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ICICI Bank Ltd.

BSE: 532174 | NSE: ICICIBANK |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE090A01021 | SECTOR: Banks - Private Sector

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Annual Report

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Director’s Report

The Directors have pleasure in presenting the Thirteenth Annual Report of ICICI Bank Limited with the audited statement of accounts for the year ended March 31, 2007. Financial Highlights The financial performance for fiscal 2007 is summarised in the following table: Fiscal 2006 Fiscal 2007 % Change Net interest income and other income 1 88.90 125.64 41.3 Operating profit 1 38.88 58.74 51.1 Provisions & contingencies 1,2 7.92 22.26 181.1 Profit before tax 30.97 36.48 17.8 Profit after tax 25.40 31.10 22.4 Consolidated profit after tax 24.20 27.61 14.1 1. Amortisation of premium on government securities has been excluded from Provisions & contingencies and deducted from Other income as per Reserve Bank of India (RBI) guidelines in this regard. Previous year figures have been reclassified accordingly. 2. Excludes provision for taxes. Appropriations The profit & loss account shows a profit after tax of Rs.31.10 billion after provisions and contingencies of Rs. 22.26 billion and all expenses. The disposable profit is Rs. 34.03 billion, taking into account the balance of Rs. 2.93 billion brought forward from the previous year. Your Directors have recommended a dividend rate of 100% (Rs. 10 per equity share of Rs. 10) for the year and have appropriated the disposable profit as follows: Rs. Billion Fiscal 2006 Fiscal 2007 To Statutory Reserve, making in all Rs. 28.79 billion 6.36 7.80 To Investment Fluctuation Reserve (IFR) -(1) - To Special Reserve created and maintained in terms of Section 36(1)(viii) of the Income-tax Act, 1961, making in all Rs. 19.19 billion 2.75 4.50 To Capital Reserve, making in all Rs. 6.74 billion 0.68 1.21 To Revenue and other Reserves, making in all Rs. 49.78 billion2 -(1) - Dividend for the year (proposed) - On equity shares @ 100% (@85% for fiscal 2006) 7.59(3) 9.01(3) - On preference shares (Rs.) 35,000 35,000 - Corporate dividend tax 1.06 1.53 Leaving balance to be carried forward to the next year 2.93 9.98 1. In addition to appropriation of profits, balance in IFR of Rs. 13.20 billion (after appropriation to IFR during the year of Rs. 8.04 billion) was transferred to revenue and other reserves. 2. Net of transition adjustment of Rs. 1.06 billion on account of first time adoption of Accounting Standard 15 (Revised) on Employee benefits issued by the Institute of Chartered Accountants of India for the year ended March 31, 2007. 3. Proposed dividend for the year includes dividend paid on ESOPs exercised after balance sheet date of previous year. MERGER OF THE SANGLI BANK LIMITED WITH ICICI BANK The Board of Directors of ICICI Bank Limited and the Board of Directors of The Sangli Bank Limited (Sangli Bank) at their respective meetings held on December 9, 2006, approved an all-stock amalgamation of Sangli Bank with ICICI Bank. The amalgamation was subsequently approved by the Members of both banks. RBI approved the scheme of amalgamation effective April 19, 2007. With this amalgamation, ICICI Bank will be able to leverage Sangli Bank's network of over 190 branches, its existing customer base and the skills and experience of its employees across urban and rural centres. The amalgamation will also provide new opportunities to Sangli Bank's employees, and give its customers access to ICICI Bank's multi-channel network and wide range of products and services. About Sangli Bank Sangli Bank was an unlisted private sector bank headquartered at Sangli in the state of Maharashtra, India. At March 31,2006, Sangli Bank had deposits of Rs. 2,004 crore, advances of Rs. 888 crore, net NPA ratio of 2.3% and capital adequacy of 1.6%. In the year ended March 31, 2006, it incurred a loss of Rs. 29 crore. Sangli Bank had 198 branches and extension counters, including 158 branches in Maharashtra and 31 branches in Karnataka. Approximately 50% of the total branches are located in rural and semi-urban areas and 50% in metropolitan and urban centres. Sangli Bank had approximately 1,850 employees. SUBSIDIARY COMPANIES