ICICI BANK LIMITED
ANNUAL REPORT 2010-2011
DIRECTOR'S REPORT
Your Directors have pleasure in presenting the Seventeenth Annual Report of
ICICI Bank Limited with the audited statement of accounts for the year
ended March 31, 2011.
FINANCIAL HIGHLIGHTS
The financial performance for fiscal 2011 is summarised in the following
table:
Rs. billion, except percentages Fiscal 2010 Fiscal 2011 % change
Net interest income and other income 155.92 156.65 0.5%
Provisions & contingencies1 43.87 22.87 (47.9)%
Profit before tax 53.45 67.61 26.5%
Profit after tax of the Bank 40.25 51.51 28.0%
1. Excludes provision for taxes.
Rs. billion, except percentages Fiscal 2010 Fiscal 2011 % change
Consolidated profit after tax 46.70 60.93 30.5%
Appropriations
The profit after tax of the Bank for fiscal 2011 is Rs.51.51 billion after
provisions and contingencies (excluding provision for taxes) of Rs.22.87
billion and all expenses. The disposable profit is Rs.86.15 billion, taking
into account the balance of Rs.34.64 billion brought forward from the
previous year. Your Directors have recommended a dividend at the rate of
Rs.14 per equity share of face value Rs.10 for the year and have
appropriated the disposable profit as follows:
Rs. billion Fiscal 2010 Fiscal 2011
To Statutory Reserve, making in all Rs.73.75
billion1 10.07 12.88
To Special Reserve created and maintained
in terms of Section 36(1) (viii) of the
Income-tax Act, 1961, making in all Rs.31.69
billion 3.00 5.25
To Capital Reserve, making in all Rs.21.46
billion 4.44 0.83
To/(from) Investment Reserve, making in
all Nil 1.16 (1.16)
To General Reserve, making in all Rs.49.80
billion 0.01 -
Dividend for the year (proposed)
- On equity shares @ Rs.14 per share
(@ Rs.12 per share for fiscal 2010)2 13.38 16.15
- On preference shares (Rs.) 35,000 35,000
- Corporate dividend tax 1.64 2.02
Leaving balance to be carried forward
to the next year3 34.64 50.18
1. Includes Rs.2.00 billion on amalgamation of The Bank of Rajasthan
Limited with ICICI Bank Limited.
2. Includes dividend for the prior year paid on shares issued after the
balance sheet date and prior to the record date.
3. After taking into account transfer to Reserve Fund Rs.0.4 million for
fiscal 2011, making in all Rs.11.3 million.
MERGER OF THE BANK OF RAJASTHAN LIMITED WITH ICICI BANK
The Bank of Rajasthan Limited (Bank of Rajasthan), a banking company
incorporated within the meaning of Companies Act, 1956 and licensed by
Reserve Bank of India (RBI) under the Banking Regulation Act, 1949 was
amalgamated with ICICI Bank Limited (ICICI Bank/the Bank) with effect from
close of business on August 12, 2010 in terms of the Scheme of Amalgamation
(the Scheme) approved by RBI vide its order DBOD No. PSBD
2599/16.01.056/2010-11 dated August 12, 2010 under sub section (4) of
section 44A of the Banking Regulation Act, 1949. The consideration for the
amalgamation was 25 equity shares of ICICI Bank of the face value of Rs.10
each fully paid-up for every 118 equity shares of Rs.10 each of Bank of
Rajasthan. Accordingly, ICICI Bank allotted 31,323,951 equity shares to the
shareholders of Bank of Rajasthan on August 26, 2010 and 2,860,170 equity
shares, which were earlier kept in abeyance pending civil appeal, on
November 25, 2010.
SUBSIDIARY COMPANIES
At March 31, 2011, ICICI Bank had 17 subsidiaries as listed in the
following table:
Domestic Subsidiaries International Subsidiaries
ICICI Prudential Life Insurance
Company Limited ICICI Bank UK PLC
ICICI Lombard General Insurance ICICI Bank Canada
Company Limited
ICICI Prudential Asset Management ICICI Bank Eurasia
Company Limited Limited Liability Company
ICICI Prudential Trust Limited ICICI Securities Holdings Inc.2
ICICI Securities Limited ICICI Securities Inc.3
ICICI Securities Primary ICICI International Limited
Dealership Limited
ICICI Venture Funds Management
Company Limited
ICICI Home Finance Company
Limited
ICICI Investment Management
Company Limited
ICICI Trusteeship Services
Limited
ICICI Prudential Pension
Funds Management Company
Limited1
1. Subsidiary of ICICI Prudential Life Insurance Company Limited.
2. Subsidiary of ICICI Securities Limited.
3. Subsidiary of ICICI Securities Holdings Inc.
The Ministry of Corporate Affairs (MCA) vide its Circular No.51/12/2007-CL-
III
dated February 8, 2011 has granted general exemption under Section 212(8)
of the Companies Act, 1956 to companies from attaching the accounts of
their subsidiaries in their annual reports subject to fulfillment of
certain conditons prescribed. The Board of Directors of the Bank at its
Meeting held on April 28, 2011 noted the provisions of the circular of MCA
and passed the necessary resolution granting the requisite approvals for
not attaching the balance sheet, profit & loss account, report of the board
of directors and report of the auditors of each of the subsidiary companies
to the accounts of the Bank for fiscal 2011. The Bank will make available
these documents/details upon request by any Member of the Bank. These
documents/details will be available on the Bank's website
(www.icicibank.com) and will also be available for inspection by any Member
of the Bank at its Registered Office and Corporate Office and also at the
registered offices of the concerned subsidiaries. As required by Accounting
Standard-21 (AS-21) issued by the Institute of Chartered Accountants of
India, the Bank's consolidated financial statements included in this Annual
Report incorporate the accounts of its subsidiaries and other consolidating
entities. A summary of key financials of the Bank's subsidiaries is also
included in this Annual Report.
DIRECTORS
The RBI vide its letter dated June 24, 2010 approved the appointment of
Rajiv Sabharwal as an Executive Director of the Bank. The Members approved
his appointment at the Sixteenth Annual General Meeting (AGM) held on June
28, 2010.
Narendra Murkumbi retired by rotation on June 28, 2010 at the last AGM and
did not seek re-appointment. The valuable guidance and contribution made by
Narendra Murkumbi was recognised by the Board.
Pursuant to the provisions of the Banking Regulation Act, 1949, M. K.
Sharma retired from the Board effective January 31, 2011 on completion of
eight years as a non-executive Director of the Bank. The Board placed on
record its deep appreciation and gratitude for his guidance and
contribution to the Bank.
In terms of the provisions of the Companies Act, 1956 and the Articles of
Association of the Bank, V. Prem Watsa, M. S. Ramachandran and K. Ramkumar
would retire by rotation at the forthcoming AGM and are eligible for re-
appointment. M. S. Ramachandran and K. Ramkumar have offered themselves for
re-appointment. V. Prem Watsa has expressed his desire not to seek re-
appointment as a Director as his maximum permissible tenure of eight years
as a non-executive Director of the Bank would end on January 28, 2012. A
Resolution is proposed to the Members in the Notice of the current AGM to
this effect and also not to fill up the vacancy caused by the retirement of
V. Prem Watsa at this meeting or any adjourned meeting thereof.
AUDITORS
The auditors, S.R. Batliboi & Co., Chartered Accountants, will retire at
the ensuing AGM. As recommended by the Audit Committee, the Board has
proposed the appointment of S.R. Batliboi & Co., Chartered Accountants as
statutory auditors for fiscal 2012. Their appointment is subject to
approval of RBI. You are requested to consider their appointment.
PERSONNEL
As required by the provisions of Section 217(2A) of the Companies Act,
1956, read with Companies (Particulars of Employees) Rules, 1975, as
amended, the names and other particulars of the employees are set out in
the Annexure to the Directors' Report.
APPOINTMENT OF NOMINEE DIRECTORS ON THE BOARDS OF ASSISTED COMPANIES
Erstwhile ICICI Limited (ICICI) had a policy of appointing nominee
directors on the boards of certain borrower companies based on loan
covenants, with a view to enable monitoring of the operations of those
companies. Subsequent to the merger of ICICI with ICICI Bank, the Bank
continues to nominate directors on the boards of assisted companies. Apart
from the Bank's employees, experienced professionals from various fields
are appointed as nominee directors. At March 31, 2011, ICICI Bank had 19
nominee directors of whom 16 were employees of the Bank, on the boards of
34 assisted companies. The Bank has a Nominee Director Cell for maintaining
records of nominee directorships.
RISK MANAGEMENT FRAMEWORK
The Bank's risk management strategy is based on a clear understanding of
various risks, disciplined risk assessment and measurement procedures and
continuous monitoring. The policies and procedures established for this
purpose are continuously benchmarked with international best practices. The
Board of Directors has oversight on all the risks assumed by the Bank.
Specific Committees have been constituted to facilitate focused oversight
of various risks, as follows:
* The Risk Committee of the Board reviews risk management policies of the
Bank in relation to various risks. The Risk Committee reviews various risk
policies pertaining to credit, market, liquidity, operational and
outsourcing risks, review of the Bank's stress testing framework and group
risk management framework. The Committee reviews the risk profile of the
Bank through periodic review of the key risk indicators and risk profile
templates and annual review of the Internal Capital Adequacy Assessment
Process. The Committee also reviews the risk profile of its overseas
banking subsidiaries annually. The Risk Committee reviews the Bank's
compliance with risk management guidelines stipulated by the Reserve Bank
of India and of the status of implementation of the advanced approaches
under the Basel framework. The Risk Committee also reviews the stress-
testing framework as part of the Internal Capital Adequacy Assessment
Process (ICAAP). The stress testing frame work included a wide range of
Bank-specific and market (systemic) scenarios. Linkage of macroeconomic
factors to stress test scenarios was documented as a part of ICAAP. The
ICAAP exercise covers the domestic and overseas operations of the Bank, the
banking subsidiaries and the material nonbanking subsidiaries. The Risk
Committee also reviews the Liquidity Contingency Plan (LCP) for the Bank
and the threshold limits.
* Apart from sanctioning credit proposals, the Credit Committee of the
Board reviews developments in key industrial sectors and the Bank's
exposure to these sectors as well as to large borrower accounts. The Credit
Committee also reviews the non-performing loans, accounts under watch,
overdues and incremental sanctions.
* The Audit Committee of the Board provides direction to and also monitors
the quality of the internal audit function and also monitors compliance
with inspection and audit reports of RBI and statutory auditors.
* The Asset Liability Management Committee is responsible for managing
liquidity and interest rate risk and reviewing the asset-liability position
of the Bank.
A summary of reviews conducted by these committees are reported to the
Board on a regular basis.
Policies approved from time to time by the Board of Directors/Committees of
the Board form the governing framework for each type of risk. The business
activities are undertaken within this policy framework. Independent groups
and sub-groups have been constituted across the Bank to facilitate
independent evaluation, monitoring and reporting of various risks. These
groups function independently of the business groups/sub-groups.
The Bank has dedicated groups namely the Risk Management Group (RMG),
Compliance Group, Corporate Legal Group, Internal Audit Group and the
Financial Crime Prevention and Reputation Risk Management Group (FCPRRMG),
with a mandate to identify, assess and monitor all of the Bank's principal
risks in accordance with well-defined policies and procedures. RMG is
further organised into Credit Risk Management Group, Market Risk Management
Group and Operational Risk Management Group. These groups are completely
independent of all business operations and coordinate with representatives
of the business units to implement ICICI Bank's risk management policies
and methodologies. The internal audit and compliance groups are responsible
to the Audit Committee of the Board.
CORPORATE GOVERNANCE
It is annexed as seperate part of the 'REPORT ON CORPORATE GOVERNANCE'.
COMPLIANCE CERTIFICATE OF THE AUDITORS
ICICI Bank has annexed to this report, a certificate obtained from the
statutory auditors, S.R. Batliboi & Co., Chartered Accountants, regarding
compliance of conditions of Corporate Governance as stipulated in Clause 49
of the listing agreement.
EMPLOYEE STOCK OPTION SCHEME
In fiscal 2000, ICICI Bank instituted an Employee Stock Option Scheme
(ESOS) to enable the employees and Directors of ICICI Bank and its
subsidiaries to participate in future growth and financial success of the
Bank. As per the ESOS, as amended from time to time, the maximum number of
options granted to any employee/Director in a year is limited to 0.05% of
ICICI Bank's issued equity shares at the time of the grant, and the
aggregate of all such options is limited to 5% of ICICI Bank's issued
equity shares on the date of the grant (equivalent to 57.59 million shares
at April 28, 2011).
Options granted for fiscal 2003 and earlier years vest in a graded manner
over a three-year period, with 20%, 30% and 50% of the grants vesting in
each year, commencing not earlier than 12 months from the date of grant.
Options granted for fiscal 2004 to 2008 vest in a graded manner over a
four-year period, with 20%, 20%, 30% and 30% of the grants vesting in each
year, commencing not earlier than 12 months from the date of grant. Options
granted in April 2009 vest in a graded manner over a five year period with
20%, 20%, 30% and 30% of grant vesting each year commencing from the end of
24 months from the date of grant.
Options granted in April 2010 vest in a graded manner over a four year
period with 20%, 20%, 30% and 30% of the grant vesting each year commencing
from the end of 12 months from the date of grant. On the basis of the
recommendation of the Board Governance, Remuneration and Nomination
Committee (BGRNC), the Board at its Meeting held on October 29, 2010
approved a grant of approximately 3.1 million options as a special measure
to eligible employees and wholetime Directors of ICICI Bank and certain of
its subsidiaries. Each option confers on the beneficiary a right to apply
for one equity share of face value of Rs.10 of ICICI Bank at Rs.967.00
which was the average closing price of the ICICI Bank stock on the stock
exchange during the six months up to October 28, 2010. 50% of the options
granted would vest on April 30, 2014 and the balance 50% on April 30, 2015.
The Bank has received approval of RBI for the above grant of options to
wholetime Directors of the Bank. The Board further at its meeting held on
April 28, 2011 approved a grant of approximately 4.25 million options for
fiscal 2011 to eligible employees and wholetime Directors (options granted
to wholetime Directors being subject to RBI approval). Each option confers
on the employee a right to apply for one equity share of face value of
Rs.10 of ICICI Bank at Rs.1,106.85 which was closing price on the stock
exchange which recorded the highest trading volume in ICICI Bank shares on
April 27, 2011. These options would vest over a four year period, with 20%,
20%, 30% and 30% respectively of the grant of vesting each year commencing
from the end of 12 months from the date of grant.
Options can be exercised within 10 years from the date of grant or five
years from the date of vesting, whichever is later. The price of the
options granted prior to June 30, 2003 is the closing market price on the
stock exchange, which recorded the highest trading volume on the date of
grant. The price for options granted on or after June 30, 2003 till July
21, 2004 is equal to the average of the high and low market price of the
equity shares in the two week period preceding the date of grant of the
options, on the stock exchange which recorded the highest trading volume
during the two week period. The price for options granted on or after July
22, 2004 (other than the grants made on October 29, 2010) is equal to the
closing price on the stock exchange which recorded the highest trading
volume preceding the date of grant of options. The above disclosure is in
line with the SEBI guidelines, as amended from time to time.
Particulars of options granted by ICICI Bank upto April 28, 2011 are given
below:
Options granted till April 28, 20111 (excluding
options forfeited/lapsed) 53,152,313
Options forfeited/lapsed 9,087,542
Options exercised 28,693,881
Total number of options in force 24,458,432
Options vested 42,706,923
Number of shares allotted pursuant to
exercise of options 28,693,881
Extinguishment or modification of options Nil
Amount realised by exercise of options (Rs.) 6,734,413,993
1. Includes Options granted to wholetime Directors pending RBI approval
No employee was granted options during any one year equal to or exceeding
0.05% of the issued equity shares of ICICI Bank at the time of the grant.
The diluted earnings per share (EPS) pursuant to issue of shares on
exercise of options calculated in accordance with AS-20 was Rs.45.06 in
fiscal 2011 against basic EPS of Rs.45.27. The Bank recognised a
compensation cost of Rs.2.9 million in fiscal 2011 based on the intrinsic
value of options. However if ICICI Bank had used the fair value of options
based on binomial tree model, compensation cost in the year ended March 31,
2011 would have been higher by Rs.905.8 million and proforma profit after
tax would have been Rs.50.60 billion. On a proforma basis, ICICI Bank's
basic and diluted earnings per share would have been Rs.44.47 and Rs.44.27
respectively.
The key assumptions used to estimate the fair value of options granted
during the year ended March 31, 2011 are given below.
Risk-free interest rate 5.26% to 8.42%
Expected life 6.35 to 6.87 years
Expected volatility 48.38% to 49.82%
Expected dividend yield 1.10% to 1.33%
In respect of options granted in fiscal 2011, the weighted average exercise
price of the options and the weighted average fair value of the options
were Rs.972.00 per option and Rs.535.87 per option respectively.
Conservation of Energy , Technology absorption, Foreign Exchange Earnings
and outgo, under Section 217(1)(e) of the Companies Act, 1956.
The provisions of Section 217(1)(e) of the Companies Act, 1956 relating to
conservation of energy and technology absorption do not apply to the Bank.
The Bank has, however, used information technology extensively in its
operations.
Implementation of circular isued by Ministry of Corporate Affairs on 'Gren
Initiatives in Corporate Governance '
The Bank has implemented the Green Initiative' as per Circular No. 17/2011
dated April 21, 2011 and Circular No. 18/2011 dated April 29, 2011 issued
by the Ministry of Corporate Affairs to enable electronic delivery of
notices/documents and annual reports to shareholders.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors confirm:
1. that in the preparation of the annual accounts, the applicable
accounting standards have been followed, along with proper explanation
relating to material departures;
2. that they have selected such accounting policies and applied them
consistently and made judgements and estimates that are reasonable and
prudent, so as to give a true and fair view of the state of affairs of the
Bank at the end of the financial year and of the profit or loss of the Bank
for that period;
3. that they have taken proper and sufficient care for the maintenance of
adequate accounting records, in accordance with the provisions of the
Banking Regulation Act, 1949 and the Companies Act, 1956 for safeguarding
the assets of the Bank and for preventing and detecting fraud and other
irregularities; and
4. that they have prepared the annual accounts on a going concern basis.
ACKNOWLEDGEMENTS
ICICI Bank is grateful to the Government of India, RBI, SEBI and overseas
regulators for their continued cooperation, support and guidance. ICICI
Bank wishes to thank its investors, the domestic and international banking
community, rating agencies and stock exchanges for their support.
ICICI Bank would like to take this opportunity to express sincere thanks to
its valued clients and customers for their continued patronage. The
Directors express their deep sense of appreciation of all the employees,
whose outstanding professionalism, commitment and initiative has made the
organisation's growth and success possible and continues to drive its
progress. Finally, the Directors wish to express their gratitude to the
Members for their trust and support.
