Sub-prime exposure at ICICI Bank is zero

India's second-largest bank is on the prowl. Though relatively a new entrant, ICICI Bank is well ahead of its Indian counterparts in tapping the Gulf market for the entire gamut of banking services. Identifying its growth potential, Dubai International Capital (DIC), the international investment arm of Dubai Holding, acquired a stake in the bank.

With total assets of Rs3,767 billion (Dh342bn) as of December 31, 2007, ICICI Bank is second-largest listed firm in terms of free float market capitalisation. The bank has a network of 955 branches and 3,687 ATMs in India and a presence in 18 countries. It offers investment banking, life and non-life insurance, venture capital and asset management services.

The bank currently has subsidiaries in the United Kingdom, Russia and Canada; branches in the Unites States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre; and representative offices in the UAE, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. The UK subsidiary has established branches in Belgium.

ICICI Bank UK has achieved leadership in overseas acquisitions by Indian corporates, has high street retail operations across seven branches with a 30 per cent market share in remittances to India and is a leader in Britain's local internet savings market. It also has a branch in Antwerp, Belgium, focussed on the diamond trade finance business.

Executive Director Sonjoy Chatterjee spoke to Emirates Business on the bank's growth plans, its sub-prime exposure and the strategy to penetrate the Gulf market.

Reports say you were hit by the US sub-prime mortgage crisis. The bank has lost nearly $264 million (Dh968m) until the end of January 2008. Your comment?

ICICI Bank has zero sub-prime exposure. I repeat, our sub-prime exposure is zero. Nobody said we had sub-prime exposure. The press made the statement that we took a hit because of the bonds ICICI Bank was holding. For example, we hold the bonds of Tata Motors, which had a marked-to-market loss. How can one call the Tata Motors bond sub-prime? These are the questions people don't want to ask. Therefore, ICICI Bank does not have any sub-prime exposure.

ICICI bank losses are attributed to its aggressive investment in the credit derivatives. True?

The loss was not due to investments in the US sub-prime loan market, but due to the fall in the value of securities in the global market. The rise in the international interest rates due to the sub-prime mortgage crisis was the main cause for the fall in the value of securities in the global market, which forced the bank to make up the difference from its turnover.

Though relatively young, ICICI Bank is well ahead of other Indian banks in tapping the Gulf market. What is your strategy?

In the Gulf region we find a variety of opportunities, whether it is remittance services or helping buy assets in India. The second opportunity is wealth management services and private banking. It is not just to do with non-resident Indians. It is also to do with local institutions, local fund houses, helping them understand India better. I think India is the largest financial services centre in the region and we have a role to play in facilitating or helping institutions to look at India better. We have been successful so far and see a lot more happening as India grows more. We have a full-fledged branch in Bahrain and the balance sheet today is in excess of $10bn.

What about the UAE operations? You have been trying to get a branch licence from the UAE Central Bank.

Frankly, we have not been trying to get any branch licence. We know the regulations in this country.

ICICI Bank has been very strong in the syndication market. You have been associated with Emirates Bank as well as a Russian bank in raising funds. What are your strengths?

One of the things that has come out of our international franchise is the full syndication business. We were ranked number one from 2007 by Reuters in dollar syndications for Indian companies. We were ahead of Standard Chartered and others. I think this was was a direct result of having set up international franchises in the Gulf and the UK.

The syndication ability that was built up with Indian corporate papers has now started transcending away from just Indian papers into other markets. We saw a big market in Russia particularly as the country was going up the rating curve. We found there was an opportunity in active syndication by Russian banks and banks in the Gulf were bidding partners. We used the strength of our local presence there.

Are you extending this partnership to other banks also?

On the syndication side I won't call it a partnership with any one bank. Emirates Bank, by history of the relationship with us, has always been working closely with us. On the syndication side we do not have such partnerships. We work with a host of banks.

You have large exposure in the Indian mortgage market and the rising interest rates are hindering growth.

Yes, interest rates continue to stay high. Prices have been going up. The market was growing at 30-40 per cent for the past five years. This year we saw growth slowing to 10-15 per cent.

This is on the back of two reasons: one, the interest rates continue to stay high and the volume of loan required to purchase a new home in India has gone up.

But in certain regions in India, the values are coming down.

You are right, in some parts of the country prices have come down, such as Gurgaon and Mumbai. But overall they are still high.

So, for the salaried individuals, who have a fixed disposable income, it is difficult to take a much higher EMI because the prices have increased manifold. That's why we see a lesser growth rate than previous years.

Will India witness a mortgage crisis like the one in the United States?

It cannot happen in India because the principle on which the business is built is totally different. First of all, there are no interest-only mortgage loans in India. Today your ability to pay back the principal might be negligible. In India there is no concept of interest-only loans. In the Western market, the loan-to-value is 95 to 100 per cent. It doesn't exist in India. It is only 70 per cent in India. In the US, everybody who bought a home wanted to make money out of nothing. They wanted to make money overnight and this crisis was bound to happen. It will not happen in India because nobody buys a home just for the heck of it.

A consolidation is taking place in the Indian banking industry. Larger banks are buying up smaller ones. Will you go for it?

No. We continue to see 30 per cent growth on our own capital. We don't see any urgency to pick up any smaller lenders.

What's the outlook on the interest rates?

The rates will continue where they are right now. They are already fairly high compared to the global markets.

The International Monetary Fund (IMF) has projected slower growth rate for India. Will there be a corresponding deceleration in the banking sector growth?

They are talking about nine per cent growth rate becoming eight per cent or 8.5 per cent. The impact of eight per cent growth or nine per cent growth on the sector may not be significant.

Dubai International Capital has become one of the leading shareholders in ICICI with an interest in 2.87 per cent of outstanding share capital. At what price was it bought?

Honestly, I don't know.

The sovereign funds here go shopping all over. If they approach ICICI Bank, how will you respond?

We have enough capital right now to sustain our operations for the next couple of years. We are comfortable at least for the next two years. If at all anybody wants to invest, let him invest in the market.

On the other hand, it is value-picking time now. Will you be looking at grabbing the opportunity in the United States or other markets?

No. We just launched our brand there [in the US] and started our own bank. At present we don't have any investment plan.

You have a large NRI (non-resident Indian) customer base in the UAE. What are the new offerings?

We are working on a new remittance system with latest technology – call and remit facility. On the investment side, as India is a growing economy, we are looking at a thematic fund and an infrastructure real estate fund, depending on the opportunity. We are also looking at an art fund.


PROFILE: Sonjoy Chatterjee Executive Director, ICICI Bank

Chatterjee is responsible for the corporate and investment banking, government banking and international banking businesses of India's ICICI Bank. He was Managing Director and CEO of ICICI Bank UK, with assets of about Rs280bn (Dh25bn) for the half-year ended September 30, 2007. He was responsible for ICICI Bank's North American, European and CIS operations and was also responsible globally for the top 50 Indian corporate accounts of ICICI Bank.

Chatterjee moved to London in 2003 to set up ICICI Bank's first overseas subsidiary. Today, ICICI Bank UK is the largest overseas Indian bank and the highest rated Indian bank there.

Chatterjee is a member of the EU Advisory Group of the City of London. He takes a deep interest in India's globalisation programme and is Chairman of "The India Group", a private sector alliance of India's largest corporates in UK and Europe. Chatterjee is also designated as international envoy for the City of London. He has a bachelor's degree in chemical engineering and a master's degree in business administration from IIM, Bangalore.