As filed with the Securities and Exchange Commission on November 25, 2005
Registration No. 333-129753
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM F-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ICICI BANK LIMITED
(Exact Name of Registrant as Specified in Its Charter)
VADODARA, GUJARAT, INDIA Not Applicable Not Applicable
(State or Other Jurisdiction of (Translation of (I.R.S. Employer
Incorporation or Organization) Registrant's name Identification Number)
into English)
ICICI Bank Towers
Bandra-Kurla Complex
Mumbai 400051, India
Tel: 011-91-22-2653-1414
(Address and Telephone Number of Registrant's Principal Executive Offices)
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Mr. Madhav Kalyan
Joint General Manager,
ICICI Bank Limited
New York Representative Office
500 Fifth Avenue, Suite 2830
New York, New York 10110
Tel: (646) 827-8448
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
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Copies to:
Margaret E. Tahyar, Esq. Michael W. Sturrock, Esq.
Davis Polk & Wardwell Latham & Watkins LLP
15, avenue Matignon 80 Raffles Place
75008 Paris #14-20 UOB Plaza 2
France Singapore 048624
Tel. No.: 011-33-1-5659-3670 Tel. No.: 011-65-6536-1161
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section 8(a),
may determine.
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The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and we are not
soliciting offers to buy these securities in any state where the offer or sale
is not permitted.
PRELIMINARY PROSPECTUS DATED NOVEMBER 25, 2005 SUBJECT TO COMPLETION
[ICICI LOGO]
ICICI BANK LIMITED
American Depositary Shares
Representing Equity Shares
------------------
We are offering equity shares in the form of American Depositary Shares or
ADSs. Each ADS offered represents two equity shares of ICICI Bank Limited. The
number of ADSs to be sold is expected to equal the number that will result in
gross proceeds of approximately US$ 438 million (or US$ 503 million assuming
full exercise of the underwriters' over-allotment option), assuming a public
offering price determined by reference to the prevailing market price and market
conditions at the time of pricing.
Our outstanding ADSs are traded on the New York Stock Exchange under the
symbol "IBN." The last reported sales price of our ADSs on the New York Stock
Exchange on November 23, 2005 was US $24.50 per ADS. Our equity shares are
traded in India on the Bombay Stock Exchange Limited and the National Stock
Exchange of India Limited. The closing price for our equity shares on the Bombay
Stock Exchange Limited on November 25, 2005 was US $11.92 assuming an exchange
rate of Rs. 45.71 per dollar.
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Investing in our ADSs involve certain risks, see "Risk Factors" beginning
on page 11.
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Neither the Securities and Exchange Commission, or the SEC, nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
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Per ADS Total
------- -----
Initial Price to Public US$ US$
Underwriting Discounts and Commissions US$ US$
Proceeds to us, Before Expenses US$ US$
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We have granted the underwriters an option exercisable within 30 days from
the date of this prospectus to purchase up to an aggregate of an additional
ADSs, representing up to an additional equity shares, at the initial price
to the public, less the underwriting discounts and commissions.
The underwriters are offering the ADSs subject to various conditions. The
underwriters expect to deliver the ADSs in book-entry form only through the
facilities of The Depository Trust Company against payment in New York, New
York on a delayed basis. The exact time of delivery will be agreed among the
Joint Global Coordinators and us and is subject to certain regulatory approvals
in India, which may be obtained only after pricing. The time of delivery is
expected to occur no later than the ninth business day after the date of
pricing, subject to these regulatory approvals. We will notify you of the time
of delivery through a press release which we will post on our website at
www.icicibank.com. Prospective investors should be aware that the notification
of the exact time of delivery may not occur until two or three business days
before such time of delivery.
Investors in our shares are subject to restrictions imposed by the Reserve
Bank and the government of India. See "Restriction on Foreign Ownership of
Indian Securities" in this prospectus, and "Supervision and Regulation" in our
annual report on Form 20-F for the fiscal year ended March 31, 2005, which is
incorporated by reference in this prospectus, for information on such
restrictions.
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Joint Global Coordinators
Merrill Lynch International Morgan Stanley Nomura Securities
Bookrunners
Merrill Lynch International Morgan Stanley
Japan Offering Bookrunner: Nomura Indian Advisor: ICICI Securities
Securities Co. Ltd.
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Prospectus dated December , 2005
TABLE OF CONTENTS
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Page
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About This Prospectus.........................................................ii
Summary........................................................................1
The Offering...................................................................4
Summary Financial and Operating Data...........................................7
Risk Factors..................................................................12
Forward-Looking Statements....................................................23
Enforceability of Certain Civil Liabilities...................................23
Where You Can Find More Information About Us..................................24
Incorporation of Documents by Reference.......................................24
Use of Proceeds...............................................................26
Market Price Information......................................................26
Capitalization................................................................29
Exchange Rates................................................................30
Selected Consolidated Financial and Operating Data............................31
Operating and Financial Review and Prospects..................................36
Selected Statistical Data.....................................................64
Principal Shareholders........................................................82
Restriction on Foreign Ownership of Indian Securities.........................84
Government of India and Reserve Bank of India Approvals.......................88
Taxation......................................................................89
Underwriting..................................................................94
Legal Matters................................................................100
Experts......................................................................100
Index to US GAAP Financial Statements........................................F-1
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ABOUT THIS PROSPECTUS
You should read this prospectus together with the additional information
described under the heading "Where You Can Find More Information About Us."