For and on behalf of the Board
K. V. Kamath
Date: May 13, 2011 Chairman
Compliance with the Group Code of Business Conduct and Ethics
I confirm that all Directors and members of the senior management have
affirmed compliance with Group Code of Business Conduct and Ethics for the
year ended March 31, 2011.
Chanda Kochhar
Managing Director & CEO
Date : May 13, 2011
Business Overview
ECONOMIC OUTLOOK
The long-term fundamentals of the Indian economy continue to be strong.
These include favourable demographics, rising incomes, growing consuming
class and a large investment pipeline. These growth drivers are expected to
be sustained over the medium-to-long term. The growth of the economy is
being driven primarily by domestic investment and consumption, with limited
dependence on exports or the demand situation in other economies. In
addition, the growing economic activity in rural India and the emergence of
smaller cities as important growth drivers are key positive developments.
At the same time, there are some concerns, particularly with regard to
inflation. Inflationary pressures emerging from commodity and food prices
have shown signs of becoming more generalised, leading to the containing of
inflation becoming the key priority of policy makers. In addition, the
global economic environment continues to remain uncertain with slow
recovery and fiscal concerns in developed markets.
We believe that while these challenges may have an impact in the short term
and cause periodic volatility, the strong underlying fundamentals of the
Indian economy would sustain high rates of growth over the medium to long
term.
For a discussion of recent economic and regulatory developments, please
refer to 'Management's Discussion & Analysis'.
BUSINESS REVIEW
During fiscal 2011, the Bank focused on 5Cs strategy - Credit growth, CASA
mobilisation, Cost optimization, Credit quality improvement and Customer
centricity. We believe that we have achieved substantial success on all the
parameters of this strategy and are well placed to leverage on the growth
opportunities in the economy.
RETAIL BANKING:
After significant moderation in previous years, retail credit growth in the
system picked up pace in fiscal 2011. As per data published by RBI for the
period up to March 25, 2011, year-on-year retail credit growth was about
17%.
We continue to believe that retail credit in India has robust long-term
growth potential, driven by sound fundamentals of rising income levels and
favorable demographic profile. We will continue to focus on select retail
asset segments like housing and vehicle loans where we expect significant
demand over the medium to long term. We are also seeing smaller markets
beyond the large urban centres emerging as important drivers of growth in
this segment. In addition, customer segments are now maturing given the
increase in incomes. These distinct customer segments, with widely
different requirements and risk-reward characteristics, require specialised
strategies. We believe that our knowledge of the customer and insights into
the Indian market position us well to take advantage of these
opportunities.
Our branches are the key points of customer acquisition and service.
Accordingly, our organisation structure has been shaped to provide greater
empowerment to our branches. The branch network is expected to serve as an
integrated channel for deposit mobilisation, selected retail asset
origination and distribution of third party products as well as the focal
point for customer service. The outbound sales teams have been strengthened
and brought under branch supervision. They are supported by the operations
and phone banking teams to deliver high quality service, customer retention
and up-selling; and by a strategic product and service design team to
design product and service strategies for different customer segments. We
have deepened our engagement and relationship with customers and created
more opportunities for cross-selling other products by introducing
dedicated privilege banking areas, which are manned by specially trained
privilege bankers, and exclusive wealth branches for our high net worth
customers. The Bank's focus during the year was on delivering superior
customer service in line with its articulated Khayaal Aapka proposition.
During the year, we acquired The Bank of Rajasthan which substantially
enhanced our branch network and strengthened our presence in northern and
western India. The merger of Bank of Rajasthan added over 450 branches to
our network. Including these, our branch network has increased from 1,707
branches at March 31, 2010 to 2,529 branches at March 31, 2011. We also
increased our ATM network from 5,219 ATMs at March 31, 2010 to 6,055 ATMs
at March 31, 2011.
During fiscal 2011, we continued our focus on increasing the proportion of
low-cost retail deposits in our funding base. Our current and savings
account (CASA) deposits as a percentage of total deposits increased from
41.7% at March 31, 2010 to 45.1% at March 31, 2011.
During the year, our retail disbursements increased as we focused on
opportunities in residential mortgages, vehicle finance and construction
equipment finance. The realignment of our retail sales and service
architecture helped us increase our reach while simultaneously bringing
focus towards customer service. We sourced an increasing proportion of our
mortgage business through our branch network. In addition to mortgages, we
also saw traction in auto loans, commercial vehicle financing and
construction equipment business in fiscal 2011.
We also continued to focus on cross-selling new products and products of
our life and general insurance subsidiaries to our existing customers.
Cross-sell allows us to deepen our relationship with our existing customers
and earn fee income. We will continue to focus on cross-sell as a means to
improve profitability and offer a complete suite of products to our
customers.
SMALL ENTERPRISES
Medium & small enterprises are important engines of growth and reflect
India's entrepreneurial energy. We offer complete banking solutions to
small and medium enterprises across industry segments. We support the
growth of the small and medium enterprises sector while adopting a cluster
based financing approach for enterprises with a homogeneous profile in
industries such as infrastructure, engineering, information technology,
education, life-sciences and agri-based businesses. We also offer supply
chain financing solutions to the channel partners of large corporates.
During fiscal 2011, we strengthened the sales and relationship coverage by
increasing our presence with greater empowerment at zonal levels. This has
allowed us to deepen our customer relationships and supplement the customer
acquisition by leveraging our branch network along with our commercial
banking franchise. The Bank also contributes significantly to the SME eco-
system through multiple initiatives such SME CEOs Knowledge Series,
Emerging India Awards, SME Expos and the SME Toolkit - an online business
and advisory resource.
We have a long tradition of partnering entrepreneurs early in their growth
phase, building lasting and mutually beneficial relationships that deliver
recurring value. We will continue to further strengthen our proposition and
penetration in this segment.
CORPORATE BANKING
Our corporate banking strategy is based on providing comprehensive and
customised financial solutions to our corporate customers. We offer a
comprehensive suite of corporate banking products including rupee and
foreign currency debt, working capital credit, structured financing, loan
syndication and commercial banking products and services. Our corporate and
investment banking franchise is built around a core relationship team that
has strong relationships with almost all of the country's corporate houses.
The relationship team is product agnostic and is responsible for managing
banking relationships with clients. We have also put in place product
specific teams with a view to focus on designing financial solutions for
clients spread across structured finance, project finance, loan syndication
and markets. The Structured Finance Group is responsible for working with
the relationship team in India and our international subsidiaries and
branches for structuring and execution of investment banking mandates and
other transactions.
We have a Commercial Banking Group working closely with the Corporate
Banking Group for growing this business through identified branches. Our
strategy for growth in commercial banking, i.e. of meeting the regular
banking requirements of companies for transactions and trade, is based on
leveraging our strong client relationships and focusing on enhancing client
servicing capability at the operational level.
We have enhanced our client servicing capability by the effective use of
'Mega Branches' spread across all major commercial centres across the
country catering to specialised commercial banking needs of clients. These
branches have highly cohesive and dedicated customer focused transaction
teams, led by senior branch heads, to service customers and provide a
better transactional experience to the client. An efficient central
operations team complements the service delivery capability.
The relationship team also works with our Markets Group to assist customers
in devising and executing risk management strategies to address foreign
currency, interest rate and liquidity risks. Our loan syndication franchise
enables us to structure, underwrite and syndicate rupee and foreign
currency debt with Indian and offshore investors. We have built robust
sector specific syndication skills across project finance, M&A financing
and structured finance to provide optimal financing solutions.
The continuing expansion of Indian companies provides significant
opportunities for our corporate banking business. Our expertise lies in
structuring client specific solutions coupled with seamless delivery for an
enriching customer experience. We will continue to focus on increasing the
granularity and stability of our revenue streams by executing our
transaction banking and trade services strategy, while keeping a close
watch on credit quality and further deepening our client relationships.
PROJECT FINANCE
With strong momentum in the Indian economy, there has been a significant
increase in investment activity with capacity additions across sectors such
as infrastructure, power, oil & gas, urban development and manufacturing.
We expect a significant increase in infrastructure financing requirements
going forward. The power sector will witness the execution of large
projects given the energy needs of the country and the government's energy
expansion programmes. Besides requirements arising out of capacity
additions, significant investments are also projected in inter-regional and
regional transmission corridors for strengthening the national grid.
Further, we also expect substantial development in the renewable energy
segment. With the scale-up in gas production there is a need to connect
India's various regional gas pipeline systems and as such, significant
investments in trunk pipeline networks are expected. The improved gas
availability and pipeline connectivity is also expected to drive the
expansion of the city gas network. In the transportation sector, roads and
ports have seen activity. The momentum is expected to increase as the
government has been bidding out new projects for development of national
and state highways. With the government promoting an inclusive maritime
infrastructure in the ports sector, there has been increased private
participation in projects for berths and terminal development, channel
deepening, port connectivity and modernisation of equipment. The railway
sector is also expected to witness modernisation of railway stations,
logistics development and expansion of dedicated corridors for freight. The
telecom sector is expected to see continued growth due to decline in
tariffs and increased focus on rural markets. Further, we also expect
increased private sector investments in the development of water supply,
education and healthcare infrastructure.
Our long tradition of project finance and our ability to offer structured
and customised solutions position us uniquely to capitalise on these
opportunities and cater to the financing requirements in the infrastructure
sector. It will be our constant endeavour to add value to projects through
financial structuring to ensure bankability. These services are backed by
innovative structuring capabilities, sectoral expertise and sound due
diligence.
INTERNATIONAL BANKING
Our international strategy is focused on meeting the foreign currency needs
of our Indian corporate clients and partnering them in their global
expansion, taking select trade finance exposures linked to imports to
India, and achieving the status of the preferred non-resident Indian (NRI)
community bank in key markets. We also seek to build stable wholesale
funding sources and strong syndication capabilities to support our
corporate and investment banking business, and to expand private banking
operations for India-centric asset classes. ICICI Bank currently has
subsidiaries in the United Kingdom, Russia and Canada, branches in the
United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Dubai
International Finance Centre and Qatar Financial Centre and representative
offices in the United Arab Emirates, China, South Africa, Bangladesh,
Thailand, Malaysia and Indonesia. We opened our first retail branch in
Singapore in fiscal 2011, after being granted Qualified Full Banking (QFB)
privileges. The Bank's wholly owned subsidiary ICICI Bank UK PLC has eleven
branches in the United Kingdom and a branch each in Belgium and Germany.
ICICI Bank Canada has nine branches. ICICI Bank Eurasia Limited Liability
Company has one branch.
In fiscal 2011, global economic activity picked up at differential rates
with emerging markets experiencing strong growth and developed markets
continuing to face a phase of slow recovery. However, as the overall global
economic environment improved, the pace of recovery in international trade
and capital flows strengthened significantly. Exports from India crossed
USD 200 billion and have reached an all-time high. In this changing
environment, we continued to maintain adequate capital and focused on risk
containment and liquidity management in our international operations. We
also focused on improving the funding profile in our international
operations. We became the first Indian bank to 36 issue 10-year senior
bonds in the international markets. We also focused on establishing and
growing relationships with global multinationals that are increasingly
entering and expanding in Indian markets.
We also strengthened our market position and share in remittances during
fiscal 2011 and continued to develop products and service offerings to meet
the requirements of the Non Resident Indian (NRI) community. The emphasis
was on improving account operation via remote channels in order to cater to
the customers' needs when overseas. We launched I-Express, an instant
cross-border money transfer option for NRIs through our select partners in
the Middle East. The I-Express facility offers the remitter an option of
visiting any partner outlet for instant credit into the beneficiary account
maintained with ICICI Bank in India, at no extra cost. We also launched
Fixed Rupee' on Money2India.com - a facility that enables NRIs to send the
exact rupee amount remittance to India since the exchange rate is confirmed
at the time of initiating the remittance.
INCLUSIVE & RURAL BANKING
In accordance with the ICICI Group's vision of combining a sustainable
business model with a social and human development agenda, the Bank has
undertaken several initiatives to meet the financial services needs of the
rural market. These include offering credit through our branches and
dedicated field teams and financial inclusion through business
correspondents. We continued to focus on improving our product and service
offerings to meet the requirements of all participants in the rural market
including farmers, traders, commission agents, small processors and other
medium agri-corporates.
In March 2010, our Board approved a three-year financial inclusion plan
that envisaged the opening of no-frill savings accounts and expanding our
rural reach over the next three years along with the provision of credit to
select individuals in the target segment through various product lines
comprising micro-credit, kisan credit card, farm equipment loan and loan
against jewellery. In fiscal 2011, we focused on building capacity to
implement our financial inclusion plan and our progress against the plan
targets during the year has been satisfactory. We have also focused on
opening accounts for routing benefit payments under various government
schemes and have received the mandate for opening accounts of individuals
under these schemes in certain states.
The Bank has also identified 23 Business Correspondents having a network of
208 customer service points, to service these customers. We tied up with
Vodafone and Aircel for extending basic financial services through the
mobile platform. The plan is to leverage the penetration and the
distribution infrastructure of the mobile network operators. We have also
built lending capability in over 1,000 of our branches for products
targeted towards individual customers in the agri-value chain. We also
increased our product offerings in rural India by relaunching farm
equipment finance with strategic tie-ups with tractor manufacturers. New
product initiatives were also undertaken during the year to enhance credit
flow towards the micro and small enterprises sector.
Going forward, we will continue to focus on leveraging our branch network
and the network of our Business Correspondent partners to enhance financial
inclusion by offering banking facilities to the unbanked, and growing our
relationships with these customers over time. We will seek to play a
significant role in the channeling of payments under government schemes to
the beneficiaries through their bank accounts with us. We will also
leverage the emerging initiatives and infrastructure, such as the Unique
Identity initiative of the Government, that support financial inclusion in
the country. We will seek to scale up our offerings of credit products in
rural areas and across the agricultural value chain by leveraging our
extensive branch network and developing appropriate product propositions
for these segments.
RISK MANAGEMENT
Risk is an integral part of the banking business and we aim at delivering
superior shareholder value by achieving an appropriate trade-off between
risk and returns. The key risks are credit risk, market risk and
operational risk. Our risk management strategy is based on a clear
understanding of various risks, disciplined risk assessment and measurement
procedures and continuous monitoring.
The key principles underlying our risk management framework are as follows:
The Board of Directors has oversight on all the risks assumed by the Bank.
Specific Committees have been constituted to facilitate focused oversight
of various risks. Our Risk Committee reviews our risk management policies
in relation to various risks and regulatory compliance issues relating
thereto. It reviews key risk indicators covering areas such as credit risk,
interest rate risk, liquidity risk and foreign exchange risk and the limits
framework, including stress test limits for various risks. It also carries
out an assessment of the capital adequacy based on the risk profile of our
balance sheet and reviews the status with respect to implementation of
Basel norms. Our Credit Committee reviews developments in key industrial
sectors and our exposure to these sectors and reviews major portfolios on a
periodic basis. Our Audit Committee provides direction to and also monitors
the quality of the internal audit function. Our Asset Liability Management
Committee is responsible for managing the balance sheet within the risk
parameters laid down by the Board/Risk Committee and reviewing our asset-
liability position.
Policies approved from time to time by the Board of Directors/Committees of
the Board form the governing framework for each type of risk. The business
activities are undertaken within this policy framework.
Independent groups and sub-groups have been constituted across the Bank to
facilitate independent evaluation, monitoring and reporting of various
risks. These groups function independently of the business groups/sub-
groups.
We have dedicated groups namely the Risk Management Group, Compliance
Group, Corporate Legal Group, Internal Audit Group and the Financial Crime
Prevention & Reputation Risk Management Group, with a mandate to identify,
assess and monitor all of the Bank's principal risks in accordance with
well-defined policies and procedures. These groups are completely
independent of all business operations and coordinate with representatives
of the business units to implement ICICI Bank's risk management
methodologies. The Internal Audit Group and Compliance Group are
responsible to the Audit Committee of the Board.
Credit Risk
Credit risk is the risk that a borrower is unable to meet its financial
obligations to the lender. All credit risk related aspects are governed by
a credit and recovery policy which outlines the type of products that can
be offered, customer categories, targeted customer profile and the credit
approval process and limits. The credit and recovery policy is approved by
our Board of Directors.
In order to assess the credit risk associated with any corporate financing
proposal, we assess a variety of risks relating to the borrower and the
relevant industry. We have a structured and standardised credit approval
process which includes a well established procedure of comprehensive credit
appraisal and credit rating. We have developed internal credit rating
methodologies for rating obligors. The rating factors in quantitative and
qualitative issues and credit enhancement features specific to the
transaction. The rating serves as a key input in the approval as well as
post-approval credit processes. A risk based asset review framework has
also been put in place wherein the frequency of asset review would be
higher for cases with higher exposure and/or lower credit rating. Industry
knowledge is constantly updated through field visits and interactions with
clients, regulatory bodies and industry experts.
The Bank has a strong framework for the appraisal and execution of project
finance transactions that involves a detailed evaluation of technical,
commercial, financial, marketing and management factors and the sponsor's
financial strength and experience. The Bank identifies the project risks,
mitigating factors and residual risks associated with the project. As a
part of the due diligence process, the Bank appoints consultants, including
technical advisors, business analysts, legal counsel and insurance
consultants, wherever considered necessary, to advise the lenders. Risk
mitigating factors in these financings include creation of debt service
reserves and channelling project revenues through a trust and retention
account. The Bank's project finance loans are generally fully secured and
have full recourse to the borrower. In some cases, the Bank also takes
additional credit comforts such as corporate or personal guarantees from
one or more sponsors of the project or a pledge of the sponsors' equity
holding in the project company. The Bank's practice is to normally disburse
funds after the entire project funding is committed and all necessary
contractual arrangements have been entered into.
In case of retail loans, sourcing and approval are segregated to achieve
independence. The Credit Risk Management Group has oversight on the credit
risk issues for retail assets including vetting of all credit
policies/operating notes proposed for approval by the Board of Directors or
forums authorised by the Board of Directors. The Credit Risk Management
Group is also involved in portfolio monitoring for all retail assets and
suggesting/implementing policy changes. The Retail Credit and Policy Group
is an independent unit which focuses on policy formulation and portfolio
tracking and monitoring. In addition, we also have a Business Intelligence
Unit to provide support for analytics, score card development and database
management. Our Credit Administration Unit services various retail business
units.
Our credit officers evaluate retail credit proposals on the basis of the
product policy approved by the Committee of Executive Directors and the
risk assessment criteria defined by the Credit Risk Management Group. These
criteria vary across product segments but typically include factors like
the borrower's income, the loan-to-value ratio and demographic parameters.
The technical valuations in case of residential mortgages are carried out
by empanelled valuers or technical teams. External agencies such as field
investigation agencies and credit processing agencies are used to
facilitate a comprehensive due diligence process including visits to
offices and homes in the case of loans to individual borrowers. Before
disbursements are made, the credit officer checks a centralised delinquent
database and reviews the borrower's profile. In making our credit
decisions, we also draw upon reports from credit information bureaus. We
also use the services of certain fraud control agencies operating in India
to check applications before disbursement.