At March 31, 2007, ICICI Bank had 17 subsidiaries as listed below: Domestic Subsidiaries International Subsidiaries ICICI Securities Limited1 ICICI Bank UK Plc. ICICI Securities Primary Dealership Limited2 ICICI Bank Canada ICICI Prudential Life Insurance Company Limited ICICI Wealth Management Inc.3 ICICI Lombard General Insurance Company Limited ICICI Bank Eurasia Limited Liability Company ICICI Prudential Asset Management Company Limited4 ICICI Securities Holdings Inc.5 ICICI Prudential Trust Limited6 ICICI Securities Inc.7 ICICI Venture Funds Management Company Limited ICICI International Limited ICICI Home Finance Company Limited ICICI Investment Management Company Limited ICICI Trusteeship Services Limited 1. Formerly known as ICICI Brokerage Services Limited. 2. Formerly known as ICICI Securities Limited. 3. ICICI Wealth Management Inc. was incorporated as a subsidiary of ICICI Bank Canada in fiscal 2007. It has not yet been capitalised and is yet to commence operations. 4. Formerly known as Prudential ICICI Asset Management Company Limited. 5. Subsidiary of ICICI Securities Limited. 6. Formerly known as Prudential ICICI Trust Limited. 7. Subsidiary of ICICI Securities Holdings Inc. As approved by the Central Government vide letter dated May 23, 2007 under Section 212(8) of the Companies Act, 1956, copies of the balance sheet, profit & loss account, report of the board of directors and report of the auditors of each of the subsidiary companies have not been attached to the accounts of the Bank for fiscal 2007. 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. A summary of key financials of the Bank's subsidiaries is also included in this Annual Report. The Board of Directors of ICICI Bank Limited at its meeting held at Jodhpur on March 1-3, 2007 approved, subject to other necessary approvals, the incorporation of a new wholly-owned subsidiary. It is proposed that ICICI Bank's investments in ICICI Prudential Life Insurance Company Limited (ICICI Life), ICICI Lombard General Insurance Company Limited (ICICI General), ICICI Prudential Asset Management Company Limited (ICICI AMC) and IClCI Prudential Trust Limited (ICICI Trust) will be transferred to this proposed new company subject to necessary approvals. ICICI Bank currently holds approximately 74% each of ICICI Life and ICICI General and 51% each of ICICI AMC and ICICI Trust. These investments would be transferred to the proposed new company at book value in the books of ICICI Bank, on the date of transfer (Rs. 22.28 billion at March 31, 2007). DIRECTORS Lalita D. Gupte completed her term as Joint Managing Director of the Bank on October 31, 2006 and retired from the services of the Bank with effect from November 1, 2006. Kalpana Morparia will complete her term as Joint Managing Director of the Bank on May 31, 2007 and retire from the services of the Bank with effect from June 1, 2007. The Board places on record its deep appreciation for their invaluable contribution to the growth and development of ICICI Group. Effective June 1, 2007, Kalpana Morparia will assume responsibility for the proposed new subsidiary of ICICI Bank, to which our investments in ICICI Life, ICICI General, ICICI AMC and ICICI Trust will be transferred, as its Managing Director & CEO, subject to necessary approvals. Effective June 1, 2007, Kalpana Morparia will also assume responsibility as the Chief Strategy & Communications Officer, ICICI Group, for a period of five years. She will report to the Managing Director & CEO of ICICI Bank. The Board, at its Meeting held on October 24, 2006, appointed V. Vaidyanathan, Senior General Manager, ICICI Bank Limited, as an additional Director of the Bank. He holds office up to the date of the forthcoming Annual General Meeting (AGM), but is eligible for appointment. The Board has appointed V. Vaidyanathan as wholetime Director designated as Executive Director for a period of five years, effective October 24, 2006, subject to the approval of the Members and RBI. RBI has vide its letter dated April 17, 2007, approved the appointment of V. Vaidyanathan as Executive Director of the Bank. The Board, at its Meeting held on April 28, 2007, decided to appoint Madhabi Puri-Buch, as wholetime Director (designated as an Executive Director) effective June 1, 2007 for a period of five years, subject to the approval of Members and RBI. In terms of the provisions of the Companies Act, 1956 and the Articles of Association of the Bank, N. Vaghul, Anupam Puri, M. K. Sharma and Marti G. Subrahmanyam would retire by rotation at the forthcoming AGM and, being eligible, offer themselves for re-appointment. AUDITORS The Auditors, BSR & Co., Chartered Accountants, will retire at the ensuing AGM. As recommended by the Audit Committee, the Board has proposed the appointment of BSR & Co. as stautory auditors for fiscal 2008. You are requested to consider their appointment. Their appointment has been approved by RBI. 