Moneycontrol » News » Business » Business News

No panic withdrawal from ICICI Bank: Chanda Kochhar

Published on Thu, Sep 18, 2008 at 12:37 | Source : CNBC-TV18

Updated at Fri, Sep 19, 2008 at 09:57

120210 Investors following ICICI Bank. Share this News with them.

Share on Tumblr

Chanda Kochar, Joint MD & CFO, ICICI Bank

RELATED NEWS

ALSO READ

ICICI Bank

BSE | NSE 25/05/12

Are Mutual Funds betting on ICICI Bank?

Chanda Kochhar, Joint MD & CFO of ICICI Bank confirmed that the bank is financially safe and sound. She added that there is no panic or substantial withdrawals from their bank branches, and that the disbursals via branches and ATMs are normal. Kochhar said that all issues that had cropped up at three branches in Tamil Nadu have been addressed.

Kochhar also remarked that India book is insulated from non-India exposure and investment book is diversified over geographies and instruments. She is positive about the corporate side as balance sheets are less leveraged. Further, she feels that liquidity in foreign currency market will continue to tighten.

Here is a verbatim transcript of the interview with Chanda Kochhar on CNBC TV18. Also see the accompanying video.

Q: The core of the problem is that your bank has a net worth of about USD 10 billion, Rs 46,000 crore or thereabouts. With a net worth of USD 10 billion, your international book is USD 5 billion and there are doubts about where is that USD 5 billion invested. You told us that USD 80 million is with Lehman. But where is the other part of the money invested?

A: First of all, we have to put all this size in the context of our total balance sheet. Let's not forget that our entire banking balance sheet is more than Rs 4,50,000 crore, and our net worth is more than Rs 45,000 crore.

Our India book is actually insulated from all this non-India exposure. But we have a small global book and like any other bank, you have inter-bank transactions and there are some bank investments.

The only thing I would like to say is that since that the investment is very small compared to whole context of our total balance sheet, our net worth and of our profits. Also, we are very sound in terms of capital adequacy; we should not be worrying too much about this.

Q: If you can give us an idea of where that USD5 billion book is invested, how much of it is in instruments that need not marked and need not be MTM. What are the broad contours of the other investments?

A: The investment is across different forms. While we don't discuss name by name, there are different forms. There are some investments in commercial banks, some in investment banks and some in other forms of instruments, some in CDs and so on. So, they are actually quite well diversified -geographically, and by types of instruments.

But the mark-to-market or the movement in value happens almost across the investment portfolio. The movement in value happens with the way the credit spreads move in the market. It has really got nothing to do with the underlying credit risk, or the performance of the portfolio but moves more with the rates and the way the credit spreads move in the market.

Q: If you have to provide for that book today or the latest count that you have, what may be the provisioning you have to do?

A: One should not look into provisioning on a day-to-day basis because the markets are very choppy today. So, whatever number I talk of now would be different by evening and was different the day before yesterday and could be different tomorrow. So, I think that number on a day-to-day basis is not meaningful.

What is required is as on September 30, whatever would be the market value, we would provide for that in the books. But I would only like to say that quantum is not going to be very large, given the size of our balance sheet, our profits and our capital adequacy.

Q: There has been another rumour doing the rounds since morning that especially in South India, a few retail investors and some HNI investors are busy taking their money out of ICICI Bank in panic. Could you throw some more light on that?

A: Again this is a wrong thing that people are taking money out in panic. In fact, our entire disbursals through branches and ATMs whole of yesterday, was no different from what we do on any other day. So there hasn't been any panic. There haven't been any substantial withdrawals.

I must only add that in some of the interiors in Tamil Nadu, there were about three branches where there were some queries by people. This was yesterday. But we addressed those queries and there was nothing untoward that happened after that.

Even currently as we speak, the situation is normal across all branches and ATMs all over the country.

Q: A lot of serious and unfortunate rumours mongering buffeting the markets these days?

A: In fact I would like to assure our depositors and shareholders that there is nothing untoward; things are absolutely normal and calm and we are a financially safe and sound bank.

Q: Coming to some balance sheet issues, clearly the economic cycle is turning. We already saw the impact of that coming in the form of higher NPLs (Non Performing Loans) on your book when the retail cycle turned. Now it is possible that as the economy goes into a slightly slower mode, there will be SME questions and corporates may perhaps find it difficult to pay back; smaller corporates at least. How do you see the NPL position a year down the line - what are you preparing for in the form of potential shocks?

A: Our SME portfolio is actually very small. We do have a corporate portfolio that is increasing but not the SME portfolio. On the corporate side, even as of now, there are certain positive fundamentals in the corporate performance. The fact that the balance sheets are very low leveraged, the fact that cash accruals are still strong; we are not seeing any deterioration in the performance of the corporate portfolio. I don't even expect any major deterioration in the performance of the corporate portfolio because we just have to look at the sheer quantum of the cash generated by the Indian corporate sector, is above USD 125 billion per annum.