In addition, the Credit and Treasury Middle Office Groups and the
Operations Group monitor operational adherence to regulations, policies and
internal approvals. We have centralised operations to manage operational
risk in most back office processes of the Bank's retail loan business. The
Fraud Prevention Group manages fraud related risks through forensic audits
and recovery of fraud losses. The segregation of responsibilities and
oversight by groups external to the business groups ensure adequate checks
and balances.
Our credit approval authorisation framework is laid down by our Board of
Directors. We have established several levels of credit approval
authorities for our corporate banking activities like the Credit Committee
of the Board of Directors, the Committee of Executive Directors, the
Committee of Senior Management, the Committee of Executives (Credit) and
the Regional Committee (Credit). Retail Credit Forums, Small Enterprise
Group Forums and Corporate Agriculture Group Forums have been created for
approval of retail loans and credit facilities to small enterprises and
agri based enterprises respectively. Individual executives have been
delegated with powers in case of policy based retail products to approve
financial assistance within the exposure limits set by our Board of
Directors.
Market Risk
Market risk is the possibility of loss arising from changes in the value of
a financial instrument as a result of changes in market variables such as
interest rates, exchange rates and other asset prices. The prime source of
market risk for the Bank is the interest rate risk we are exposed to as a
financial intermediary. In addition to interest rate risk, we are exposed
to other elements of market risk such as liquidity or funding risk, price
risk on trading portfolios, exchange rate risk on foreign currency
positions and credit spread risk. These risks are controlled through limits
such as duration of equity, earnings at risk, value-at-risk, stop loss and
liquidity gap limits. The limits are stipulated in our Investment Policy,
ALM Policy and Derivatives Policy which are reviewed and approved by our
Board of Directors.
The Asset Liability Management Committee, which comprises wholetime
Directors and senior executives meets on a regular basis and reviews the
trading positions, monitors interest rate and liquidity gap positions,
formulates views on interest rates, sets benchmark lending and base rates
and determines the asset liability management strategy in light of the
current and expected business environment. The Market Risk Management Group
recommends changes in risk policies and controls and the processes and
methodologies for quantifying and assessing market risks. Risk limits
including position limits and stop loss limits for the trading book are
monitored on a daily basis by the Treasury Middle Office Group and reviewed
periodically.
Foreign exchange risk is monitored through the net overnight open foreign
exchange limit. Interest rate risk of the overall balance sheet is measured
through the use of re-pricing gap analysis and duration analysis. Interest
rate gap sensitivity gap limits have been set up in addition to limits on
the duration of equity and earnings at risk. Risks on trading positions are
monitored and managed by setting VaR limits and stipulating daily and
cumulative stop-loss limits.
The Bank uses various tools for measurement of liquidity risk including the
statement of structural liquidity, dynamic liquidity gap statements,
liquidity ratios and stress testing. We maintain diverse sources of
liquidity to facilitate flexibility in meeting funding requirements.
Incremental operations in the domestic market are principally funded by
accepting deposits from retail and corporate depositors. The deposits are
augmented by borrowings in the short-term inter-bank market and through the
issuance of bonds. Loan maturities and sale of investments also provide
liquidity. Our international branches are primarily funded by debt capital
market issuances, syndicated loans, bilateral loans and bank lines, while
our international subsidiaries raise deposits in their local markets.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events. It includes
legal risk but excludes strategic and reputation risks. Operational risks
in the Bank are managed through a comprehensive system of internal
controls, systems and procedures to monitor transactions, key back-up
procedures and undertaking regular contingency planning. The control
framework is designed based on categorisation of all functions into front-
office, comprising business groups; mid-office, comprising credit and
treasury mid-offices; back-office, comprising operations; and corporate and
support functions. ICICI Bank's operational risk management governance and
framework is defined in the Operational Risk Management Policy, approved by
the Board of Directors. While the policy provides a broad framework,
detailed standard operating procedures for operational risk management
processes are established. The policy is applicable across the Bank
including overseas branches and aims to ensure clear accountability,
responsibility and mitigation of operational risk. We have constituted an
Operational Risk Management Committee (ORMC) to oversee the operational
risk management in the Bank. The policy specifies the composition, roles
and responsibilities of the ORMC. The framework comprises identification
and assessment of risks and controls, new products and processes approval
framework, measurement through incidents and exposure reporting, monitoring
through key risk indicators and mitigation through process and control
enhancement and insurance. We have formed an independent Operational Risk
Management Group for design, implementation and enhancement of the
operational risk framework and to support business and operation groups in
the operational risk management on an on-going basis.
TREASURY
Our treasury operations are structured along the balance sheet management
function, the client-related corporate markets business and the proprietary
trading activity.
During fiscal 2011, financial markets remained volatile. The government
bond markets witnessed increase in benchmark yields following the emergence
of inflationary concerns and the tightening monetary policy stance which
impacted our government securities portfolio. Further, since October 2010,
equity markets continued to remain volatile with the NIFTY declining by
nearly 17% from October to February which offset the equity capital gains
made during the first part of the year. These factors had an adverse impact
on the Bank's proprietary trading gains. The Bank continued to focus on the
corporate bonds segment to offset this impact, and remained among the top
two arrangers according to the Prime database. In respect of primary issues
for the private sector, the Bank was ranked first in league table rankings.
Over the last year, the Bank strengthened its relationship with the top 10
issuers and focused on increasing its distribution reach by adding over 300
provident fund trusts. The Bank also increased its geographical coverage
through manpower addition at key locations.
Our balance sheet management function continued to actively manage the
government securities portfolio held for compliance with SLR norms to
optimise the yield on this portfolio, while maintaining an appropriate
portfolio duration given the interest rate environment.
We provide foreign exchange and derivative products and services to our
customers through our Markets Group. These products and services include
foreign exchange products for hedging currency risk, foreign exchange and
interest rate derivatives like options and swaps and bullion transactions.
We also hedge our own market risks related to these products with banking
counterparties.
HUMaN RESOURCES
ICICI Bank seeks to nurture a mutually beneficial relationship with its
employees. This relationship is characterised by the investment which the
Bank makes in its employees by providing challenging roles and assignments,
opportunities for personal growth, relevant and timely performance support,
training and an enabling environment. The Bank seeks to create a workplace
which combines achievement orientation with care for employees. On January
5, our Founder's Day, we formalised this employee value proposition through
launch of the 'Saath Aapka' campaign. Through Saath Aapka, the Bank has
clearly and in a transparent manner articulated what employees can expect
from the organisation. At the same time, the Bank has defined the desired
competencies at various levels in the organization as 'DNA anchors' which
communicate to employees what the organisation expects from them. The key
elements of the 'Saath Aapka' proposition are:
* Opportunities for personal growth and learning for employees, as they
work towards the organisation's growth and success.
* An enabling work culture that facilitates the achievement of aspirational
goals.
* A merit-oriented organisation, setting high performance standards and
linking rewards to performance.
* Standing by employees in their hour of need just as employees go the
extra mile for the organisation whenever there is a need for the same.
* A winning organisation that is conscious of its larger role in society
and in nation building.
During the year, the integration of Bank of Rajasthan into the Bank was a
major exercise which was successfully completed. The integration process
focused both on business as well as cultural integration. The people and
cultural integration was achieved through well-planned communication of the
Bank's values and culture. The Bank reached out to all employees of Bank of
Rajasthan and addressed their expectations and concerns. This was achieved
through communication from the top management of the Bank, open house
sessions jointly conducted by senior managers from Bank of Rajasthan and
ICICI Bank and one-on-one sessions wherever required. Further, to align the
skill sets of Bank of Rajasthan employees, special training programs were
designed and conducted by the Bank.
To further augment the Bank's efforts in providing best-in-class service to
its customers, the Bank has ensured that more experienced and seasoned
employees are placed in leadership roles at branches. The Bank has also
ensured that the average banking experience and vintage of customer service
staff at branches are enhanced, despite an increase in the number of
branches. The Bank also continued its efforts in training its branch staff
and other employees to increase their banking related knowledge. Through an
innovative programme called Skill Through Drill, our branch staff have been
trained in service skills required to deliver the Khayaal Aapka promise to
our customers. The Bank has also introduced an innovative programme called
the Service Assessor Programme wherein our staff is video-recorded live and
feedback on service behaviors is given. This year the Bank also introduced
a rigorous evaluation and certification process for all employees in
customer service roles to ensure employees engaged in servicing the
customers have thorough knowledge of banking regulations, processes and
product features.
INFORMATION TECHNOLOGY
Our information technology strategy focuses on increasing customer
convenience, reducing customer complaints and increasing turnaround and
resolution timeframes. During the year, we enhanced customer offerings on
self-service channels, such as value added services through ATMs, new
mobile application for smart phones and a comprehensive online personal
finance tool 'Money Manager'. We have also created facilities for customers
to buy investment products, gold and foreign exchange through our online
channel. Pursuant to the merger of the Bank of Rajasthan, we also enabled
seamless transactions for the customers of Bank of Rajasthan in a short
timeframe and combined the ATM and branch networks and technology
infrastructure. To enable better customer service, our branch staff has
been equipped with a comprehensive and single view of customer
relationships. We have also enhanced our Interactive Voice Response system
at our call centres to support regional Indian languages.
In fiscal 2011, we retained focus on information security and deployed new
systems for robust authentication and fraud detection for on-line
customers. A comprehensive network access control solution to prevent
unauthorised entry into our networks was also implemented. We also
continued to improve existing processes and capabilities. The monitoring of
electronic devices at our branches was also centralised to enable better
productivity and faster resolution times. We also built a state-of-the-art,
high density, high availability data centre that is designed to flexibly
handle different types of equipment. It has also been designed for
scalability to handle our future requirements. Simultaneously, we have also
implemented next generation system management tools which allow us to
proactively monitor critical data centre and system parameters.
KEY SUBSIDIaRIES
ICICI Prudential Life Insurance Company (ICICI Life):
ICICI Life maintained its market leadership in the private sector with an
overall market share of 7.3% based on retail new business weighted received
premium in fiscal 2011. Effective September 1, 2010, the Insurance
Regulatory and Development Authority specified changes such as cap on
surrender charges, charges applicable from the sixth year of policy, an
increase in minimum premium paying term and introduction of minimum
guaranteed returns on pension products. ICICI Life's total premium
increased by 8.2% to Rs. 178.81 billion in fiscal 2011. ICICI Life's new
business annualised premium equivalent was Rs. 39.75 billion in fiscal
2011. ICICI Life achieved a profit after tax of Rs. 8.08 billion in fiscal
2011. The expense ratio, defined as the ratio of expenses (excluding
commission and front line sales cost) to total premium, has decreased from
19.5% in fiscal 2010 to 17.3% in fiscal 2011. ICICI Life's unaudited New
Business Profit in fiscal 2011 was Rs. 7.13 billion.
ICICI Lombard General Insurance Company (ICICI General)
ICICI General maintained its leadership in the private sector with an
overall market share of 9.6% in fiscal 2011. ICICI General's gross written
premium grew by 28.5% from Rs. 34.31 billion in fiscal 2010 to Rs. 44.08
billion during fiscal 2011. As per Insurance Regulatory and Development
Authority's order dated March 12, 2011, all general insurance companies
were required to provide for losses on the third party motor pool, a
multilateral reinsurance arrangement covering third party risk of
commercial vehicles, at a provisional rate of 153% over fiscal 2008 to
fiscal 2011 compared to the earlier loss rate of 122%-127%. The impact of
the same on ICICI General was Rs. 2.72 billion. As a result of the negative
impact on this account, ICICI General recorded a loss of Rs. 0.80 billion
in fiscal 2011.
ICICI Prudential Asset Management Company (ICICI AMC)
ICICI AMC is the third largest asset management company in India with an
average AUM of Rs. 734.66 billion for the quarter ended March 31, 2011.
ICICI AMC achieved a profit after tax of Rs. 0.72 billion in fiscal 2011.
ICICI Venture Funds Management Company Limited (ICICI Venture)
ICICI Venture maintained its leadership position as a specialist
alternative assets manager based in India. ICICI Venture achieved a profit
after tax of Rs. 0.72 billion in fiscal 2011.
ICICI Securities Limited and ICICI Securities Primary Dealership Limited
ICICI Securities achieved a profit after tax of Rs. 1.13 billion in fiscal
2011. ICICI Securities Primary Dealership achieved a profit after tax of
Rs. 0.53 billion in fiscal 2011.
ICICI Bank UK PLC (ICICI Bank UK)
ICICI Bank UK is a full service bank that offers retail, corporate and
investment banking and private banking services in the United Kingdom and
Europe. During the year, ICICI Bank UK focused on liquidity management,
enhancing profitability and risk containment through balance sheet
consolidation. ICICI Bank UK's profit after tax for fiscal 2011 was USD
36.6 million. At March 31, 2011, ICICI Bank UK had total assests of USD 6.4
billion. ICICI Bank UK's capital position continued to be strong with a
capital adequacy ratio of 23.1% at March 31, 2011.
ICICI Bank Canada
ICICI Bank Canada is a full-service direct bank that offers a wide range of
financial solutions to cater to personal, commercial, corporate,
investment, treasury and trade requirements. ICICI Bank Canada's profit
after tax for fiscal 2011 was CAD 32.4 million. At March 31, 2011, ICICI
Bank Canada had total assets of CAD 4.5 billion. ICICI Bank Canada had a
capital adequacy ratio of 26.3% at March 31, 2011.
KEY RISKS
We have included statements in this annual report which contain words or
phrases such as will', expected to', etc., and similar expressions or
variations of such expressions, may constitute forward-looking
statements'. These forward-looking statements involve a number of risks,
uncertainties and other factors that could cause actual results,
opportunities and growth potential to differ materially from those
suggested by the forward-looking statements. These risks and uncertainties
include, but are not limited to, the actual growth in demand for banking
and other financial products and services in the countries that we operate
or where a material number of our customers reside, our ability to
successfully implement our strategy, including our use of the Internet and
other technology, our rural expansion, our exploration of merger and
acquisition opportunities both in and outside of India, our ability to
integrate recent or future mergers or acquisitions into our operations and
manage the risks associated with such acquisitions to achieve our strategic
and financial objectives, our ability to manage the increased complexity of
the risks we face following our rapid international growth, future levels
of impaired loans, our growth and expansion in domestic and overseas
markets, the adequacy of our allowance for credit and investment losses,
technological changes, investment income, our ability to market new
products, cash flow projections, the outcome of any legal, tax or
regulatory proceedings in India and in other jurisdictions we are or become
a party to, the future impact of new accounting standards, our ability to
implement our dividend policy, the impact of changes in banking regulations
and other regulatory changes in India and other jurisdictions on us, the
state of the global financial system and other systemic risks, the bond and
loan market conditions and availability of liquidity amongst the investor
community in these markets, the nature of credit spreads, interest spreads
from time to time, including the possibility of increasing credit spreads
or interest rates, our ability to roll over our short-term funding sources
and our exposure to credit, market and liquidity risks.
CREDIT RATINGS
ICICI Bank's credit ratings by various credit rating agencies at March 31,
2011 are given below:
Agency Rating
Moody's Investor Service (Moody's) Baa2(1)
Standard & Poor's (S&P) BBB-(1)
Credit Analysis & Research Limited (CARE) CARE AAA
Investment Information and Credit Rating Agency (ICRA) LAAA
CRISIL Limited AAA
Japan Credit Rating Agency (JCRA) BBB+(1)
1. Senior foreign currency debt ratings.
PUBLIC RECOGNITION
The Bank received several awards during fiscal 2011 in India and abroad.
* 'Most Trusted Brand' among private sector banks in 2010 by Economic Times
- Brand Equity Most Trusted Brands and ranked 7th in the list of Top 50
service brands
* Ranked 2nd in the 'Most Respected Company Awards 2011' in financial
services sector by Business World
* Ranked 1st in the 'Banking and Finance category 'and 9th overall in the
'2010 Best Companies To Work For' by Business Today
* 'Best Financial Inclusion Initiative' and runner up for 'Best Online
Bank' ,'Best Use Of Business Intelligence', and 'Technology Bank Of The
Year' in the Banking Technology Awards 2010 by Indian Banks Association
* Special Citation for the Fully Electronic Branch Service Channel at the
Financial Insights Innovation Awards held in conjunction with Asian
Financial Services Congress
* 'Most Tech-friendly Bank Award' by Business World
* Ranked 70th in the Brandirectory league tables of the 'World's most
valuable brands' by The BrandFinance(r) Banking 500
* 'Excellence in Remittance Business' (Worldwide), 'Excellence in NRI
Services' (Worldwide) and 'Excellence in Private Banking Business'(APAC) by
World Finance
* 'Best Trade Finance Bank' and 'Best Foreign Exchange Bank' (India) by
Finance Asia Country Awards for Achievement
* 'Best Trade Finance Bank' (India), by Asset Triple A
* 'Best Trade Finance Bank' (South Asia) by Global Trade Review
* 'Best Banking Security System' by Asian Banker
Promoting Inclusive Growth
1. Background
For over five decades, the ICICI Group has partnered India in its economic
growth and development. Promoting inclusive growth has been a priority area
for the Group from both a social and business perspective. We strive to
make a difference to our customers, to the society and to the nation's
development directly through our products and services, as well as through
our development initiatives and community outreach.
2. ICICI Foundation for Inclusive Growth
ICICI Foundation for Inclusive Growth (ICICI Foundation) was founded by the
ICICI Group in early 2008 to carry forward and build upon its legacy of
promoting inclusive growth. ICICI Foundation works with government
authorities and specialised grassroots organisations to support
developmental work in identified focus areas. It is committed to investing
in long-term efforts to support inclusive growth through effective
interventions. The objective of the Foundation is articulated in its
Mission Statement:
'To empower the poor to participate in and benefit from the Indian growth
process through integrated action in the fields of primary health,
elementary education, financial inclusion and sustainable livelihood. This
will be achieved through active collaboration with the government and
independent organisations.'
