Mumbai(IndiaPRwire)
The ICICI Bank difference is in the way it is approaching growth. It is a building a future-shock proof bank: The additional capital will take care of future asset growth and compliance with regulatory requirements.
If one were to undertake the task of choosing the single most important contribution of KV Kamath, the Managing Director and CEO of ICICI Bank, India’s largest private sector bank, it would easily be the fact that he taught the organisation to think three steps ahead of the industry. He considers speed as capital.
The stock markets have put a significant premium on the bank’s progressive thinking: ICICI Bank has emerged as India’s most valuable bank, in terms of market capitalisation. As on May 28, 2007, ICICI Bank commanded a market capitalisation of Rs 82,742 crore as against Rs 68,614 crore capitalisation of the State bank of India. Indeed, ICICI Bank commands more than double the valuation of HDFC Bank which was at Rs 35,969 crore.
Sources in the Bank said that the bank has embarked on a strategy to grow the franchise in areas as diverse as getting deep into the rural areas, by offering agriculture-based loan products and retail banking, and spreading its wings internationally. It is already India’s international bank, with presence in 18 countries through subsidiaries, branches and representative offices. The sources said “it will be useful to keep in mind that ICICI Bank has a vision of tapping each and every profitable, quality growth opportunity. ICICI Bank now needs additional capital to provide future asset growth and compliance with regulatory requirements.”
With the proposed mega issue of equity shares, ICICI Bank is making a giant leap in the future. Essentially, it is building up a war chest of capital to capitalise on to any strategic opportunities that may arise in the near future, apart from feeding its requirements of capital to fund its growing franchise.
To an astute analyst and risk-averse investor, the strategy makes eminent sense. Capital is a scarce commodity. At one level, the banking sector is poised to expand exponentially post 2009, when the WTO guidelines come into effect. There will be opportunities galore to get into new lines of businesses, expand existing lines or ever venture into carefully crafted mergers and acquisitions.
At another level, there is the question of feeding the Bank’s insatiable appetite for growth. The banking business is a capital guzzler. In line with international trends, the Reserve Bank of India has been tightening the norms of capital adequacy: For every Rs 100 lent out, Indian banks have to keep a higher proportion locked up as capital. Current RBI regulations require banks to keep apart a minimum capital of nine per cent of the risk adjusted assets and off-balance sheet items.
Further, at least half of this capital must be Tier-1 capital, in the form of pure equity. In April 2007, the RBI revised these guidelines upwards in line with Basel II requirements. Basel requirements refer to the globally accepted norms of capitalization. Thus, capital requirements were first set at 8 per cent in line in Basel I, and revised upwards to nine per cent. The RBI has set the date for implementation of Basel II at March 31, 2008.
Investors realise the fact that a rapidly growing bank has to keep tapping the markets for capital. A bank tapping the market often is a sure sign that its business is growing rapidly. ICICI Bank reported a total capital adequacy ratio of 11.7 per cent as on March 31, 2007 (as against the regulatory minimum of nine percent).
But the ICICI Bank difference is in the way it is approaching the need: instead of tapping the market at odd intervals, it has decided to raise money in one huge tranche, which will obviously leave some headway in the utilisation of proceeds. Apart from the capital requirements for growing its formidable retail and corporate businesses in India, and enhancing its retail and international presence, the bank needs funds for strengthening its insurance and asset management businesses.
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