Fitch affirms ratings of ICICI Bank

Fitch Ratings has affirmed the 'BBB-' (BBB minus) Long-term Foreign Currency Issuer Default Rating (IDR) of ICICI Bank Ltd. (ICICI) together with its 'F3' Short-term Foreign Currency IDR. The Individual and Support ratings are affirmed at 'C' and '2', respectively. The Support Rating Floor also remains unchanged at 'BBB-' (BBB minus). At the same time, the agency has affirmed the 'BBB-' (BBB minus) long-term senior debt rating and the 'BB' long-term rating of the bank's perpetual hybrid debt and Upper Tier 2 subordinated debt. The rating Outlook is Stable.

ICICI's ratings continue to reflect its well-managed growth and leading market positions in consumer loans and international business (primarily on the back of Indian businesses abroad) - segments of India's banking scene which are emerging in a rapidly growing Indian economy. The bank's Long-term Foreign Currency IDR is largely driven by the Individual Rating although it currently also happens to be at the Support Rating Floor. The rating of the hybrid and Upper Tier 2 subordinated debt instruments are notched in accordance with Fitch's methodology for rating such instruments.

The bank's explosive loan growth has raised concerns about its asset quality, especially as rising interest rates could affect the borrower's repayment capacity; indeed, ICICI's gross non-performing loan (NPL) amount doubled in FY07 after seeing a steady improvement since FY02. The deterioration was more pronounced in the unsecured retail loan segment, which accounted for 40% of gross NPLs. Unsecured retail loans however, formed a relatively small proportion of total loans (9%), and together with the planned infusion of equity, the net NPL/equity ratio (8% as at FYE07) is expected to remain low.

More importantly, ICICI's ability to raise equity frequently enables the bank to satisfactorily address any latent asset quality problems and fund its future growth. The bank plans to double its equity by raising the equivalent of USD5 billion from the Indian and international markets this week.

ICICI has a lower proportion of low-cost savings and demand deposits (22% of total deposits at FYE07) than its peer rated banks. This affects the net interest margin, although its profitability is supported by strong fee earnings in the retail loan business, which explains why ICICI's return on assets (1.04% in FY07) is higher than that of many government banks.

(This is the press release of Fitch Ratings Service)

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