Areas of focus:
a) Primary health: ICICI Foundation works to strengthen public health
delivery systems to improve the health of mothers and children in the
poorest communities across India in the states of Bihar, Jharkhand,
Chattisgarh, Odisha and Maharashtra. It strives to develop solutions to
enable the government health systems to become more effective. Some of the
key interventions in the field of primary health are:
i. District Health Action Plans: In Bihar, ICICI Foundation has worked with
Public Health Resource Network and the National Health Systems Resource
Centre to support preparation of District Health Action Plans for the
entire state for the third consecutive year. These plans enable proper
assessment of the healthcare required and the available resources so that
the central government funding can be allocated on an informed basis and
focussed actions can be undertaken.
ii. Nutrition Security Programme: This initiative aims to improve nutrition
of children aged between six months and three years by enlisting and
training the Mitanin (community health workers) to change dietary practices
and attitudes in communities. The programme has been undertaken in
partnership with the Chhattisgarh State Health Resource Centre in 23 blocks
across 11 districts in Chhattisgarh. 9,000 Mitanins were trained in
nutrition related issues. The intervention has resulted in improved
enrolments in the anganwadis for accessing healthcare and increase in the
distribution of food supplements. The household feeding practices have also
improved through addition of locally available nurtritious food to the
diet.
iii. Maternal Nutrition Project: ICICI Foundation supports the Mumbai
Maternal Nutrition Project, a randomised controlled trial on mother and
child health. The project is designed to empower women to independently
improve their, as well as, their children's nutrition. The project
succeeded in achieving its target of enrolling more than a 1,000 pregnant
women and documenting nearly 700 births. The study tests the impact of
enhancing micronutrient quality in women's diets from before conception to
delivery, by examining women's health, foetal growth and their children's
development.
iv. State Village Health Committee and Sahiyya Resource Centre: Under the
National Rural Health Mission (NRHM), Sahiyyas (community health workers)
play a key role in linking their communities with public health systems and
act as agents for community mobilisation. The Jharkhand State Village
Health Committee and Sahiyya Resource Centre was created through an
innovative partnership with the Jharkhand state government, central
government institutions and civil society organisations. It facilitates the
implementation of the Sahiyya and Village Health Committee programmes under
the NRHM. The centre has till date trained nearly 41,000 Sahiyyas.
v. Outpatient Health Care Project: ICICI Foundation is partnering with
ICICI Lombard General Insurance Company to design, part fund and implement
the delivery of India's first outpatient healthcare product for low income
households. The project will offer outpatient insurance and will complement
the Government of India's national health insurance scheme for inpatient
care, the Rashtriya Swasthya Bima Yojana (RSBY). To begin with, this
insurance product will be offered through a pilot project in Puri district
in Odisha and one district in Gujarat.
b) Elementary education: In the field of elementary education, ICICI
Foundation seeks to improve the quality of public education by
strengthening the state and district-level institutional bodies. Some of
the key projects undertaken are:
i. Quality Education Programme: The Quality Education Programme is a
collaborative initiative of ICICI Foundation and its partner resource
organisations - Digantar, Jaipur and Vidya Bhawan Society, Udaipur - that
supports government efforts to improve the quality of elementary education
in Rajasthan's Baran district. The major objectives of the project were to
strengthen Baran's District Institute of Educational Training (DIET), work
with the Sarva Shiksha Abhyan (SSA) team to provide adequate academic
support in the district and support selected cluster resource centres to
develop model schools. This initiative targeted 125 master trainers, 4,000
teachers from the 1,498 government schools and 144,971 students. The
programme has helped in improvement in the quality of in-service training
and classroom teaching practices. The teacher and student attendance has
also improved in the schools that were part of the project.
ii. Consultative meeting to improve quality of education: ICICI Foundation
organised a consultative meeting to share its work, emerging strategies and
long-term plans with various stakeholders at India Habitat Centre, New
Delhi. The meeting was attended by the Foundation's long-standing partner
organisations, representatives of the Central Government and the State
Governments with whom the Foundation works or has plans to work, and
independent experts and resource persons. The deliberations helped ICICI
Foundation in formulating its proposed state-wide interventions for quality
improvement in school education in Rajasthan and Odisha.
iii. State-wide programme for improvements in schools education and teacher
training: In Odisha, ICICI Foundation in partnership with the Government of
Odisha, plans to launch a programme to improve the practices of in-service
(current teachers) and pre-service (trainee teachers) teacher training in
the state. The programme will build the professional capacity of teachers
and educators, as well as strengthen the state's teacher performance
management mechanism. ICICI Foundation will work with the state education
functionaries to facilitate reforms in line with 2005 National Curriculum
Framework, including updating curricula, developing teacher training
material and designing research and academic support material. The scope of
this programme will cover the training of 300 master trainers who will
train 4,500 teacher trainers who in turn will train 100,000 in-service
teachers and 10,000 pre-service teachers.
In Rajasthan, based on the success of its Quality Education Programme,
ICICI Foundation has been invited by the Government of Rajasthan to work
with the State Institute of Education Research and Training (SIERT), to
revamp the state's teacher training curriculum. The proposed project seeks
to revise the pre-service teacher training curriculum, build professional
capacity of teacher educators, including the SIERT and DIET faculty and
strengthen and improve co-ordination amongst the multi-tier academic
support structure. The programme will also develop one block (in one
intervention district) as an e-learning hub for supplementing in-service
teachers' training and work on development of all schools in two blocks in
two districts so that the schools can become compliant with the Right to
Education Act. The overall goal is to train 500 master trainers, 80-100
nodal head masters, 20,000 student teachers, 250 key resource persons and
210,000 in-service teachers, which will impact about 8 million students
across the state.
c) Access to finance: ICICI Foundation facilitates financial inclusion by
supporting the development of new models for delivering financial services
viz. credit, savings, remittance and insurance to low-income households. In
addition to the ICICI Group's direct work in the area of financial
inclusion, ICICI Foundation partners with ICICI Group companies to provide
greater access to, and create awareness of finance in communities where it
has established health and education programmes.
d) Sustainable livelihoods: ICICI Foundation has broadened the scope of its
work to include sustainable livelihoods in order to address the urgent need
for adequate training for rural youth. Skill development training for the
youth, particularly those below the poverty line, is required in order to
make them employable or equip them to become entrepreneurs. The Foundation
has taken up the mandate to strengthen two Rural Self-Employment Training
Institutes (RSETIs) in Udaipur and Jodhpur engaged in providing training
for skill development. The Foundation will focus on providing training that
is culturally relevant and locally in demand, and where the input costs are
low whereas the returns are relatively high and self-sustaining. It will
also facilitate supply chain, credit and marketing linkages, impart basic
financial training and provide placement support.
3. Serving communities in partnership with civil society
Besides grassroot level interventions undertaken by ICICI Foundation as
mentioned above, the ICICI Group companies also undertake certain other
projects for the benefit of society, alongwith ICICI Foundation. These
include:
a) Read to Lead - Phase II: In Phase II of the Read to Lead programme,
ICICI Bank has supported the establishment of 63 libraries that will reach
out to approximately 7,200 children in the rural areas of the Jagdalpur
block of Bastar district in Chhattisgarh. The programme includes building
libraries, sourcing books and conducting various interactive activities to
make the library a dynamic centre for learning.
b) ICICI Fellows: The ICICI Fellows programme, launched in November 2009,
aims to create a cadre of socially responsible leaders for India. The two-
year programme includes experiential learning in rural or semi-urban India,
as well as management training and leadership development through
personalised coaching and mentorship. The first batch joined in August 2010
and are currently gaining first hand experience through working with the
partner NGOs.
c) Healthy Lokshakti: Through this initiative, ICICI Lombard works towards
improving the health of mothers and children (0-1 year) in Trimbak and
Peint tribal blocks of Maharashtra, in partnership with government
healthcare systems. In order to reduce neo-natal and child mortality, it
works to ensure that women receive good healthcare during and after their
pregnancy and medical assistance during delivery.
d) Muktangan Education Initiative: ICICI Securities supports the Mumbai-
based NGO Doorstep School which enriches the schooling experience of 1,265
socio-economically disadvantaged children and supports enrollment and
sustenance through activities such as reading promotion, study class,
mental health support and extracurricular activities. ICICI Securities also
continues to support the Muktangan Education Initiative, a partnership
between the Paragon Charitable Trust and the Municipal Corporation of
Greater Mumbai. Muktangan seeks to provide affordable, community-based
inclusive education to underprivileged children.
e) Payroll giving: Since 2003, ICICI Bank has facilitated employee
donations to social causes through GiveIndia. Close to 6,000 employees
participate in the payroll-giving programme.
f) Employee volunteering: The 'Changemakers' programme enables employees to
contribute their time and talent for social change. 'ChangeMakers' at one
of the teams of ICICI Bank delivered employability and life-skills sessions
to underprivileged youth enrolled in vocational training at Kherwadi Social
Welfare Association, an NGO. g) Blood donation: In order to reduce the
blood shortage in India, ICICI Foundation organised a blood donation camp
at ICICI Bank Towers in Mumbai together with State Blood Transfusion
Council (SBTC), the autonomous regulatory authority for blood banks in
Maharashtra set up under the Ministry of Health. The camp received an
overwhelming response from the employees and the blood donated went to
SBTC's premiere blood bank, Mahanagar Rakthpedhi (MR). MR provides safe
blood and its components at the least expensive price in Mumbai. This makes
blood more accessible to people from all socio-economic backgrounds. MR
also regularly provides blood for free to 150 children with thalesemia and
sickle cell disease. SBTC issues every a donor card that makes them
eligible for one free unit of blood in the state within the next two years.
The blood donation drive will now be extended across all offices of the
ICICI Group in India.
h) Speak for Smiles: Together with Toofles Foundation and CNBC-TV18, Speak
for Smiles, an initiative where young students get an opportunity to
interact with business leaders and learn from their experiences was
launched. The events are aired on CNBC-TV18 and the proceeds generated by
way of contribution from ICICI Foundation are donated to an NGO, nominated
by the leaders.
4. Improving access to financial services
ICICI Bank has partnered with Unique Identification Authority of India
(UIDAI) for a pilot in Hazaribagh, Jharkhand. Under this pilot, enrollment
and opening of Aadhar enabled bank accounts was undertaken and the testing
of transactions has been successfully completed. ICICI Bank and ICICI
Foundation participated in RBI's outreach programme at Doba village in
Jharkhand's Lohardagga district. The outreach programme sought to raise
awareness about financial inclusion and banking opportunities available to
people in rural areas. ICICI Bank has formulated a financial literacy
programme that educates customers on the basics of finance. The Bank
conducted finance-themed street plays in Jharkhand and will extend the
programme to other parts of the country. ICICI Bank has also been chosen by
the Bill and Melinda Gates Foundation as one of the five international
banks for their 'Gateway Financial Innovation for Savings' project to
promote useful savings behaviour by poor.
ICICI Prudential Life Insurance Company (ICICI Life) provides micro-
insurance to India's low-income population, as a part of a socially
responsible business model. Its micro insurance product for people in rural
areas, Sarv Jana Suraksha, provides insurance for a minimal premium of only
Rs. 50 per annum. ICICI Life has successfully piloted a unique poverty-
alleviation project in collaboration with the Micro Insurance Innovation
Facility of the International Labour Organization. The project reaches out
to the tea workers in Assam. ICICI Prudential Life has also set up and
nurtured a Community Video Unit, JAWA at Dimakusi in Assam with Video
Volunteer, an NGO. The unit produced videos, conducted several screenings,
campaigns and street plays, which educated 2,000 households on preventive
measures against malaria, educated 45,000 workers on financial savings and
trained 45 tea workers on financial literacy who then conducted ten mass
awareness campaigns covering 10,000 workers.
ICICI Lombard General Insurance Company (ICICI General) has partnered with
several central and state government ministries/agencies to offer insurance
coverage under various schemes of the government. Under the Rashtriya
Swasthya Bima Yojana (RSBY), below poverty line workers in the unorganized
sector in Uttar Pradesh, Bihar, Odisha, Gujarat, Maharashtra, Haryana and
Punjab have been covered for health insurance. Biometric smart cards issued
to each family capture biometric details of the family and the
beneficiaries can check the balance sum insured, family details, policy
details and coverage at any time during the policy period. ICICI General
has also provided a unique health insurance product for weavers and their
families. Over 1.6 million families have been covered through this scheme.
A special policy to provide health insurance to women involved in silkworm
cultivation and their families is also operational. ICICI General is also
working with a number of financial intermediaries to deliver weather
insurance solutions for farmers through Weather Based Crop Insurance Scheme
(WBCIS). Till date, ICICI General has insured close to 2.8 million hectares
of land and 28 crop varieties through the WBCIS product.
5. Clean technology initiatives
ICICI Bank's Technology Finance Group (TFG) implements multilateral
programmes on behalf of the Government of India in the areas of
collaborative research and development, energy, environment and healthcare.
TFG's initiatives include efforts to attract and channel private financing
into cleaner technologies, to create public-private partnerships to
mitigate greenhouse gas emissions through energy efficiency and to promote
sustainable development.
TFG assisted the introduction of environmental management codes (ISO 14000)
in India. It supported clean coal concepts like coal washeries and coal bed
methane for the first time in India. TFG supported the development of the
first electric passenger car in India, currently being exported to several
countries. It also supported the introduction of municipal shared savings
concept through the energy service company (ESCO) route, which help save
expenditure for street lighting and water pumping. Another significant
initiative was the introduction of green ratings for buildings (which helps
save energy, water and emissions) through the establishment of
Confederation of Indian Industry's Green Business Centre.
In fiscal 2011, TFG in collaboration with leading institutes, has assisted
various projects in the areas of solar energy, nuclear energy and drug
discovery. This includes assistance to The Energy Resource Institute (TERI)
for its project to build capacities of select laboratories for promoting
sustainable development in energy efficiency. The laboratories would be
equipped with capabilities for developing biomass energy systems,
decentralised electricity solutions, waste material characterisation and
solar power systems. The laboratories will also promote energy efficiency
in the industry through various means including certification of solar
lighting products.
Management's Discussion & Analysis
BUSINESS ENVIRONMENT
The Bank's financial condition, loan portfolio and results of operations
have been and are in the future expected to be influenced by economic and
financial conditions in India as well as globally, developments affecting
the business activities of our corporate customers including increase in
international commodity prices and regulatory developments in the financial
sector.
During fiscal 2011, the recovery in economic activity witnessed in fiscal
2010 was sustained. Gross Domestic Product (GDP) increased by 8.6% during
the first nine months of fiscal 2011, compared to a growth of 7.4% in the
corresponding period of fiscal 2010. In addition, growth was fairly broad-
based across the agriculture, industry and services sectors. Growth in the
agriculture sector recovered to 5.7% during the first nine months of fiscal
2011 compared to 0.2% in the corresponding period of fiscal 2010. The
services sector continued to grow at over 9.0% during the year. Industrial
growth remained strong during the first half of fiscal 2011 with the Index
of Industrial Production (IIP) recording an average growth of over 10.0%.
However, there was some moderation during the subsequent months, partly due
to an adverse base effect. During April 2010 to February 2011, total
exports increased by 31.4% on a year-on-year basis. In view of the
continued momentum in economic activity, the Central Statistical
Organisation has estimated GDP to grow by 8.6% in fiscal 2011 compared to a
growth of 8.0% in fiscal 2010.
Inflationary pressures continued to persist through fiscal 2011, with an
increase in the latter part of the fiscal year due to higher than
anticipated rise in food and oil prices. Inflation, measured by the
Wholesale Price Index (WPI), after declining from a high of 11.0% in April
2010 to about 8.1% in November 2010 continued to remain at elevated levels
of about 8.0% for the remaining part of the fiscal year. Inflationary
pressures, though largely emanating from food and fuel prices, became broad
based as manufactured products inflation showed an increase from February
2011. In view of the above, Reserve Bank of India (RBI) continued its
policy tightening and liquidity management stance. During fiscal 2011, the
cash reserve ratio (CRR) was increased by 25 basis points from 5.75% to
6.00%, the repo rate by 175 basis points from 5.00% to 6.75%, and the
reverse repo rate by 225 basis points from 3.50% to 5.75%. In its annual
policy statement for fiscal 2012, RBI further increased the repo rate by 50
basis points to 7.25% and set the reverse repo rate at 1.0% below the repo
rate. In addition, during certain periods, liquidity was also impacted by
events such as the auction of telecom spectrum and lower than anticipated
government spending. Liquidity in the system continued to remain in deficit
for a large part of fiscal 2011, particularly in the second half of the
fiscal year. Banks remained net borrowers from RBI under the Liquidity
Adjustment Facility (LAF) with average borrowings of about Rs. 640.00
billion on a daily basis between June 1, 2010 and March 31, 2011. The
yields on 10 year government securities increased by about 17 basis points
to 7.99% at March 31, 2011 as compared to 7.82% at March 31, 2010. During
the latter part of fiscal 2011, RBI initiated several measures to ease
systemic liquidity including decreasing the Statutory Liquidity Ratio (SLR)
by 100 basis points from 25.0% to 24.0% in December 2010, providing
additional liquidity support under the LAF window, operation of a second
LAF on a daily basis, and open market operations for purchase of government
securities.
In response to tight systemic liquidity and the rising interest rate
environment, scheduled commercial banks increased their deposit rates for
various maturities by 75-250 basis points between April 2010 and January
2011. The impact of rising cost of funds for banks was also reflected in
lending rates with banks increasing their base rates by 95-165 basis points
during the year. Banking system credit growth, after remaining subdued
during fiscal 2010 recovered in fiscal 2011, following the improvement in
economic activity. Non-food credit growth was 21.2% at March 25, 2011 on a
year-on-year basis, compared to 17.1% at March 26, 2010. Based on sector-
wise data, growth in non-food credit on a year-on-year basis till February
25, 2011 was 22.8%, which was largely driven by growth in credit to
industry at 26.5% and to the services sector at 24.2%. Within industry,
loans to the infrastructure sector increased by 39.7% led by power and
telecommunications. During the year, there was also some recovery in growth
in the personal loans segment with a year-on-year increase of 16.2% at
February 25, 2011. However, deposit growth lagged credit growth in the
system with total deposits increasing by 15.8% on a year-on-year basis at
March 25, 2011 compared to 17.2% at March 26, 2010. The slower growth in
deposits was largely due to the decline in demand deposits by 1% on a year-
on-year basis at March 25, 2011 as compared to a growth of 23.4% at March
26, 2010.
Equity markets, while appreciating during fiscal 2011, continued to remain
volatile as various events such as increased inflationary concerns, the
European sovereign debt crisis and political events in the Middle East and
North Africa impacted investor sentiments. On an overall basis, the
benchmark equity index, the BSE Sensex, increased by 10.9% from 17,528 at
March 31, 2010 to 19,445 at March 31, 2011. Foreign institutional
investment flows into India continued to remain strong during the first ten
months of the year before declining significantly during the last quarter
of fiscal 2011. In addition, continued revival in external trade
contributed to a surplus of US$ 11.0 billion in India's balance of
payments during the nine months of fiscal 2011. The rupee appreciated by
1.1% against the US dollar from Rs. 45.14 per US dollar at March 31, 2010
to Rs. 44.65 per US dollar at March 31, 2011.
Tight liquidity and the rising interest rate environment combined with the
impact of regulatory changes, led to lower mobilisation under savings and
investment products during fiscal 2011. First year retail premium
underwritten in the life insurance sector decreased by 8.5% (on weighted
received premium basis) to Rs. 503.68 billion in fiscal 2011 from Rs.
550.24 billion in fiscal 2010. The average assets under management of
mutual funds decreased by 6.3% from Rs. 7,475.25 billion in March 2010 to
Rs. 7,005.38 billion in March 2011. However, gross premium of the non-life
insurance sector (excluding specialised insurance institutions) grew by
21.7% to Rs. 425.69 billion in fiscal 2011.
