HenryTo
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 Posted: Tue Oct 24, 2006 8:36 pm Post subject: A Glimpse of the Indian Banking Industry |
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This article on the latest earnings report from ICICI bank gives us a little glimpse of the Indian banking industry:
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ICICI Bank Has 2nd-Highest Profit on Loan Growth
By Sumit Sharma
Oct. 24 (Bloomberg) -- ICICI Bank Ltd., India's biggest bank by market value, reported its second-highest profit as accelerating economic growth spurred consumers to take out home and auto loans.
Net income rose to 7.55 billion rupees ($166 million) in the quarter ended Sept. 30, from 5.8 billion rupees a year earlier, the Mumbai-based bank said today. That beat analysts estimates for 6.97 billion rupees profit, and was only exceeded by earnings two quarters ago.
ICICI Bank Chief Executive Officer K.V. Kamath predicts Indian companies will more than double their funding needs to $175 billion in three years. Funds controlled by the Singapore government are seeking to increase their stake in ICICI, India's best-performing benchmark stock in the quarter.
``Consumers are borrowing in a way they have never done before,'' said Jon Thorn, who manages $250 million of Indian assets at India Capital Fund Ltd. in Hong Kong. ``Banks have been freed up and are able to make the kind of loans they couldn't make three or four years ago.''
ICICI Bank's outstanding loans expanded 47 percent to 1.64 trillion rupees in the quarter from a year earlier while deposits rose 57 percent to 1.89 trillion rupees as the economy grows at the fastest clip after China among the world's 20 major economies. Prime Minister Manmohan Singh expects economic growth to exceed 8 percent for a fourth straight year, extending the longest streak since independence from Britain in 1947.
Shares Rise
ICICI reported a record 7.9 billion rupees profit in the three months ended March 31. The lender's shares gained 43 percent in the quarter ended Sept. 30, the best performer on the benchmark Sensex index.
Overseas investors have acquired 73 percent of the bank, one percentage point shy of the foreign ownership limit, lifting its market value to $14 billion.
ICICI is seeking to win customers before overseas lenders HSBC Holdings Plc and Citigroup Inc. open more branches to tap India's 1.1 billion-strong population.
HSBC India Chief Executive Officer Naina Lal Kidwai expects 50 percent profit growth in India as the London-based lender increases lending to individuals and small businesses.
Housing Development Finance Corp., the Indian mortgage firm partly owned by New York-based Citigroup, on Oct. 19 reported second-quarter profit surged 23 percent.
Buying Homes, Autos
Borrowing by individuals made up 69 percent of loans at the end of September, ICICI said. India's middle-class, estimated by New York-based consulting firm McKinsey & Co. to be 216 million people, is shedding its traditional aversion to debt to buy homes, autos and consumer electronics. Higher borrowing costs haven't dented credit growth as rising incomes help individuals repay loans.
ICICI had a 31 percent share of Indian home mortgages, made 40 percent of automobile loans and 36 percent of loans to finance the purchase of scooters and motor cycles as of March 31.
Increasing loans are lifting sales for Tata Motors Ltd., India's biggest truckmaker, and Maruti Udyog Ltd., which sells half the cars in the nation. Tata will probably report sales climbed 36 percent in the quarter while Murati's sales rose 12 percent, according to a Bloomberg survey.
Still, Indian banks may be taking on too much risk as increased lending fuels higher prices of stocks and property, according to Fitch Ratings. Fitch may move India to a higher risk category on concern unabated loan growth may lead to a ``systemic risk,'' David Marshall, managing director at Fitch Ratings said last month in Mumbai.
India, Austria, the Czech Republic, Slovakia and Slovenia were moved to the ``moderate risk'' category from ``low risk'' last month by Fitch.
Raising Rates
The Reserve Bank of India is due to release its next monetary policy statement on Oct. 31. India's central bank has raised its benchmark interest rate three times this year to a four-year high of 6 percent to check inflation.
India's inflation rate accelerated to 5.16 percent, the fastest in three months, in the week ended Sept. 30, closer to the government's forecast of 5 percent and 5.5 percent.
The yield on the 10-year government bonds traded at 7.66 percent yesterday in Mumbai, compared with 10.80 percent in Jan. 2001, falling 29 percent.
The 10-year bond fell to as low as 4.95 percent in Oct 2003, according to data compiled by Bloomberg. Home buyers, who got loans at more than 13.5 percent in 2000, are today paying about 9.25 percent, Keki Mistry, managing director at Housing Development Finance said last week.
``The Reserve Bank of India wants to bring the credit growth down to 20 percent but bad loans at most Indian banks have been declining and they have adequate capital,'' said India Capital Fund's Thorn. ``There isn't much risk as long as banks manage their credit management.''
ICICI raised $400 million selling five-year bonds, a third more than targeted, this month to fund overseas branches and loan growth. The lender raised $340 million selling bonds to overseas investors in August.
Government of Singapore Investment Corp. Managing Director Ng Kok Song said on Aug 31 that GIC, which manages the city's foreign reserves, will try to raise its stake in ICICI.
The central bank had barred GIC and Temasek Holdings Pte from raising their stake to 10 percent each because it treated the Singapore state companies as a single entity. Temasek had a 7.4 percent stake and GIC owned 2.3 percent as of July 29.
To contact the reporter on this story: Sumit Sharma in Mumbai at sumitsharma@bloomberg.net
Last Updated: October 24, 2006 04:59 EDT |
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