Of course there is the fact that interest rates have gone up, and costs have gone up, and you could see some impact on profitability. But given the sheer size and scale of the corporate sector, today there is a lot of resilience in terms of absorption of some of these things. Therefore I don't expect that the banking portfolio would get impacted on account of this.

Q: Did the moral hazard problem of the farm loan write-off impact you. Are you seeing any growth at all in your farm loans Non-Performing Loans?

A: The collections from the farm loans definitely went down when this announcement happened and it took at least two-three months for things to climb up. But we are done with most of the peak there in terms of the slowness in collection. Things are getting back to close to normal there and also our portfolio, the farm loan portfolio is very small again. We don't have too much of direct lending to farmers. What we have on the rural and agricultural side is more securitisation of receivables or lending against gold and so on, which does not get impacted by the waiver.

Q: Coming to the total NPL position - is there a guess on what it might be at the end of the current year. It has been climbing QoQ (Quarter-on-Quarter). What might it be by FY09 end?

A: I am not allowed to make forward looking statements. So I will not be able to give a figure. But one has to look at two things separately; the credit losses per se and the NPL ratios per se. The credit losses haven't been substantially going up. In fact the credit losses across different businesses are clearly under control. The NPL ratio is the result of not just the credit losses, but also the rate of growth of the balance sheet and one has to remember that in the past, our balance sheet has grown between 35-40%. Currently the balance sheet is growing around 15%. So because of the change in the rate of the growth of the denominator; the ratio kind of appears increasing but in terms of actual credit losses, there is nothing untoward that's happening across most business lines.

Q: How will this entire financial meltdown globally and to a minor extent in India, impact the real economy? What kind of implications not just this year but in FY10 are you expecting on corporate India and the Indian economy in general?

A: The time is going to continue to remain choppy; the markets will continue to remain choppy for some time because even globally while we may have a period a systemic solution being found, we are seeing the Fed working towards it, the private players coming in and doing some consolidation. Actually, the values that have been paid on consolidation are higher than the current market value. So in a way there is a value for what is underlying. In the context, while India has a lot of resilience, I do not think the corporate sector can get fully insulated. The liquidity in the foreign currency market is definitely going to tighten and that would have an impact; that would have a pressure on the Indian sector.

Q: Would you say that single-digit corporate profit growth is possible in FY10?

A: No; in fact I am not saying that the profitability will directly get impacted by that. I think the profitability is quite under control and the Indian corporate sector has responded well by a huge amount of cost control measures as well. So if one is seeing some impact of inflation, there is an equal effort on cost control. So profits are going to continue to remain healthy. But in terms of future investments, whatever is happening in the global markets, one will have to wait and watch how that liquidity is going to come into play and how much that is going to contribute to keep the flow of investments continuing into India.

Q: Given the kind of mess that the global markets find themselves in, especially the Western markets, will you at ICICI Bank have to rethink your entire international strategy? After all, you went fairly aggressive on international growth in the last two years - 20% was the kind of target that you'll were talking about. Is there a complete rethink or withdrawal from this kind of a space for the next couple of years? What is the next growth area?

A: Let me explain our strategic thinking behind our international strategy - our international strategy was entirely or is entirely based on the global requirements of the Indian customers. There are two types of customers. For the Non-Resident Indian (NRI), we provide a lot of remittance and other facilities. Then there is the Indian corporate which needs international funds for either buying companies abroad, for growth of those companies and working capital requirements for those companies. The Indian corporate sector needs foreign currency funds for flowing back in India for investments and projects to the extent the guidelines allow. So our own international operations were focused around that.

There is no need to rethink our international operations in the wake of whatever is happening globally. We will continue to move with the way the Indian corporate sector is moving because that has been the main stay of our international strategy. What is the rate of growth in that will depend on how the global operations of the Indian corporate sector pan out as we go along because the way the global financial sectors are moving, one could see rates of growth being little bit different but there is no reason for us to change any strategic movement or strategic thinking behind our international operations.

Q: Just some numbers which have been doing the rounds and I am asking you these for confirmation. The MTM (Mark to Market) loss on the UK units' book would be around USD 200 million?

A: The MTM figure is something that will change on a daily basis. So it is wrong for me to say a number today; the number can either look very large or it can look small on another day. So I would not like to put any MTM number because that changes on a day to day basis there are various analysts' estimates.

Q: Can I just ask you the investments and ask you to confirm: USD 3 billion invested in global papers, USD 600 million in mortgage-backed securities, USD 500 million in corporate bond - is that a fair guess?

A: Yes, that number is correct.