There were a number of key regulatory developments in the Indian financial
sector during fiscal 2011:
* In December 2010, RBI imposed a regulatory ceiling on the loan-to-value
ratio in respect of housing loans at 80%. However, small value loans of
less than Rs. 2.0 million were permitted to have a loan to value ratio not
exceeding 90%. Further, the risk weight for residential loans of Rs. 7.5
million and above was set at 125% irrespective of the loan to value ratio,
as against the earlier mandated 100% for a loan to value ratio of above
75%. With respect to loans outstanding under special housing loan products
with lower interest rates in initial years, the standard asset provisioning
was increased from 0.4% to 2.0%.
* In February 2011, RBI issued guidelines declassifying loans sanctioned to
non-banking finance companies (NBFCs) for on-lending to individuals and
entities against gold jewellery as direct agriculture lending under
priority sector requirements. Similarly, investments made by banks in
securitised assets originated by NBFCs, where the underlying assets were
loans against gold jewellery and purchase/assignment of gold loan portfolio
from NBFCs were also made ineligible for classification under agriculture
sector lending.
* RBI advised banks to henceforth not issue Tier-1 and Tier-2 capital
instruments with step-up options so that these instruments remain eligible
for inclusion in the new definition of regulatory capital under the Basel
III framework.
* In the Union Budget for fiscal 2012, the government enhanced priority
sector eligibility ceiling for housing loans for dwelling units from Rs.
2.0 million to Rs. 2.5 million.
* In May 2010, RBI permitted infrastructure NBFCs to avail of external
commercial borrowings for on-lending to the infrastructure sector. Further,
in July 2010, guidelines were issued to permit take-out financing
arrangement through the external commercial borrowing route for refinancing
of rupee loans availed for financing infrastructure projects particularly
in the areas of seaports, airports, roads and power. In the Union Budget
for fiscal 2012, the limit for investment by Foreign Institutional
Investors (FIIs) in corporate bonds with residual maturity of over five
years issued by companies in infrastructure sector, was raised by US$ 20
billion, taking the limit to US$ 25 billion. Further, it was also proposed
to create special vehicles in the form of notified infrastructure debt
funds with lower withholding tax on their interest payments and tax
exemptions on their incomes.
* In August 2010, the RBI issued a discussion paper on entry of new banks
in the private sector. In January 2011, RBI also released a discussion
paper on the presence of foreign banks in India.
* In June 2010, the Insurance Regulatory and Development Authority (IRDA)
introduced revisions to the regulations governing unit linked insurance
products such as increase in the lock-in period from three years to five
years, increase in minimum mortality cover, cap on surrender and other
charges and minimum guaranteed return on pension annuity products.
* In March 2011, IRDA conducted an audit of the third party motor insurance
pool and concluded that the pool reserves needed to be enhanced
significantly. Accordingly, IRDA stipulated that all general insurance
companies should increase these reserves based on a provisional loss ratio
of 153% for the pool for all years commencing from the year ended March 31,
2008, with the final loss ratio to be determined through a further review
in fiscal 2012.
Introduction of Base Rate system
Historically, interest rates on loans extended by banks were linked to the
prime lending rate (PLR) of each bank. With effect from July 1, 2010, RBI
implemented a new base rate mechanism, requiring each bank to set and
publicly disclose its minimum rate or 'Base Rate' for all new loans and
advances and renewal of existing facilities, subject to certain limited
exceptions. While existing loans based on the Benchmark Prime Lending Rate
(BPLR) system would continue to be linked to BPLR till their maturity, the
existing borrowers have an option to migrate to the Base Rate system before
the expiry of existing contracts on mutually agreed terms. Except certain
categories of loans as specified by RBI, banks are not allowed to lend
below the Base Rate. Under the regulation, banks must review their base
rates at least once every quarter.
The Asset Liability Management Committee (ALCO) of the Bank at its meeting
on June 30, 2010, set the Base Rate of ICICI Bank, called 'I-Base', at
7.50% p.a. with effect from July 1, 2010. I-Base was increased by 175 basis
points, in four phases, the last such increase being to 9.25% p.a. with
effect from May 7, 2011.
Change in Methodology for Computing Interest Payable on Savings Deposits
RBI had prescribed an interest rate of 3.50% on savings deposits and upto
March 31, 2010 banks were required to pay this interest on the minimum
outstanding balance in a savings deposit account between the tenth day and
the end of the month. Effective April 1, 2010, RBI changed the methodology
of computation of the interest payable and banks were required to pay
interest on the daily average balance maintained in a savings deposit
account. The change in methodology resulted in increase in cost of savings
account deposits for banks. RBI has increased the interest rate on savings
account deposits to 4.00% with effect from May 3, 2011.
Amalgamation of The Bank of Rajasthan
On May 23, 2010, the Board of Directors of ICICI Bank and the Board of
Directors of The Bank of Rajasthan Limited (Bank of Rajasthan), an old
private sector bank, at their respective meetings approved an all-stock
amalgamation of Bank of Rajasthan with ICICI Bank at a share exchange ratio
of 25 shares of ICICI Bank for 118 shares of Bank of Rajasthan. The
shareholders of ICICI Bank and Bank of Rajasthan approved the scheme of
amalgamation at their respective extra-ordinary general meetings. RBI
approved the scheme of amalgamation with effect from close of business on
August 12, 2010.
We have issued 31.3 million shares in August 2010 and 2.9 million shares in
November 2010 to shareholders of Bank of Rajasthan. The total assets of
Bank of Rajasthan represented 4.0% of total assets of ICICI Bank at August
12, 2010. At August 12, 2010, Bank of Rajasthan had total assets of Rs.
155.96 billion, deposits of Rs. 134.83 billion, loans of Rs. 65.28 billion
and investments of Rs. 70.96 billion. It incurred a loss of Rs. 1.02
billion in fiscal 2010. The results for fiscal 2011 include results of Bank
of Rajasthan for the period from August 13, 2010 to March 31, 2011. The
assets and liabilities of Bank of Rajasthan have been accounted at the
values at which they were appearing in the books of Bank of Rajasthan at
August 12, 2010 and provisions were made for the difference between the
book values appearing in the books of Bank of Rajasthan and the fair value
as determined by ICICI Bank.
The amalgamation was part of our strategy to expand our branch network with
a view to growing our deposit base. We believe that the combination of Bank
of Rajasthan's branch franchise with our strong capital base would enhance
the ability of the combined entity to capitalise on the growth
opportunities in the Indian economy.
STANDALONE FINANCIALS AS PER INDIAN GAAP
Summary
During fiscal 2011, we focused on leveraging our rebalanced funding mix and
strong capital position to grow our loan portfolio, while substantially
reducing our provisions for loan losses to improve our profitability.
Our profit after tax increased by 28.0% from Rs. 40.25 billion in fiscal
2010 to Rs. 51.51 billion in fiscal 2011. The increase in profit after tax
was mainly due to a 47.9% decrease in provisions and contingencies
(excluding provisions for tax) from Rs. 43.87 billion in fiscal 2010 to Rs.
22.87 billion in the fiscal 2011. The decrease in provisions and
contingencies (excluding provisions for tax) was primarily due to a
reduction in provisions for retail non-performing loans, as accretion to
retail non-performing loans declined sharply in fiscal 2011. Net interest
income increased by 11.1% from
Rs. 81.14 billion in fiscal 2010 to Rs. 90.17 billion in fiscal 2011.
The decrease in provisions and contingencies and increase in net interest
income was partly offset by an 11.1% decrease in non-interest income from
Rs. 74.78 billion in fiscal 2010 to Rs. 66.48 billion in fiscal 2011. The
decrease in non-interest income was primarily due to a decrease in income
from treasury-related activities by Rs. 13.96 billion from a gain of Rs.
11.81 billion in fiscal 2010 to a loss of Rs. 2.15 billion in fiscal 2011.
The higher income from treasury-related activities in fiscal 2010 included
reversal of provision against credit derivatives due to softening of credit
spreads and higher realised profit on government securities and other
fixed income positions. Fee income increased by 13.6% from Rs. 56.50
billion in fiscal 2010 to Rs. 64.19 billion in fiscal 2011.
In fiscal 2011, non-interest expenses increased by 12.9% from Rs. 58.60
billion in fiscal 2010 to Rs. 66.17 billion in fiscal 2011 primarily due to
an increase in employee expenses partly offset by a decrease in other
administrative expenses.
Total assets increased by 11.8% from Rs. 3,634.00 billion at March 31, 2010
to Rs. 4,062.34 billion at March 31, 2011. Total deposits increased by
11.7% from Rs. 2,020.17 billion at March 31, 2010 to Rs. 2,256.02 billion
at March 31, 2011. Current and savings account (CASA) deposits increased by
20.7% from Rs. 842.16 billion at March 31, 2010 to Rs. 1,016.47 billion at
March 31, 2011 while term deposits increased marginally from Rs. 1,178.01
billion at March 31, 2010 to Rs. 1,239.55 billion at March 31, 2011. The
ratio of CASA deposits to total deposits increased from 41.7% at March 31,
2010 to 45.1% at March 31, 2011. Total advances increased by 19.4% from Rs.
1,812.06 billion at March 31, 2010 to Rs. 2,163.66 billion at March 31,
2011 primarily due to an increase in domestic corporate loans, overseas
corporate loans and loans taken over from Bank of Rajasthan. Net non-
performing assets decreased by 37.0% from Rs. 39.01 billion at March 31,
2010 to Rs. 24.58 billion at March 31, 2011 and the net non-performing
asset ratio decreased from 1.9% at March 31, 2010 to 0.9% at March 31,
2011.
We continued to expand our branch network in India. Our branch network in
India increased from 1,707 branches and extension counters at March 31,
2010 to 2,529 branches and extension counters at March 31, 2011. We also
increased our ATM network from 5,219 ATMs at March 31, 2010 to 6,104 ATMs
at March 31, 2011. These include branches and ATMs of Bank of Rajasthan.
The total capital adequacy ratio of ICICI Bank on a standalone basis at
March 31, 2011 in accordance with the RBI guidelines on Basel II was 19.5%
with a tier I capital adequacy ratio of 13.2% compared to a total capital
adequacy of 19.4% and tier I capital adequacy of 14.0% at March 31, 2010.
Operating results data
The following table sets forth, for the periods indicated, the operating
results data.
Rs. in billion, except percentages
Fiscal 2010 Fiscal 2011 % change
Interest income Rs. 257.07 Rs. 259.74 1.0%
Interest expense 175.93 169.57 (3.6)
Net interest income 81.14 90.17 11.1
Non-interest income
- Fee income(1) 56.50 64.19 13.6
- Treasury income 11.81 (2.15) -
- Lease and other income 6.47 4.44 (31.4)
Operating income 155.92 156.65 0.5
Operating expenses 55.93 63.81 14.1
Direct marketing agency (DMA)
expense(2) 1.25 1.57 25.6
Lease depreciation, net of
lease equalisation 1.42 0.79 (44.4)
Operating profit 97.32 90.48 (7.0)
Provisions, net of write-backs 43.87 22.87 (47.9)
Profit before tax 53.45 67.61 26.5
Tax, net of deferred tax 13.20 16.10 22.0
Profit after tax Rs. 40.25 Rs. 51.51 28.0%
1. Includes merchant foreign exchange income and margin on customer
derivative transactions.
2. Represents commissions paid to DMAs for origination of retail loans.
These commissions are expensed upfront.
3. All amounts have been rounded off to the nearest Rs. 10.0 million.
4. Prior period figures have been re-grouped/re-arranged, where necessary.
Key ratios
The following table sets forth, for the periods indicated, the key
financial ratios.
Fiscal 2010 Fiscal 2011
Return on average equity (%)(1) 7.9 9.6
Return on average assets (%)(2) 1.1 1.3
Earnings per share (Rs.) 36.14 45.27
Book value per share (Rs.) 463.01 478.31
Fee to income (%) 36.6 41.2
Cost to income (%)(3) 37.0 41.9
1. Return on average equity is the ratio of the net profit after tax to the
quarterly average equity share capital and reserves.
2. Return on average assets is the ratio of net profit after tax to average
assets. The average balances are the averages of daily balances, except
averages of foreign branches which are calculated on a monthly basis till
October 31, 2010 and on a fortnightly basis thereafter.
3. Cost represents operating expense including DMA cost which is expensed
upfront but excluding lease depreciation. Income represents net interest
income and non-interest income and is net of lease depreciation.
Net interest income and spread analysis
The following table sets forth, for the periods indicated, the net interest
income and spread analysis.
Rs. in billion, except percentages
Fiscal 2010 Fiscal 2011 % change
Interest income Rs. 257.07 Rs. 259.74 1.0%
Interest expense 175.93 169.57 (3.6)
Net interest income Rs. 81.14 Rs. 90.17 11.1
Average interest-earning assets(1) 3,259.66 3,418.59 4.9
Average interest-bearing
liabilities(1) 3,054.87 3,168.26 3.7%
Net interest margin 2.5% 2.6% -
Average yield 7.9% 7.6% -
Average cost of funds 5.8% 5.4% -
Interest spread 2.1% 2.2% -
1. The average balances are the averages of daily balances, except averages
of foreign branches which are calculated on monthly basis till October 31,
2010 and on a fortnightly basis thereafter.
2. All amounts have been rounded off to the nearest Rs. 10.0 million.
Net interest income increased by 11.1% from Rs. 81.14 billion in fiscal
2010 to Rs. 90.17 billion in fiscal 2011 reflecting an increase in net
interest margin from 2.5% in fiscal 2010 to 2.6% in fiscal 2011 and a 4.9%
increase in the average volume of interest-earning assets.
Net interest margin increased from 2.5% in fiscal 2010 to 2.6% in fiscal
2011 primarily due to a decrease in cost of deposits from 5.8% in fiscal
2010 to 4.9% in fiscal 2011, offset, in part by decrease in yield on
interest-earning assets from 7.9% in fiscal 2010 to 7.6% in fiscal 2011.
The following table sets forth, for the periods indicated, the trend in
yield, cost, spread and margin.
Fiscal 2010 Fiscal 2011
Yield on interest-earning assets 7.9% 7.6%
- On advances 9.1 8.5
- On investments 6.2 6.4
- On SLR investments 6.4 6.3
- On other investments 5.8 6.6
- On other interest-earning assets 6.3 6.5
Cost of interest-bearing liabilities 5.8 5.4
- Cost of deposits 5.8 4.9
- Current and savings account (CASA) deposits 2.0 2.5
- Term deposits 7.7 6.5
- Cost of borrowings 5.6 6.1
Interest spread 2.1 2.2
Net interest margin 2.5% 2.6%
Yield on interest-earning assets decreased from 7.9% in fiscal 2010 to 7.6%
in fiscal 2011 primarily due to a decrease in yield on advances. The
decrease in yield on advances was primarily due to a decrease in the
proportion of the high-yielding unsecured retail portfolio in total
advances and decrease in yield on domestic non-retail advances reflecting
the declining trend in interest rates during fiscal 2010 which continued in
the first half of fiscal 2011.
Yield on average interest-earning investments increased to 6.4% in fiscal
2011 compared to 6.2% in fiscal 2010 primarily due to an increase in yield
on average interest-earning non-SLR investments, offset, in part, by a
marginal decrease in yield on average SLR investments. The yield on average
interest-earning non-SLR investments increased from 5.8% in fiscal 2010 to
6.6% in fiscal 2011, primarily due to an increase in investment in higher-
yielding credit substitutes like corporate bonds and debentures,
certificate of deposits and commercial paper.
Interest income also includes interest on income tax refund of Rs. 1.65
billion in fiscal 2011 compared to Rs. 1.21 billion in fiscal 2010. The
receipt, amount and timing of such income depends on the nature and timing
of determinations by tax authorities and is not consistent or predictable.
RBI increased the CRR by 75 basis points to 5.75% in February 2010 and
further by 25 basis points to 6.00% effective April 24, 2010. As CRR
balances do not earn any interest income, these increases had a negative
impact on yield on interest-earning assets in fiscal 2011. During fiscal
2011, interest income was also impacted by losses on securitised pools of
assets (including credit losses on pools securitised in earlier years) of
Rs. 5.49 billion as compared to Rs. 5.09 billion in fiscal 2010.
The cost of funds decreased from 5.8% in fiscal 2010 to 5.4% in fiscal 2011
primarily due to decrease in cost of deposits, offset, in part by an
increase in cost of borrowings.
The decrease in cost of deposits in fiscal 2011 as compared to fiscal 2010
was due to the higher proportion of low-cost current and savings deposits
and reduction in cost of term deposits. The proportion of current and
savings accounts deposits to total deposits increased from 41.7% at March
31, 2010 to 45.1% at March 31, 2011. Cost of term deposits decreased from
7.7% in fiscal 2010 to 6.5% in fiscal 2011. The cost of savings deposits
increased due to RBI guidelines requiring banks to pay interest on the
daily average balances in savings account deposits. Cost of borrowings
increased from 5.6% in fiscal 2010 to 6.1% in fiscal 2011 primarily on
account of an increase in cost of call and term borrowings and bond
borrowings.
Interest rates moved up significantly during fiscal 2011, especially in the
second half of the year. In response to tight systemic liquidity and the
rising interest rate environment, scheduled commercial banks increased
their deposit rates for various maturities. The full impact of increase in
deposit rates will reflect in fiscal 2012. The increase in deposit rates
also reflected in an increase in lending rates in the banking system.
During the year, we increased the base rate (I-Base) from 7.50% at July 1,
2010 to 8.75% at March 31, 2011 and further to 9.25%, with effect from May
7, 2011.
The following table sets forth, for the period indicated, the trend in
average interest-earning assets and average interest-bearing liabilities:
Rs. in billion, except percentages
Fiscal 2010 Fiscal 2011 % change
Advances Rs. 1,915.39 Rs. 1,926.52 0.6%
Interest-earning investments 1,046.05 1,237.42 18.3
Other interest-earning assets 298.22 254.65 (14.6)
Total interest-earning assets 3,259.66 3,418.59 4.9
Deposits 1,970.60 2,046.04 3.8
Borrowings(3) 1,084.27 1,122.23 3.5
Total interest-bearing liabilities Rs. 3,054.87 Rs. 3,168.26 3.7%
1. Average investments and average borrowings include average short-term
re-purchase transactions.
2. Average balances are the averages of daily balances, except averages of
foreign branches which are calculated on a monthly basis till October 31,
2010 and on a fortnightly basis thereafter.
3. Borrowings exclude preference share capital.
The average volume of interest-earning assets increased by 4.9% from Rs.
3,259.66 billion in fiscal 2010 to Rs. 3,418.59 billion in fiscal 2011. The
increase in average interest-earning assets was primarily on account of an
increase in average interest-earning investments by Rs. 191.37 billion.
