India’s largest private sector lender ICICI Bank is raising Rs 7,000 crore through a subordinated debt programme.
Credit rating agency ICRA has assigned a ‘LAAA’ rating with a stable outlook, indicating highest credit quality and lowest risk of default, to the debt programme.
A subordinated debt is a loan which has a lower priority for repayment compared to other debts, in case the borrower defaults.
The agency, which is an associate of Moody’s Investor Services, has an outstanding rating of LAAA with a stable outlook on the existing subordinated debt programme and long-term bonds’ programme of ICICI Bank.
ICRA also has an outstanding MAAA rating on the private sector lender’s term deposits programme, indicating highest safety for medium-term borrowing. In addition, ICRA has an outstanding A1+ rating, which signifies an average credit risk, on the Certificates of Deposit Programme of ICICI Bank.
For the nine-month period ended December 2008, ICICI Bank reported a net profit of Rs 3,014 crore on a total income of Rs 29,493 crore. However, the bank has seen some stress in recent quarters.
It’s third quarter net profit grew at a modest rate of 3.4 per cent. Its capital adequacy was 15.6 per cent at the end of the third quarter.
After aggressively growing its loan book over the past few years, ICICI Bank has chosen to move at a measured pace and actually shrunk its loan book by 4.3 per cent (Rs 9,464 crore) in the quarter ended 31 December 2008. Over the same period, the bank’s deposits shrank even more, falling by 6.4 per cent, (Rs 14,337 crore).
According to a statement by ICRA, the ratings assigned to ICICI Bank’s subordinated debt take into consideration the lender’s strong position in the Indian financial system as the second-largest commercial bank, its sound financials, and its extensive corporate relationships, besides the bank’s strong retail franchise.
Additionally, the ratings factor in the ability of the bank to control the asset quality in a challenging economic environment and the ability of the bank to maintain its low-cost deposit base over the medium term.
The statement went on to say that the moderate profitability of the bank in retail assets segment is a key ratings driver over the medium term.
