ICICI Drops by Record, Says It Has Enough Liquidity

By Chitra Somayaji and M.C. Govardhana Rangan

Oct. 10 (Bloomberg) -- ICICI Bank Ltd., the Indian lender with the biggest losses on overseas investments, said it has sufficient funds after its shares fell the most since they started trading in September 1997.

The shares dropped 20 percent to close at 363.65 rupees in Mumbai trading. The stock earlier fell as much as 28 percent following Joint Managing Director Chanda Kochhar's statement that the bank has adequate amounts of capital and ``small exposure'' to overseas investments and loans. India's benchmark Sensitive Index dropped 7.1 percent.

The bank, the worst performer among financial stocks in Asia today, has slumped 46 percent from the beginning of September as the global credit crisis led to the collapse or seizure of U.S. and U.K. banks. The Reserve Bank of India and Finance Minister Palaniappan Chidambaram last week issued statements reassuring investors that India's second-largest bank has enough capital.

A large Indian bank borrowed 10 billion rupees ($208 million) from another at an interest rate of more than 20 percent this week, the highest rate charged for a 45-day loan between the nation's lenders since the mid-1990s, Mint reported earlier today, without saying where it got the information.

The banks can't be named as that was a condition for confirming the details, the newspaper said. The banks are large and more than adequately capitalized, according to the report.

The story doesn't refer to ICICI, which therefore doesn't need to comment, spokesman Charudatta Deshpande said.

`Sufficient Liquidity'

``The bank has sufficient liquidity,'' Kochhar told reporters in Mumbai today. The lender, which has about 120 billion rupees in funds in its international operations, doesn't fund its overseas business with domestic funds, she said.

ICICI holds cash of about $45 million against $150 million in loans made to an Indonesian company, Kochhar told CNBC-TV18 today. PT Bakrie & Brothers borrowed $150 million from ICICI using PT Bumi Resources shares, which were valued almost three times the loan based on share prices on July 25, as collateral.


``These are small exposures given our size and our profitability,'' Kochhar said.

India today made the steepest cut since 2001 in the amount of cash lenders need to set aside as reserves to cushion the economy from a global slowdown, after the rupee slumped to a record low and overnight lending rates doubled. Indian lenders have enough capital, Finance Minister Chidambaram reiterated.

Capital Adequacy

ICICI's capital adequacy ratio was 13.4 percent as of June 30, more than the minimum 9 percent required by regulators, Chief Executive Officer K.V. Kamath said on Sept. 30.

``This is just the reflection of the global liquidity squeeze as about 70 percent of the stock is held by foreigners,'' said Vaibhav Agrawal, banking analyst at Angel Broking Ltd. ``This is just selling pressure and has gone beyond fundamentals.''

Reports of rumors about Mumbai-based ICICI's financial positions have led some depositors to withdraw cash from the bank in some locations, the Reserve Bank of India said on Sept. 30.

ICICI Bank may have to set aside an additional $28 million for potential losses on the 57 million euros ($77 million) in Lehman Brothers Holdings Inc. debt held by its U.K. unit, according to a Sept. 16 statement from the lender.

The bank recorded $100 million in marked-to-market losses for the fourth quarter ended March 31 on overseas investments. For the fiscal year, the writedowns totaled $170 million.

The world's largest banks have recorded losses and writedowns of more than $590 billion since the collapse of the U.S. subprime- mortgage market led to a global credit contraction.

The cost of default protection on ICICI rose to a record, credit-default swaps show.

Five-year contracts on the bank's debt were quoted 130 basis points higher at 900, Barclays Capital prices show. The swaps, which rise as perceptions of credit quality deteriorate, are equivalent to $900,000 annually to protect a $10 million investment in the notes.

To contact the reporters on this story: Chitra Somayaji in Mumbai at csomayaji@bloomberg.net.