Average interest-earning investments increased by 18.3% from Rs. 1,046.05
billion in fiscal 2010 to Rs. 1,237.42 billion in fiscal 2011, primarily
due to an increase in average interest-earning non-SLR investments by 45.4%
from Rs. 313.21 billion in fiscal 2010 to Rs. 455.34 billion in fiscal
2011. Average SLR investments increased by 6.7% from Rs. 732.84 billion in
fiscal 2010 to Rs. 782.07 billion in fiscal 2011. Interest-earning non-SLR
investments primarily include investments in corporate bonds and
debentures, certificates of deposits, commercial paper, Rural
Infrastructure Development Fund (RIDF) and other related investments and
investments in liquid mutual funds to deploy excess liquidity.
Average advances increased marginally from Rs. 1,915.39 billion in fiscal
2010 to Rs. 1,926.52 billion in fiscal 2011 which includes advances taken
over from Bank of Rajasthan. Retail advances increased by 5.8% from Rs.
790.62 billion at March 31, 2010 to Rs. 836.75 billion at March 31, 2011.
In US dollar terms, the net advances of overseas branches increased by
22.8% from US$ 10.1 billion at March 31, 2010 to US$ 12.4 billion at March
31, 2011. In rupee terms, the net advances of overseas branches increased
by 22.1% from Rs. 451.37 billion at March 31, 2010 to Rs. 550.97 billion at
March 31, 2011.
Average interest-bearing liabilities increased by 3.7% from Rs. 3,054.87
billion in fiscal 2010 to Rs. 3,168.26 billion in fiscal 2011 on account of
increase of Rs. 75.44 billion in average deposits and an increase of Rs.
37.96 billion in average borrowings. The increase in average deposits was
primarily due to increase in average CASA deposits. The ratio of average
CASA deposits to average deposits increased from about 32.5% in fiscal 2010
to about 39.1% in fiscal 2011. The increase in average borrowings was due
to an increase in average capital eligible borrowings, in the nature of
subordinated debt, by Rs. 64.66 billion.
Non-interest income
The following tables set forth, for the periods indicated, the principal
components of non-interest income.
Rs. in billion, except percentages
Fiscal 2010 Fiscal 2011 % change
Fee income(1) Rs. 56.50 Rs. 64.19 13.6%
Income from treasury-related
activities 11.81 (2.15) -
Lease and other income 6.47 4.44 (31.4)
Total other income Rs. 74.78 Rs. 66.48 (11.1)%
1. Includes merchant foreign exchange income and income on customer
derivative transactions.
Non-interest income primarily includes fee and commission income, income
from treasury-related activities and lease and other income. During fiscal
2011, the decrease in non-interest income was primarily on account of a
decrease in income from treasury-related activities. During fiscal 2011,
there was an increase in fee income and income by way of dividends included
in lease and other income. Overall there was a net decrease in non-interest
income by 11.1% from
Rs. 74.78 billion in fiscal 2010 to Rs. 66.48 billion in fiscal 2011.
Fee income
Fee income primarily includes fees from corporate clients such as loan
processing fees, transaction banking fees and structuring fees and fees
from retail customers such as loan processing fees, fees from credit cards
business, account service charges and third party referral fees. Fee income
increased from Rs. 56.50 billion in fiscal 2010 to Rs. 64.19 billion in
fiscal 2011 primarily due to an increase in corporate fees, offset, in
part, by decline in retail fees. Higher credit demand and increased
business activity in the corporate sector due to economic recovery resulted
in an increase in loan processing fees and transaction banking related fees
from corporate clients.
Income from foreign exchange transactions with clients and from margins on
derivatives transactions with clients increased by 17.3% from Rs. 6.78
billion in fiscal 2010 to Rs. 7.95 billion in fiscal 2011.
Profit/(loss) on treasury-related activities (net)
Income from treasury-related activities includes income from sale of
investments and revaluation of investments on account of changes in
unrealised profit/(loss) in the fixed income, equity and preference share
portfolio, units of venture funds and security receipts.
Profit on treasury-related activities decreased from a gain of Rs. 11.81
billion in fiscal 2010 to a loss of Rs. 2.15 billion in fiscal 2011.
Treasury income for fiscal 2011 primarily includes loss on investments in
government of India securities and loss on security receipts, offset, in
part, by gains on equity investments. The higher income from treasury-
related activities in fiscal 2010 included reversal of provision against
credit derivatives due to softening of credit spreads, higher profit on
government of India securities and other fixed income instruments and in
equity investments offset, in part, by a loss on mark-to-market/realised
loss on security receipts.
During fiscal 2010, we had capitalised on certain market opportunities to
realise gains from sale of our government and other domestic fixed income
positions. During fiscal 2011, the government securities portfolio was
impacted by increase in interest rates which resulted in a loss for fiscal
2011 as compared to gains in fiscal 2010.
The equity markets remained volatile due to global and domestic
developments including the political unrest in the Middle East and concerns
on global recovery due to possible impact on crude oil prices, and
continued high levels of inflation in India and resultant monetary
tightening. These factors impacted market sentiment resulting in decline in
realised/unrealised profit on equity investments for fiscal 2011 as
compared to fiscal 2010.
During fiscal 2010, softening of credit spreads had resulted in reversal of
provision held against the credit derivatives portfolio amounting to Rs.
3.97 billion. During fiscal 2011, there was a profit on credit derivatives
portfolio amounting to Rs. 0.15 billion.
At March 31, 2011, we had an outstanding net investment of Rs. 28.31
billion in security receipts issued by asset reconstruction companies in
relation to sale of non-performing assets. At the end of each reporting
period, security receipts issued by asset reconstruction companies are
valued as per net asset value obtained from the asset reconstruction
company from time to time. During fiscal 2011, the impact of these security
receipts on the income from treasury-related activities was a loss of Rs.
2.31 billion compared to a loss of Rs. 2.12 billion in fiscal 2010.
Lease and other income
Lease and other income primarily includes dividend from subsidiaries, lease
rentals and profit on sale of fixed assets. Lease and other income
decreased from Rs. 6.47 billion in fiscal 2010 to Rs. 4.44 billion in
fiscal 2011. During fiscal 2010, the Bank and First Data, a global leader
in electronic commerce and payment services, formed a merchant acquiring
alliance and a new entity, 81.0% owned by First Data. This entity acquired
ICICI Bank's merchant acquiring operations through transfer of assets,
primarily comprising fixed assets, receivables and payables, and assumption
of liabilities, for a total consideration of Rs. 3.74 billion. We realised
a profit of Rs. 2.03 billion from this transaction in fiscal 2010.
The following table sets forth, for the periods indicated, the principal
components of non-interest expense.
Rs. in billion, except percentages
Fiscal 2010 Fiscal 2011 % change
Payments to and provisions for
employees Rs. 19.26 Rs. 28.17 46.3%
Depreciation on own property
(including non banking assets) 4.78 4.84 1.3
Other administrative expenses 31.89 30.80 (3.4)
Total non-interest expense
(excluding lease depreciation 55.93 63.81 14.1
and direct marketing agency
expenses)
Depreciation (net of lease
equalisation) on leased assets 1.42 0.79 (44.4)
Direct marketing agency expenses 1.25 1.57 25.6
Total non-interest expense Rs. 58.60 Rs. 66.17 12.9%
Non-interest expenses primarily include employee expenses, depreciation on
assets, direct marketing agency expenses and other administrative expenses.
In fiscal 2011, non-interest expenses increased by 12.9% from Rs. 58.60
billion in fiscal 2010 to Rs. 66.17 billion in fiscal 2011 primarily due to
an increase in employee expenses partly offset by a decrease in other
administrative expenses and a decrease in depreciation on leased assets.
Payments to and provisions for employees
Employee expenses increased by 46.3% from Rs. 19.26 billion in fiscal 2010
to Rs. 28.17 billion in fiscal 2011. Employee expenses increased primarily
due to addition of employees of Bank of Rajasthan, annual increase in
salaries and provision for payment of performance bonus and performance-
linked retention pay during the period and increase in the employee base,
including sales executives, employees on fixed term contracts and interns,
from 41,068 employees at March 31, 2010 to 56,969 employees at March 31,
2011 (including employees of Bank of Rajasthan).
Depreciation
Depreciation on owned property increased by 1.3% from Rs. 4.78 billion in
fiscal 2010 to Rs. 4.84 billion in fiscal 2011 primarily due to increase in
the branch and ATM network and capitalisation of the Bank's new building in
Hyderabad, offset, in part, by sale of assets of merchant acquiring
operations and other properties. Depreciation on leased assets decreased
from Rs. 1.42 billion in fiscal 2010 to Rs. 0.79 billion in fiscal 2011 due
to a reduction in leased assets.
Other administrative expenses
Other administrative expenses primarily include rent, taxes and lighting,
advertisement and publicity, repairs and maintenance and other expenditure.
Other operating expenses decreased by 3.4% from Rs. 31.89 billion in fiscal
2010 to Rs. 30.80 billion in fiscal 2011. The decrease in other operating
expenses was primarily due to our overall cost reduction
Non-interest expense initiatives. There was a reduction in retail business
expenses, law charges and expenses on account of postage and communication
expenses in fiscal 2011 which was partly offset by an increase in rent,
taxes and lighting and repairs and maintenance expenses due to an increase
in our branch and ATM network. The number of branches and extension
counters (excluding foreign branches and offshore banking units) increased
from 1,707 at March 31, 2010 to 2,529 at March 31, 2011. We also increased
our ATM network from 5,219 ATMs at March 31, 2010 to 6,104 ATMs at March
31, 2011. These figures include branches and ATMs of Bank of Rajasthan.
Direct marketing agency expenses
Direct marketing agency expenses increased from Rs. 1.25 billion in fiscal
2010 to Rs. 1.57 billion in fiscal 2011. The increase in direct marketing
expenses was primarily due to higher retail loan disbursements. We use
marketing agents, called direct marketing agents or associates, for
sourcing our retail assets. We include commissions paid to these direct
marketing agents in non-interest expense. In line with the RBI guidelines,
these commissions are expensed upfront and not amortised over the life of
the loan.
Provisions and contingencies (excluding provisions for tax)
The following tables set forth, for the periods indicated, the components
of provisions and contingencies.
Rs. in billion, except percentages
Fiscal 2010 Fiscal 2011 % change
Provision for investments (including
credit substitutes) (net) Rs. (0.03) Rs. 2.04 -
Provision for non-performing and
other assets(1) 43.62 19.77 (54.7)%
Provision for standard assets - -
Others 0.28 1.06
Total provisions and contingencies
(excluding provisions for tax) Rs. 43.87 Rs. 22.87 (47.9)%
1. Includes restructuring related provision.
Provisions are made by us on standard, sub-standard and doubtful assets at
rates prescribed by RBI. Loss assets and unsecured portions of doubtful
assets are provided/written off as required by extant RBI guidelines.
Subject to the minimum provisioning levels prescribed by RBI, provisions on
retail non-performing loans are made at the borrower level in accordance
with our retail assets provisioning policy. The specific provisions on
retail loans held by us are higher than the minimum regulatory requirement.
Provisions and contingencies (excluding provisions for tax) decreased by
47.9% from Rs. 43.87 billion in fiscal 2010 to Rs. 22.87 billion in fiscal
2011 primarily due to a reduction in provisions for retail non-performing
loans. The reduction in provision against retail non-performing loans was
primarily due to a sharp reduction in accretion to retail non-performing
loans in fiscal 2011.
In the second quarter review of monetary policy for fiscal 2010, RBI
directed banks to ensure that their total provisioning coverage ratio was
not less than 70% by end-September 2010. On December 1, 2009, RBI issued
detailed guidelines on provisioning coverage for advances by banks. In
March 2010, RBI permitted us to reach the stipulated provisioning coverage
ratio of 70% in a phased manner by March 2011. Our provisioning coverage
ratio at March 31, 2011 computed as per the above mentioned RBI guidelines
was 76.0%.
No additional general provision was required on standard assets during
fiscal 2011. RBI guidelines do not permit write-back of excess provisions
already made and therefore we held a cumulative general provision of Rs.
14.80 billion at March 31, 2011 compared to the general provision
requirement as per the revised guidelines of about Rs. 10.86 billion.
Tax expense
The income tax expense (including wealth tax) increased by 22.0% from Rs.
13.20 billion in fiscal 2010 to Rs. 16.10 billion in fiscal 2011. The
effective tax rate of 23.8% in fiscal 2011 was lower compared to the
effective tax rate of 24.7% in fiscal 2010 primarily due to change in mix
of taxable profits with a higher component of exempt income in the current
fiscal year and tax benefits from the amalgamation of Bank of Rajasthan.
Financial Condition
Assets
The following table sets forth, at the dates indicated, the principal
components of assets.
Rs. in billion, except percentages
Assets At March At March % change
31, 2010 31, 2011
Cash and bank balances Rs. 388.73 Rs. 340.90 (12.3)%
Investments 1,208.93 1,346.86 11.4
- SLR investments(1) 684.04 641.61 (6.2)
- RIDF and other related investments(2) 101.10 150.80 49.2
- Equity investment in subsidiaries 122.00 124.53 2.1
- Other investments 301.79 429.92 42.5
Advances 1,812.06 2,163.66 19.4
- Domestic 1,360.69 1,612.69 18.5
- Overseas 451.37 550.97 22.1
Fixed assets (including leased assets) 32.13 47.44 47.7
Other assets 192.15 163.48 (14.9)
Total Assets Rs.3,634.00 Rs.4,062.34 11.8%
1. Government and other approved securities qualifying for SLR. Banks in
India are required to maintain a specified percentage, currently 24.0%, of
their net demand and time liabilities by way of liquid assets like cash,
gold or approved unencumbered securities.
2. Investments made in RIDF and other such entities in lieu of shortfall in
the amount required to be lent to certain specified sectors called priority
sector as per RBI guidelines.
3. All amounts have been rounded off to the nearest Rs. 10.0 million.
The total assets increased by 11.8% from Rs. 3,634.00 billion at March 31,
2010 to Rs. 4,062.34 billion at March 31, 2011 (including Rs. 155.96
billion of Bank of Rajasthan at August 12, 2010), primarily due to increase
in investments and advances. Investments increased by 11.4% from Rs.
1,208.93 billion at March 31, 2010 to Rs. 1,346.86 billion at March 31,
2011. The net advances increased by 19.4% from Rs. 1,812.06 billion at
March 31, 2010 to Rs. 2,163.66 billion at March 31, 2011.
Cash and cash equivalents
Cash and cash equivalents include cash in hand and balances with RBI and
other banks, including money at call and short notice. Cash and cash
equivalents decreased from Rs. 388.73 billion at March 31, 2010 to Rs.
340.90 billion at March 31, 2011. The decrease was primarily due to a
decrease in balances with RBI from Rs. 241.73 billion at March 31, 2010 to
Rs. 171.23 billion at March 31, 2011 due to higher than stipulated CRR
balance maintained at March 31, 2010.
Investments
Total investments increased by 11.4% from Rs. 1,208.93 billion at March 31,
2010 to Rs. 1,346.86 billion at March 31, 2011 (including Rs. 70.96 billion
of Bank of Rajasthan at August 12, 2010), primarily due to an increase in
investment in corporate bonds and debentures by Rs. 125.1 1 billion, RIDF
and other related investments in lieu of shortfall in directed lending
requirements by Rs. 49.70 billion (including Rs. 21.34 billion of Bank of
Rajasthan at August 12, 2010) and investments in commercial paper and
certificate of deposits by Rs. 31.21 billion. The investment in pass-
through certificates decreased by Rs. 15.93 billion at March 31, 2011
compared to March 31, 2010. At March 31, 2011, we had an outstanding net
investment of Rs. 28.31 billion in security receipts issued by asset
reconstruction companies in relation to sale of non-performing assets
compared to Rs. 33.94 billion at March 31, 2010. At March 31, 2011, we had
a gross portfolio of funded credit derivatives of Rs. 10.60 billion and
non-funded credit derivatives of Rs. 28.17 billion, which includes Rs. 0.22
billion as protection bought by us.
Advances
Net advances increased by 19.4% from Rs. 1,812.06 billion at March 31, 2010
to Rs. 2,163.66 billion at March 31, 2011 primarily due to increase in
domestic corporate loans, overseas corporate loans and loans taken over
from Bank of Rajasthan amounting to Rs. 65.28 billion at August 12, 2010.
Net retail advances increased by 5.8% from Rs. 790.62 billion at March 31,
2010 to Rs. 836.75 billion at March 31, 2011. In rupee terms, net advances
of overseas branches (including offshore banking unit) increased by 22.1%
from Rs. 451.37 billion at March 31, 2010 to Rs. 550.97 billion at March
31, 2011.
Fixed and other assets
Fixed assets increased by 47.7% from Rs. 32.13 billion at March 31, 2010 to
Rs. 47.44 billion at March 31, 2011 (including Rs. 5.15 billion of Bank of
Rajasthan at August 12, 2010) primarily due to part capitalisation of the
Bank's new building in Hyderabad and increase in the branch network and
other offices. Other assets decreased by 14.9% from Rs. 192.15 billion at
March 31, 2010 to Rs. 163.48 billion at March 31, 2011.
Liabilities
The following table sets forth, at the dates indicated, the principal
components of liabilities (including capital and reserves).
Rs. in billion, except percentages
Liabilities At March At March
31, 2010 31, 2011 % change
Equity share capital 11.15 11.52 3.3
Reserves 505.03 539.39 6.8
Deposits 2,020.17 2,256.02 11.7
- Savings deposits 532.18 668.69 25.7
- Current deposits 309.98 347.78 12.2
- Term deposits 1,178.01 1,239.55 5.2
Borrowings (excluding sub-ordinated
debt and preference share capital) 609.47 728.13 19.5
- Domestic 140.21 192.75 37.5
- Overseas 469.26 535.38 14.1
Subordinated debt (included in
Tier-1 and Tier-2 capital)(1) 329.67(2) 363.91 10.4
- Domestic(1) 314.47(2) 348.80 10.9
- Overseas 15.20 15.11 (0.6)
Preference share capital 3.50 3.50 -
Other liabilities 155.01 159.87 3.1
Total liabilities Rs. 3634.00 Rs.4062.34 11.8%
1. Included in Schedule 4 - 'Borrowings' of the balance sheet.
2. Includes application money of Rs. 25.00 billion received towards
subordinated debt issued on April 5, 2010.
3. All amounts have been rounded off to the nearest Rs. 10.0 million.
Total liabilities (including capital and reserves) increased by 11.8% from
Rs. 3,634.00 billion at March 31, 2010 to Rs. 4,062.34 billion at March 31,
2011 (including Rs. 155.96 billion of Bank of Rajasthan at August 12,
2010), primarily due to an increase in deposits and borrowings. Deposits
increased from Rs. 2,020.17 billion at March 31, 2010 to Rs. 2,256.02
billion at March 31, 2011.
Deposits
Deposits increased by 11.7% from Rs. 2,020.17 billion at March 31, 2010 to
Rs. 2,256.02 billion at March 31, 2011 (including Rs. 134.83 billion of
Bank of Rajasthan at August 12, 2010). Term deposits increased from Rs.
