutting down of subsidiaries was one of the preconditions laid down by the RBI for ICICIís foray into the general insurance along with the lowering of non-performing assets (NPAs)).
Now to convert into a bank, ICICI has decided to further reduce the number of subsidiaries to 12 in a span of 12-18 months. Also, to meet the regulatory requirement for maintaining CRR and SLR norms when it turns into a bank, ICICI is likely to require about Rs 180 bn Ė Rs 200 bn. The other concern is its high level of gross NPAs, Rs 60 bn as on March í01. It is planning to raise Rs 150 bn during the current fiscal to bring down the net NPA ratio as a percentage of total loan assets to below 5% within the next three years (5.1% in 1QFY02). ICICI has already brought in fresh capital to the tune of Rs 30 bn and has provided Rs 1 bn as provision for NPAs in the June quarter of FY02. If the gross NPAs of ICICI accelerates in the current year due to downturn in the industrial activity, it may have to make higher provisions to achieve the target. This in turn would again depress the earnings growth in FY02.
Snapshot of key subsidiaries financials
|ICICI Brokerage services
|ICICI Web Trade
|ICICI Venture Fund
|ICICI Prudential Life Insurance
While ICICIís banking and personal finance subsidiaries are minting money, its subsidiaries in the capital markets activity have taken a hit in FY01. ICICI Infotech is also one of the fast growing companies on low revenue base. However, the company needs to diversify its client base in order to maintain the growth trajectory in future. ICICIís aggressive investments through ICICI venture fund have already resulted in an 81% fall in earnings in FY01. If the current weakness in the markets continues, the subsidiary is likely to record further drop in profits. These subsidiaries together accounted for about 10% of its earnings (excluding adjustment for accelerate provisions) in FY01. The ratio could however come down in the current year with its investments in insurance business and sluggish capital market activity.
Although, ICICI requires an amount of Rs 200 bn to covert into a bank, it would be a tough task for the institution to raise the money. This is in view of the recent fiasco of IDBI and IFCI. Exercise of call option by IDBI on its flexibonds has already shaken investor confidence. Even considering the fact of higher credit rating of ICICI, raising funds from the retail market at low cost might be difficult (loans to power sector are another concern). This in turn could delay its plans to convert into bank.
At the current market price of Rs 53, ICICI is trading at a P/E of 4x and Price/Book value ratio of 0.5x, FY02 projected earnings.
More Views on News
Aug 10, 2017
HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.
Jun 22, 2017
Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.
Jun 14, 2017
Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.
May 30, 2017
IDFC regains its tempo in FY17 post the demerger of the banking business.
May 9, 2017
HDFC ends FY17 on a tepid note as it remains conservative on the asset quality front.
More Views on News
Aug 7, 2017
The data tells us quite a different story from the one the government is trying to project.
Aug 10, 2017
Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.
Aug 8, 2017
Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...
Aug 12, 2017
The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.
Aug 7, 2017
Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407