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 BOARD 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, ICICI 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, 2007, ICICI Bank had 67 nominee Directors of whom 40 are employees of the Bank, on the boards of 107 assisted companies. The Bank has a Nominee Director Cell for maintaining records of nominee directorships. 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 the 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 44,963,334 shares at April 28, 2007). 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 onwards 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 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 is equal to the closing price on the stock exchange which recorded the highest trading volume preceeding the date of grant of options. The above pricing is in line with the SEBI guidelines, as amended from time to time. On the basis of the recommendation of the Board Governance & Remuneration Committee, the Board at its meeting held on April 28,2007 approved a grant of approximately 4.8 million options for fiscal 2007 to eligible employees (including wholetime Directors). 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. 935.15, which was the last closing price on the stock exchange, which recorded the highest trading volume in ICICI Bank shares on April 27, 2007. Particulars of options granted by ICICI Bank upto April 28, 2007 are given below: Options granted 45,198,9551 Options vested 22,803,932 Options exercised 22,238,507 Number of shares allotted pursuant to exercise of options 22,238,507 Options forfeited/lapsed 5,075,715 Extinguishment or modification of options - Amount realised by exercise of options (Rs.) 3,935,490,671 Total number of options in force 17,884,7331 1. Includes 1,000,000 options granted to wholetime Directors for fiscal 2007, pending RBI approval. Options granted by ICICI Bank to senior managerial personnel for fiscal 2007 are as follows: K. V. Kamath- 300,000, Kalpana Morparia-200,000, Chanda D. Kochhar-175,000, Nachiket Mor-175,000, V. Vaidyanathan-150,000, Madhabi Puri-Buch-100,000, Vishakha Mulye-100,000, K. Ramkumar-100,000, and Pravir Vohra-100,000. 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. 34.64 in fiscal 2007 against basic EPS of Rs. 34.84. Since the exercise price of ICICI Bank's options is the last closing price on the stock exchange, which recorded the highest trading volume preceding the date of grant of options, there is no compensation cost in fiscal 2007 based on the intrinsic value of options. However, if ICICI Bank had used the fair value of options based on the Black-Scholes model, compensation cost in fiscal 2007 would have been higher by Rs. 827.4 million and proforma profit after tax would have been Rs. 30.27 billion. On a proforma basis, ICICI Bank's basic and diluted earnings per share would have been Rs. 33.91 and Rs. 33.72, respectively. The key assumptions used to estimate the fair value of options are: Risk-free interest rate 5.12% - 8.22% Expected life 3-6 years Expected volatility 36.34%-41.03% Expected dividend yield 1.44% - 4.06% In respect of options granted in fiscal 2007, the weighted average exercise price of the options and the weighted average fair value of the options were Rs. 581.97 per option and Rs. 215.24 per option respectively. 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 co-operation, support and advice. ICICI Bank wishes to thank its investors, the domestic and international banking community, investment bankers, 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 Place : Mumbai N. VAGHUL Date : May 28, 2007 Chairman

Director’s Report