1,178.01 billion at March 31, 2010 to Rs. 1,239.55 billion at March 31,
2011 (including Rs. 88.02 billion of Bank of Rajasthan at August 12, 2010),
while savings deposits increased from Rs. 532.18 billion at March 31, 2010
to Rs. 668.69 billion at March 31, 2011 (including Rs. 34.48 billion of
Bank of Rajasthan at August 12, 2010) and current deposits increased from
Rs. 309.98 billion at March 31, 2010 to Rs. 347.78 billion at March 31,
2011 (including Rs. 12.32 billion of Bank of Rajasthan at August 12, 2010).
Total deposits at March 31, 2011 formed 67.4% of the funding (i.e. deposits
and borrowings, other than preference share capital). During fiscal 2010
and fiscal 2011, we focussed on our strategy of increasing the share of
current and savings account deposits in total deposits and re-balancing our
funding mix. The current and savings account deposits increased from Rs.
842.16 billion at March 31, 2010 to Rs. 1,016.47 billion at March 31, 2011
(including Rs. 46.80 billion of Bank of Rajasthan at August 12, 2010) and
the ratio of current and savings account deposits to total deposits
increased from 41.7% at March 31, 2010 to 45.1% at March 31, 2011.
Borrowings (including sub-ordinated debt and preference share capital)
Borrowings increased by 16.2% from Rs. 942.64 billion at March 31, 2010 to
Rs. 1,095.54 billion at March 31, 2011 primarily due to an increase in call
and term borrowings and an increase in capital-eligible borrowings in the
nature of sub-ordinated debt. The capital-eligible borrowings in the nature
of sub-ordinated debt increased to Rs. 363.91 billion at March 31, 2011
compared to Rs. 329.67 billion at March 31, 2010. RBI issued guidelines,
effective April 1, 2010, which require market repurchase transactions
(previously accounted for as sale and repurchase) to be accounted for as
borrowing and lending. The transactions with RBI under LAF which are
accounted for as sale and purchase transactions.
Equity share capital and reserves
Equity share capital and reserves increased from Rs. 516.18 billion at
March 31, 2010 to Rs. 550.91 billion at March 31, 2011 (including statutory
reserve of Rs. 2.00 billion taken over from Bank of Rajasthan at August 12,
2010) primarily due to allotment of shares to the shareholders of Bank of
Rajasthan and annual accretion to reserves out of profit. Excess of paid-up
value of equity shares issued over the fair value of the net assets
acquired in the amalgamation and amalgamation expenses, amounting to Rs.
2.10 billion have been adjusted against the securities premium account.
Off balance sheet items, commitments and contingencies
The following table sets forth, for the periods indicated, the principal
components of contingent liabilities.
Rs. in billion
March 31, 2010 March 31, 2011
Claims against the Bank, not acknowledged
as debts Rs. 33.57 Rs. 17.02
Liability for partly paid investments 0.13 0.13
Notional principal amount of outstanding
forward exchange contracts 1,660.69 2,468.62
Guarantees given on behalf of constituents 618.36 826.27
Acceptances, endorsements and other
obligations 321.22 393.34
Notional principal amount of currency
swaps 524.79 561.28
Notional principal amount of Interest
rate swaps and currency options 4,012.14 4,903.90
Other items for which the Bank is
contingently liable 99.94 60.66
Total Rs.7,270.84 Rs.9,231.22
We enter into foreign exchange forwards, options, swaps and other
derivative products to enable customers to transfer, modify or reduce their
foreign exchange and interest rate risk and to manage our own interest rate
and foreign exchange positions. We manage our foreign exchange and interest
rate risk with reference to limits set by RBI as well as those set
internally. An interest rate swap does not entail exchange of notional
principal and the cash flow arises on account of the difference between
interest rate pay and receive legs of the swaps which is generally much
smaller than the notional principal of the swap. With respect to the
transactions entered into with customers, we generally enter into off-
setting transactions in the inter-bank market. This results in generation
of a higher number of outstanding transactions and hence a large value of
gross notional principal of the portfolio, while the net market risk is
low. For example, if a transaction entered into with a customer is covered
by an exactly opposite transaction entered into with counter-party, the net
market risk of the two transactions will be zero whereas the notional
principal which is reflected as an off-balance sheet item will be the sum
of both the transactions.
As a part of project financing and commercial banking activities, we have
issued guarantees to support regular business activities of clients. These
generally represent irrevocable assurances that we will make payments in
the event that the customer fails to fulfill its financial or performance
obligations. Financial guarantees are obligations to pay a third party
beneficiary where a customer fails to make payment towards a specified
financial obligation. Performance guarantees are obligations to pay a third
party beneficiary where a customer fails to perform a non-financial
contractual obligation. The guarantees are generally for a period not
exceeding ten years The credit risks associated with these products, as
well as the operating risks, are similar to those relating to other types
of financial instruments. In majority of the cases, we have collateral
available to reimburse potential losses on the guarantees. Cash margins
available to reimburse losses realised under guarantees amounted to Rs.
24.39 billion at March 31, 2011 and Rs. 17.69 billion at March 31, 2010.
Other property or security may also be available to us to cover losses
under guarantees.
The table below sets forth, for the periods indicated, the principal
components of guarantees.
Rs. in billion, except percentages
At March 31, 2010 At March 31, 2011 % change
Financial guarantees Rs. 159.79 Rs. 230.27 44.1%
Performance guarantees 458.57 596.00 30.0
Total guarantees Rs. 618.36 Rs. 826.27 33.6%
1. Outstanding is net of cash margin.
At March 31, 2011, total guarantees amounted to Rs. 826.27 billion
comprising Rs. 230.27 billion of financial guarantees and Rs. 596.00
billion of performance guarantees.
Claims against the Bank, not acknowledged as debts represents demands made
in certain tax and legal matters against the Bank in the normal course of
business. In accordance with our accounting policy and Accounting Standard
29, we have reviewed the demands and classified such disputed tax issues as
possible obligation based on legal opinion/ judicial precedents. No
provision in excess of provisions already made in the financial statements
is considered necessary.
We are obligated under a number of capital contracts. Capital contracts are
job orders of a capital nature, which have been committed. Estimated
amounts of contracts remaining to be executed on capital account in
domestic operations aggregated to Rs. 3.58 billion at March 31, 2011
compared to Rs. 5.28 billion at March 31, 2010 primarily on account of new
branches and capitalisation of the Bank's new building in Hyderabad.
Capital Resources
We actively manage our capital to meet regulatory norms and current and
future business needs considering the risks in our businesses, expectations
of rating agencies, shareholders and investors and the available options
for raising capital. Our capital management framework is administered by
the Finance Group and the Risk Management Group under the supervision of
the Board and the Risk Committee. The capital adequacy position and
assessment is reported to the Board and the Risk Committee periodically.
Regulatory capital
We are subject to the Basel II capital adequacy guidelines stipulated by
RBI with effect from March 31, 2008. RBI guidelines on Basel II require us
to maintain a minimum capital to risk-weighted assets ratio of 9.0% and a
minimum Tier-1 capital adequacy ratio of 6.0% on an ongoing basis. Under
Pillar 1 of the RBI guidelines on Basel II, we follow the Standardised
approach for measurement of credit and market risks and Basic Indicator
approach for measurement of operational risk.
RBI has also stipulated that banks shall maintain capital at higher of the
minimum capital required as per Basel II or 80% of the minimum capital
required as per Basel I. At March 31, 2011, the prudential floor at 80% of
the minimum capital requirement under Basel I was Rs. 283.84 billion and
was lower than the minimum capital requirement of Rs. 307.35 billion under
Basel II. Hence, we have maintained capital adequacy at March 31, 2011 as
per the Basel II norms.
The following table sets forth, at the dates indicated, the capital
adequacy ratios computed in accordance with the RBI guidelines on Basel I
and Basel II.
Rs. in billion
As per RBI As per RBI
guidelines on Basel I guidelines on Basel II
At March 31, At March 31, At March 31, At March 31,
2010 2011 2010 2011
Tier-I capital Rs. 432.61 Rs. 463.99 Rs. 410.62 Rs. 449.75
Tier-II capital 181.57 231.00 160.41 217.50
Total capital 614.18 694.99 571.03 667.25
Credit Risk -
Risk Weighted
Assets (RWA) 2,899.15 3,389.35 2,485.59 2,909.79
Market Risk - RWA 309.28 552.84 221.06 255.52
Operational
Risk - RWA - - 235.16 249.67
Total RWA Rs. 3,208.43 Rs. 3,942.19 Rs. 2,941.81 Rs. 3,414.98
Total capital
adequacy ratio 19.1% 17.6% 19.4% 19.5%
Tier-I capital
adequacy ratio 13.5% 11.8% 14.0% 13.2%
Tier-II capital
adequacy ratio 5.6% 5.8% 5.4% 6.3%
Movement in our capital funds and risk weighted assets from March 31, 2010
to March 31, 2011 (as per RBI guidelines on Basel II)
During the year ended March 31, 2011, capital funds increased by Rs. 96.22
billion primarily due to profit after tax earned for the year of Rs. 51.51
billion, incremental notional tax payable on special reserves of Rs. 1.74
billion, the issuance of lower Tier II debt capital of Rs. 59.79 billion
and reduction in deduction on account of securitization exposures of Rs.
25.06 billion, offset, in part, by an increase in deduction on account of
deferred tax assets of Rs. 6.14 billion and proposed dividend for the year.
Credit risk RWA increased by Rs. 424.20 billion from Rs. 2,485.59 billion
at March 31, 2010 to Rs. 2,909.79 billion at March 31, 2011 primarily due
to increase of Rs. 310.19 billion in RWA for loans and advances and
increase of Rs. 115.99 billion in RWA for off-balance sheet credit
exposures (including increase of Rs. 105.99 billion in RWA for non-fund
based facilities and increase of Rs. 29.39 billion in RWA for undrawn
commitments).
Market risk RWA increased by Rs. 34.46 billion from Rs. 221.06 billion at
March 31, 2010 to Rs. 255.52 billion at March 31, 2011. The general market
risk RWA increased by Rs. 42.86 billion (capital charge of Rs. 3.86
billion) primarily due to increase in the investment book and duration of
interest rate related instruments.
The operational risk RWA at March 31, 2011 was Rs. 249.67 billion (capital
charge of Rs. 22.47 billion). The operational risk capital charge is
computed based on 15% of average of previous three financial years' gross
income and is revised on an annual basis at June 30.
Internal assessment of capital
Our capital management framework includes a comprehensive internal capital
adequacy assessment process conducted annually, which determines the
adequate level of capitalisation necessary to meet regulatory norms and
current and future business needs, including under stress scenarios. The
internal capital adequacy assessment process is formulated at both the
standalone bank level and the consolidated group level. The process
encompasses capital planning for a certain time horizon, identification and
measurement of material risks and the relationship between risk and
capital.
The capital management framework is complemented by the risk management
framework, which includes a comprehensive assessment of all material risks.
Stress testing, which is a key aspect of the capital assessment process and
the risk management framework, provides an insight into the impact of
extreme but plausible scenarios on the risk profile and capital position.
Based on our Board-approved stress testing framework, we conduct stress
tests on our various portfolios and assess the impact on our capital ratios
and the adequacy of our capital buffers for current and future periods. We
periodically assess and refine our stress tests in an effort to ensure that
the stress scenarios capture material risks as well as reflect possible
extreme market moves that could arise as a result of market conditions.
Internal capital adequacy assessment process at the consolidated level
integrates the business and capital plans and the stress testing results of
the group entities.
Based on the internal capital adequacy assessment process, we determine our
capital needs and the optimum level of capital by considering the following
in an integrated manner:
* strategic focus, business plan and growth objectives;
* regulatory capital requirements as per RBI guidelines;
* assessment of material risks and impact of stress testing;
* perception of credit rating agencies, shareholders and investors;
* future strategy with regard to investments or divestments in
subsidiaries; and
* evaluation of options to raise capital from domestic and overseas
markets, as permitted by RBI from time to time.
We formulate our internal capital level targets based on the internal
capital adequacy assessment process and endeavour to maintain the capital
adequacy level in accordance with the targeted levels at all times.
Basel III
In order to strengthen the resilience of the banking sector to potential
future shocks, together with ensuring adequate liquidity in the banking
system, the Basel Committee on Banking Supervision (BCBS) issued the Basel
III proposals on December 17, 2009. Following a consultation phase on these
proposals, the final set of Basel III rules were issued on December 16,
2010. The Basel III rules on capital consist of measures on improving the
quality, consistency and transparency of capital, enhancing risk coverage,
introducing a supplementary leverage ratio, reducing pro-cyclicality and
promoting countercyclical buffers, and addressing systemic risk and
interconnectedness. The Basel III rules on liquidity consist of a measure
of short-term liquidity coverage ratio aimed at building liquidity buffers
to meet stress situations, and a measure of long-term net stable funding
ratio aimed at promoting longer term structural funding. Some of the Basel
III measures will be phased-in between January 1, 2013 and January 1, 2019.
BCBS has stipulated a phased implementation of the Basel III framework
between January 1, 2013 and January 1, 2019
Guidlines on Basel III framework for the Indian banking system are awaited
from RBI. We continue to monitor developments on the Basel III framework
and believe that our current robust capital adequacy position, adequate
headroom currently available to raise hybrid/debt capital, demonstrated
track record of access to domestic and overseas markets for capital raising
and adequate flexibility in our balance sheet structure and business model
will enable us to adapt to the Basel III framework along with any
amendments by RBI, as and when they are implemented.
ASSET QUALITY AND COMPOSITION
Loan Concentration
We follow a policy of portfolio diversification and evaluate our total
financing in a particular sector in light of our forecasts of growth and
profitability for that sector. Between 2003 and 2006, the banking system as
a whole saw significant expansion of retail credit, with retail loans
contributing for a major part of overall systemic credit growth.
Accordingly, during these years, we increased our focus on retail finance.
In view of high asset prices and the increase in interest rates since the
second half of fiscal 2008, we followed a conscious strategy of moderation
of retail disbursements, especially in the unsecured retail loans segment.
Following this trend, our gross retail finance loans and advances declined
from 49.3% of our total gross loans and advances at year-end fiscal 2009 to
44.4% at year-end fiscal 2010 and further to 39.7% at March 31, 2011.
Our Credit Risk Management Group monitors all major sectors of the economy
and specifically tracks sectors in which we have loans outstanding. We seek
to respond to any economic weakness in an industrial segment by restricting
new exposures to that segment and any growth in an industrial segment by
increasing new exposures to that segment, resulting in active portfolio
management.
The following tables set forth, at the dates indicated, the composition of
our gross advances (net of write-offs).
Rs. in billion, except percentages
March 31, 2010 March 31, 2011
Advances % of total Advances % of total
advances advances
Retail finance(1) Rs.831.19 44.4% Rs.890.74 39.7%
Services - non-finance 135.21 7.2 173.36 7.7
Services - finance 64.56 3.4 161.43 7.2
Crude petroleum/refining
and petrochemicals 132.86 7.1 141.83 6.3
Road, ports, telecom,
urban development and 103.94 5.5 129.54 5.8
other infrastructure
Power 56.49 3.0 98.11 4.4
Iron/steel and products 86.26 4.6 94.88 4.2
Food and beverages 61.54 3.3 70.63 3.2
Wholesale/retail trade 44.47 2.4 52.00 2.3
Electronics and engineering 31.54 1.7 44.72 2.0
Mining 4.57 0.2 41.49 1.9
Construction 17.91 1.0 36.43 1.6
Chemical and fertilizers 46.27 2.5 29.24 1.3
Textiles 19.16 1.0 21.01 0.9
Other industries(2) 237.17 12.7 258.74 11.5
Total Rs.1,873.14 100.0% Rs.2,244.15 100.0%
1. Includes home loans, automobile loans, commercial business loans, two
wheeler loans, personal loans and credit cards. Also includes dealer
funding portfolio and developer financing portfolio.
2. Other industries primarily include automobiles, cement, drugs and
pharmaceuticals, FMCG, gems and jewellery, manufacturing products excluding
metal, metal and products (excluding iron and steel) and shipping etc.
The following table sets forth, at the dates indicated, the composition of
our gross (net of write-offs) outstanding retail finance portfolio.
Rs. in billion, except percentages
March 31, 2010 March 31, 2011
Retail % of total Retail % of total
advances retail advances retail
advances advances
Home loans(1) Rs. 474.72 57.1% Rs.541.26 60.8%
Automobile loans 85.13 10.2 85.81 9.6
Commercial business 136.75 16.5 152.86 17.2
Two-wheeler loans 4.65 0.6 2.09 0.2
Personal loans 57.14 6.9 40.31 4.5
Credit cards 59.33 7.1 48.51 5.5
Loans against
securities and others(2) 13.47 1.6 19.90 2.2
Total retail finance
portfolio Rs. 831.19 100.0% Rs.890.74 100.0%
1. Includes developer financing. 2. Includes dealer financing portfolio.
Directed Lending
RBI requires banks to lend to certain sectors of the economy. Such directed
lending comprises priority sector lending, export credit and housing
finance. RBI guidelines require banks to lend 40.0% of their adjusted net
bank credit, or credit equivalent amount of off-balance sheet exposure,
whichever is higher, to certain specified sectors called priority sectors.
The definition of adjusted net bank credit does not include certain
exemptions and includes certain investments and is computed with reference
to the outstanding amount at March 31 of the previous year. Priority sector
includes small enterprises, agricultural sector, food and agri-based
industries, small businesses and housing finance up to certain limits. Out
of the 40.0%, banks are required to lend a minimum of 18.0% of their
adjusted net bank credit to the agriculture sector and the balance to
certain specified sectors, including small enterprises (defined as
enterprises engaged in manufacturing/production, processing and services
businesses with a certain limit on investment in plant and machinery),
small road and water transport operators, small businesses, professional
and self-employed persons, all other service enterprises, micro credit,
education loans and housing loans up to Rs. 2.0 million to individuals for
purchase/construction of a dwelling unit per family. In its letter dated
April 26, 2002 granting its approval for the amalgamation of ICICI Limited
and ICICI Bank Limited, RBI stipulated that since the loans of erstwhile
ICICI Limited (ICICI) transferred to us were not subject to the priority
sector lending requirement, we are required to maintain priority sector
lending of 50.0% of our adjusted net bank credit on the residual portion of
our advances (i.e. the portion of our total advances excluding advances of
ICICI at year-end fiscal, 2002, referred to as 'residual adjusted net bank
credit'). This method of computation will apply until such time as our
aggregate priority sector advances reach a level of 40.0% of our adjusted
net bank credit or review of this stipulation by RBI. As required by RBI
guidelines, we are also required to lend 10.0% of the residual adjusted net
bank credit or credit equivalent amount of off-balance sheet exposures,
whichever is higher, to weaker sections. RBI's existing instructions on
sub-targets under priority sector lending and eligibility of certain types
of investments/funds for qualification as priority sector advances apply to
us. We are required to comply with the priority sector lending requirements
at the last reporting Friday' of each fiscal year. The shortfall in the
amount required to be lent to the priority sectors and weaker sections may
be required to be deposited with government sponsored Indian development
banks like the National Bank for Agriculture and Rural Development, the
Small Industries Development Bank of India and the National Housing Bank.
These deposits have a maturity of up to seven years and carry interest
rates lower than market rates. At year-end fiscal 2011, our total
investments in such bonds were Rs. 150.80 billion (including Rs. 21.34
billion of Bank of Rajasthan at August 12, 2010). At March 25, 2011, the
last reporting Friday for fiscal 2011, our priority sector loans were Rs.
551.73 billion, constituting 53.1% of our residual adjusted net bank credit
against the requirement of 50.0%. At that date, qualifying agriculture
loans were 14.0% of our residual adjusted net bank credit as against the
requirement of 18.0%. Our advances to weaker sections were Rs. 34.43
billion constituting 3.3% of our residual adjusted net bank credit against
the requirement of 10.0%. The Bank has based its classifications of
priority sector loans, including loans to weaker sections and agriculture
loans, in accordance with the guidelines and certain clarifications
received from RBI during the year.
Classification of loans
We classify our assets as performing and non-performing in accordance with
RBI guidelines. Under these guidelines, an asset is classified as non-
performing if any amount of interest or principal remains overdue for more
than 90 days, in respect of term loans. In respect of overdraft or cash
credit, an asset is classified as non-performing if the account remains out
of order for a period of 90 days and in respect of bills, if the account
remains overdue for more than 90 days. In compliance with regulations
governing the presentation of financial information by banks, we report
non-performing assets net of cumulative write-offs in our financial
statements.
RBI has separate guidelines for restructured loans. A fully secured
standard asset can be restructured by reschedulement of principal
repayments and/or the interest element, but must be separately disclosed as
a restructured asset. The diminution in the fair value of the loan, if any,
measured in present value terms, is either written off or a provision is
made to the extent of the diminution involved. Similar guidelines apply to
sub-standard loans. The substandard or doubtful accounts which have been
subject to restructuring, whether in respect of principal installment or
interest amount are eligible to be upgraded to the standard category only
after the specified period, i.e., a period of one year after the date when
first payment of interest or of principal, whichever is earlier, falls due,
subject to satisfactory performance during the period.
The following table sets forth, at March 31, 2010 and March 31, 2011,
information regarding the classification of our gross customer assets (net
of write-offs, interest suspense and derivatives income reversal).
Rs. in billion
March 31, 2010 March 31, 2011
Standard assets Rs. 2,057.29 Rs. 2,608.30
- Of which: Restructured loans 55.87 20.64
Non-performing assets 96.27 101.14
- Of which: Sub-standard assets 50.20 17.92
- Doubtful assets 40.30 74.00
- Loss assets 5.77 9.22
Total customer assets(1) Rs. 2,153.56 Rs. 2,709.44
1. Customer assets include advances, lease receivables and credit
substitutes like debentures and bonds but exclude preference shares.
2. All amounts have been rounded off to the nearest Rs. 10.0 million.
The following table sets forth, at the dates indicated, information
regarding our non-performing assets (NPAs).
Rs. in billion, except percentages
Year ended Gross NPA(1) Net NPA Net customer % of net NPA to net
assets customer assets(2)
March 31, 2009 Rs. 98.03 Rs. 46.19 Rs. 2,358.24 1.96%
March 31, 2010 96.27 39.01 2,091.22 1.87
March 31, 2011 Rs. 101.14 Rs. 24.58 Rs. 2,628.16 0.94%
1. Net of write-offs, interest suspense and derivatives income reversal.
2. Customer assets include advances and credit substitutes like debentures
and bonds but exclude preference shares.
3. All amounts have been rounded off to the nearest Rs. 10.0 million.
At March 31, 2011, the gross non-performing assets (net of write-offs,
interest suspense and derivatives income reversal) were Rs. 101.14 billion
compared to Rs. 96.27 billion at March 31, 2010. The increased level of
non-performing assets was after taking into consideration the additions to
gross NPA (Rs. 4.11 billion) arising out of the amalgamation of Bank of
Rajasthan with effect from close of business at August 12, 2010. Net non-
performing assets were Rs. 24.58 billion at March 31, 2011 compared to Rs.
39.01 billion at March 31, 2010. The ratio of net non-performing assets to
net customer assets decreased from 1.87% at March 31, 2010 to 0.94% at
March 31, 2011. During fiscal 2011, we wrote-off NPAs, including retail
NPAs, with an aggregate outstanding of Rs. 2.29 billion against Rs. 28.48
billion during fiscal 2010.
Our provision coverage ratio (i.e. total provisions made against non-
performing assets as a percentage of gross non-performing assets), at year-
end fiscal 2011 was 76.0%. We have been permitted by RBI to achieve the
stipulated level of provision coverage ratio of 70% in a phased manner by
March 31, 2011, which was achieved at December 31, 2010. At March 31, 2011,
total general provision held against standard assets was Rs. 14.80 billion
compared to the general provision requirement as per the RBI guidelines of
about Rs. 10.86 billion. The excess provision was not reversed in line with
the RBI guidelines.
At March 31, 2011, the net non-performing loans in the retail portfolio
were 1.5% of net retail loans as compared with 3.1% at March 31, 2010. The
decrease in the ratio was primarily on account of sharp decline in
accretion to retail NPAs and higher provisioning against retail loans. At
March 31, 2011, the net non-performing loans in the collateralised retail
portfolio were 1.2% of the net collateralised retail loans and net non-
performing loans in the non-collateralised retail portfolio (including
overdraft financing against automobiles) were about 5.6% of net non-
collateralised retail loans.
Our aggregate investments in security receipts issued by asset
reconstruction companies were Rs. 28.31 billion at March 31, 2011 as
compared to Rs. 33.94 billion at March 31, 2010.
Classification of Non-Performing Assets by Industry
The following table sets forth, at March 31, 2010 and March 31, 2011, the
composition of gross non-performing assets by industry sector.
Rs. in billion, except percentages
March 31, 2010 March 31, 2011
Amount % Amount %
Retail finance(1) Rs. 64.73 67.2% Rs. 66.35 65.6%
Wholesale/retail trade 2.17 2.3 3.85 3.8
Food and beverages 1.62 1.7 2.88 2.9
Services - finance 2.43 2.5 2.30 2.3
Textiles 1.90 2.0 2.25 2.2
Chemicals and fertilisers 2.47 2.6 2.05 2.0
Metal and metal products 0.68 0.7 1.30 1.3
Electronics and engineering 0.69 0.7 0.68 0.7
Automobiles 0.59 0.6 0.55 0.5
Paper and paper products 0.03 0.0 0.46 0.5
Services - non finance 0.38 0.4 0.38 0.4
Power 0.14 0.1 0.18 0.2
Iron/steel and products 1.43 1.5 0.17 0.2
Shipping 0.01 0.0 0.06 0.1
Other Industries(2) 17.00 17.7 17.68 17.3
Total Rs. 96.27 100.0% Rs. 101.14 100.0%
1. Includes home loans, automobile loans, commercial business loans, two
wheeler loans, personal loans and credit cards. Also includes NPAs in
dealer funding and developer finance portfolios.
2. Other industries primarily include construction, drugs and
pharmaceuticals, agriculture and allied activities, FMCG, gems and
jewellery, manufacturing products excluding metal, crude petroleum/refining
and petrochemicals, mining, cement, etc.
3. All amounts have been rounded off to the nearest Rs. 10.0 million.
Segment Information
RBI in its guidelines on 'segmental reporting' has stipulated specified
business segments and their definitions, for the purposes of public
disclosures on business information for banks in India.
The standalone segmental report for the year ended March 31, 2011, based on
the segments identified and defined by RBI, has been presented as follows:
* Retail Banking includes exposures of the Bank, which satisfy the four
qualifying criteria of regulatory retail portfolio' as stipulated by the
RBI guidelines on the Basel II framework.
* Wholesale Banking includes all advances to trusts, partnership firms,
companies and statutory bodies, by the Bank which are not included in the
Retail Banking segment, as per the RBI guidelines for the Bank.
* Treasury includes the entire investment portfolio of the Bank.
* Other Banking includes hire purchase and leasing operations and other
items not attributable to any particular business segment of the Bank.
Framework for Transfer Pricing
All liabilities are transfer priced to a central treasury unit, which pools
all funds and lends to the business units at appropriate rates based on the
relevant maturity of assets being funded after adjusting for regulatory
reserve requirements and directed lending requirements.
Retail Banking Segment
The loss in the retail banking segment decreased from Rs. 13.34 billion in
fiscal 2010 to Rs. 5.14 billion in fiscal 2011, primarily due to decline in
provisions for loan losses in the unsecured portfolio, partly offset by
decline in net interest income and fee income.
Net interest income decreased by 11.7% from Rs. 37.59 billion in fiscal
2010 to Rs. 33.20 billion in fiscal 2011 primarily due to reduction in the
retail loan portfolio and the impact of increased cost of savings account
deposits with effect from April 1, 2010.
Non-interest income decreased by 19.2% from Rs. 26.19 billion in fiscal
2010 to Rs. 21.16 billion in fiscal 2011, primarily due to reduction in
credit card related fees following our conscious strategy of reducing the
portfolio. Further, during fiscal 2010, we had sold our merchant acquiring
operations through a transfer of assets, primarily comprising fixed assets,
receivables and payables and assumption of liabilities to ICICI Merchant
Services resulting in profit of Rs. 2.03 billion in our Retail Banking
segment. Further, the fees from distribution of third-party products were
impacted by regulatory changes in the life insurance sector which led to
decline in market volumes, changes in product mix and lower distributor
payouts.
Provisions decreased by 58.9% from Rs. 33.56 billion in fiscal 2010 to Rs.
13.81 billion in fiscal 2011, primarily due to decline in provisions for
loan losses in the unsecured retail portfolio. We have been taking various
measures to contain the non-performing asset (NPA) accretion in retail
portfolio over the last two years. This has reflected in a sharp reduction
in provision requirements.
Wholesale Banking Segment
Profit before tax of the wholesale banking segment increased from Rs. 36.45
billion in fiscal 2010 to Rs. 49.00 billion in fiscal 2011 primarily due to
increase in fee income and decline in provisions offset, in part, by
increase in non-interest expenses.
Net interest income increased by 8.5% from Rs. 31.07 billion in fiscal 2010
to Rs. 33.72 billion in fiscal 2011 primarily due to higher business
volumes.
Non-interest income increased by 41.9% from Rs. 28.08 billion in fiscal
2010 to Rs. 39.85 billion in fiscal 2011. Fee income increased due to our
increased participation in financing to corporates for their term loan,
working capital and project financing requirements. During the year, there
was an increase in loan processing related fees and transaction banking
related fees from corporate clients.
Provisions decreased from Rs. 10.34 billion in fiscal 2010 to Rs. 6.34
billion in fiscal 2011. Provisions were higher for fiscal 2010 on account
of the significantly higher restructuring of corporate loans during the
period.
Treasury Banking Segment
Profit before tax of the treasury segment decreased from Rs. 27.89 billion
in fiscal 2010 to Rs. 22.01 billion in fiscal 2011, primarily due to lower
gains from treasury-related activities, offset, in part, by increase in net
interest income.
Other Banking Segment
Profit before tax of other banking segment decreased from Rs. 2.45 billion
in fiscal 2010 to Rs. 1.74 billion in fiscal 2011.
CONSOLIDATED FINANCIALS AS PER INDIAN GAAP
The consolidated profit after tax including the results of operations of
our subsidiaries and other consolidating entities increased from Rs. 46.70
billion in fiscal 2010 to Rs. 60.93 billion in fiscal 2011 mainly due to
improved financial performance of ICICI Bank and ICICI Prudential Life
Insurance Company Limited offset, in part, by decline in profits of certain
subsidiaries and net loss of ICICI Lombard General Insurance Company
Limited. The consolidated return on average equity increased from 9.6% in
fiscal 2010 to 11.6% in fiscal 2011.
Profit after tax of ICICI Bank UK PLC decreased marginally from Rs. 1.76
billion in fiscal 2010 to Rs. 1.67 billion in fiscal 2011 primarily due to
decrease in fee income, lower mark-to-market (MTM) gains on derivatives and
lower gains realised on buyback of bonds in fiscal 2011, offset, in part,
by increase in net interest income due to an increase in net interest
margin and lower operating expenses.
Profit after tax of ICICI Bank Canada decreased marginally from Rs. 1.54
billion in fiscal 2010 to Rs. 1.45 billion in fiscal 2011 primarily due to
decrease in non-interest income offset, in part, by increase in net
interest income due to an increase in net interest margin and lower
operating expenses.
Profit after tax of ICICI Bank Eurasia Limited Liability Company decreased
from Rs. 0.53 billion in fiscal 2010 to Rs. 0.21 billion in fiscal 2011
primarily due to decrease in net interest income, non-interest income and
reduction in overall business levels.
Profit after tax of ICICI Prudential Life Insurance Company Limited
increased from Rs. 2.58 billion in fiscal 2010 to Rs. 8.08 billion in
fiscal 2011 due to an increase in net premium earned, fund management fees
and policy fees and lower operating and commission expenses. Net premium
earned increased by 8.1% from Rs. 164.76 billion in fiscal 2010 to Rs.
178.17 billion in fiscal 2011 primarily due to increase in single premium
business from Rs. 2.75 billion in fiscal 2010 to Rs. 21.69 billion in
fiscal 2011. Operating expenses (other than staff cost) decreased by 18.6%
from Rs. 14.17 billion in fiscal 2010 to Rs. 11.53 billion in fiscal 2011
due to space rationalisation initiatives, decrease in policy related
expenses and other branch related expenses.
ICICI Lombard General Insurance Company Limited had a loss of Rs. 0.80
billion in fiscal 2011 as compared to a profit of Rs. 1.44 billion in
fiscal 2010. In accordance with IRDA guidelines, ICICI Lombard General
Insurance Company Limited, together with all other general insurance
companies participates in the Indian Motor Third Party Insurance Pool (the
Pool'), administered by the General Insurance Corporation of India (GIC')
from April 1, 2007. The Pool covers reinsurance of third party risks of
commercial vehicles. Based on an analysis of the performance of the Pool by
an independent consultant, IRDA has instructed all general insurance
companies to provide at a higher provisional loss ratio of 153.0% (for each
of the four years from fiscal 2008 to fiscal 2011) in the financial results
for fiscal 2011. Accordingly, the loss before tax of ICICI General for
fiscal 2011 includes the impact of the additional pool losses of Rs. 2.72
billion.
Profit after tax of ICICI Securities Limited decreased marginally from Rs.
1.23 billion in fiscal 2010 to Rs. 1.13 billion in fiscal 2011 primarily
due to decrease in brokerage income on account of market conditions and
increase in staff cost.
Profit after tax of ICICI Securities Primary Dealership Limited decreased
from Rs. 0.85 billion in fiscal 2010 to Rs. 0.53 billion in fiscal 2011 as
fixed income markets offered limited opportunities for trading profits
during fiscal 2011 and higher funding costs reduced the net interest
income.
Profit after tax of ICICI Home Finance Company Limited increased from Rs.
1.61 billion in fiscal 2010 to Rs. 2.33 billion in fiscal 2011 primarily
due to increase in net interest income following an increase in net
interest margin and decrease in staff cost, administrative costs and lower
provisions. Provisions on loans and advances decreased by 20.7% from Rs.
0.29 billion in fiscal 2010 to Rs. 0.23 billion in fiscal 2011 primarily
due to decrease in the size of the loan book.
Profit after tax of ICICI Prudential Asset Management Company Limited
decreased from Rs. 1.28 billion in fiscal 2010 to Rs. 0.72 billion in
fiscal 2011 primarily due to the decrease in management fees on account of
decrease in average assets under management and higher administrative
expenses.
Profit after tax of ICICI Venture Funds Management Company Limited
increased from Rs. 0.51 billion in fiscal 2010 to Rs. 0.74 billion in
fiscal 2011 primarily due to increase in management fees on account of
increase in carry income from funds and lower marketing and financial
expenses in fiscal 2011.
Consolidated assets of the Bank and its subsidiaries and other
consolidating entities increased from Rs. 4,893.47 billion at year-end
fiscal 2010 to Rs. 5,337.68 billion at March 31, 2011. Consolidated
advances of the Bank and its subsidiaries increased from Rs. 2,257.78
billion at March 31, 2010 to Rs. 2,560.19 billion at March 31, 2011.
The following table sets forth, for the periods indicated, the
profit/(loss) of our principal subsidiaries.
Rs. in billion
Company Fiscal 2010 Fiscal 2011
ICICI Bank UK PLC Rs. 1.76 Rs. 1.67
ICICI Bank Canada 1.54 1.45
ICICI Bank Eurasia Limited Liability Company 0.53 0.21
ICICI Prudential Life Insurance Company Limited 2.58 8.08
ICICI Lombard General Insurance Company Limited 1.44 (0.80)
ICICI Securities Limited 1.23 1.13
ICICI Securities Primary Dealership Limited 0.85 0.53
ICICI Home Finance Company Limited 1.61 2.33
ICICI Prudential Asset Management Company Limited 1.28 0.72
ICICI Venture Funds Management Company Limited Rs. 0.51 Rs. 0.74
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Convergence with International Financial Reporting Standards (IFRS), issued
by the International Accounting Standards Board (IASB) is gaining the
attention of companies, regulators and investing communities across the
world.
Based on the recommendations of a Core Group set up to facilitate IFRS
convergence in India, the Ministry of Corporate Affairs (MCA), in
consultation with RBI, has announced the approach and timelines for
achieving convergence by financial institutions including banks, insurance
companies and NBFCs. As per the roadmap, all scheduled commercial banks
will need to convert their opening balance sheet as at April 1, 2013 in
compliance with the IFRS converged Indian Accounting Standards. MCA has
recently placed 35 Indian Accounting Standards (IND AS), converged with
IFRS, on its website.
Currently, IASB has undertaken a project which will replace the current
standards on financial instruments, particularly IAS 39, in a phased
manner. As a part of this project, IASB has issued IFRS 9 - 'Financial
Instruments' which introduces a new classification and measurement regime
for financial assets within its scope. Additionally, the IASB has released
exposure drafts on various aspects related to financial instruments which
include amortised cost and impairment of financial assets',
derecognition', fair value option for financial liabilities', hedge
accounting', asset and liability offsetting' and fair value measurement'.
These revisions are expected to be significantly different from existing
IAS 39 as issued by IASB and AS 30 as issued by ICAI. To enable the Indian
banks to transition to IFRS converged Indian Accounting Standards, RBI is
working actively with the banks in such areas as identifying the major
impact areas for banking industry, impact on existing regulatory guidelines
and arriving at an industry-wide common approach to transition issues to
the extent possible.
Currently, we report our financials under Indian GAAP and also report a
reconciliation of shareholders' equity and net profit under Indian GAAP to
US GAAP. We are awaiting further clarity on the final transition to IFRS in
order to assess the impact on our accounting systems and processes and
financial reporting.
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