Unless otherwise stated in this prospectus or unless the context otherwise
requires, references in this prospectus to "we", "our" and "us" are to ICICI
Bank Limited and its consolidated subsidiaries and other consolidated entities.
References in this prospectus to "ICICI Bank" are, as the context requires, to
ICICI Bank Limited on an unconsolidated basis subsequent to the amalgamation,
to ICICI Bank Limited on an unconsolidated basis prior to the amalgamation, or
to both. References in this prospectus to "ICICI" are to ICICI Limited and its
consolidated subsidiaries and other consolidated entities prior to its
amalgamation with ICICI Bank Limited.
In this prospectus, references to "US" or "United States" are to the
United States of America, its territories and its possessions. References to
"India" are to the Republic of India. References to "$" or "US$" or "dollars"
or "US dollars" are to the legal currency of the United States and references
to "Rs." or "rupees" or "Indian rupees" are to the legal currency of India.
References to a particular "fiscal" year are to our fiscal year ended March 31
of such year.
Except as otherwise stated in this prospectus, all translations from Indian
rupees to US dollars are based on the noon buying rate in the City of New York
on September 30, 2005, for cable transfers in Indian rupees as certified for
customs purposes by the Federal Reserve Bank of New York which was Rs. 43.94 per
$1.00. No representation is made that the Indian rupee amounts have been, could
have been or could be converted into US dollars at such a rate or any other
rate. Any discrepancies in any table between totals and sums of the amounts
listed are due to rounding.
ii
SUMMARY
You should read the following summary together with the risk factors and
the more detailed information about us and our financial results included
elsewhere in this prospectus or incorporated by reference. See "Incorporation of
Documents by Reference."
Overview
We are a leading Indian private sector commercial bank offering a variety
of products and services. We were incorporated in India in 1994. In 2002,
ICICI, a non-bank financial institution, and two of its subsidiaries, ICICI
Personal Financial Services and ICICI Capital Services, were amalgamated with
us. In the six-month period ended September 30, 2005, we made a net profit of
Rs. 7.73 billion (US$ 176 million) compared to a net profit of Rs. 2.78 billion
(US$ 63 million) in the six-month period ended September 30, 2004, a net profit
of Rs. 8.5 billion (US$ 194 million) in fiscal 2005 and a net profit of Rs. 5.2
billion (US$ 119 million) in fiscal 2004. At September 30, 2005, we had assets
of Rs. 2,077.4 billion (US$ 47.3 billion) and stockholders' equity of Rs. 131.1
billion (US$ 3.0 billion). As of September 30, 2005, we were the largest
private sector bank in India and the second largest bank in India, in terms of
total assets.
Our commercial banking operations span the corporate and the retail sector.
We offer a suite of products and services for both our corporate and retail
customers. We offer a range of retail credit and deposit products and services
to retail customers. The implementation of our retail strategy and the growth in
our commercial banking operations for retail customers has had a significant
impact on our business and operations in recent years. We have approximately
15.8 million retail customer accounts. Our corporate customers include India's
leading companies as well as growth-oriented small and middle market businesses,
and the products and services offered to them include loan and deposit products
and fee and commission-based products and services. Through our treasury
operations, we manage our balance sheet and strive to optimize profits from our
trading portfolio by taking advantage of market opportunities. We believe that
the international markets present a major growth opportunity and have,
therefore, expanded to countries other than India to serve our customers' cross
border needs and offer our commercial banking products to international
customers.
At September 30, 2005 our principal network consisted of 531 branches, 52
extension counters and 2,030 automated teller machines, or ATMs, in 371 centers
across several Indian states. We offer our customers a choice of delivery
channels, and we use technology to differentiate our products and services from
those of our competitors. We remain focused on changes in customer needs and
technological advances to remain at the forefront of electronic banking in
India, and seek to deliver high quality and effective services.
Strategy
Our objective is to enhance our position as a provider of banking and other
financial services in India and to leverage our competencies in financial
services and technology to develop an international business franchise. The key
elements of our business strategy are to:
Focus on Quality Growth Opportunities: We believe that the Indian retail
financial services market is likely to continue to experience sustained growth.
At year-end fiscal 2005, the Indian banking sector's total retail credit
outstanding was, according to our estimates, approximately between 10 and 11%
of India's GDP, which was relatively lower than in peer group countries such as
Thailand, Indonesia, Malaysia and South Korea. With upward migration of
household income levels, affordability and availability of retail finance and
acceptance of use of credit to finance purchases, retail credit has emerged as
a rapidly growing opportunity for banks that have the necessary skills and
infrastructure to succeed in this business. We have capitalized on the growing
retail opportunity in India and believe that we have emerged as a market leader
in retail credit. Our gross consumer loans and credit card receivables grew by
approximately 70.3% during fiscal 2005 and 25.8% during the six-month period
ended September 30, 2005. We aim to focus on quality growth opportunities by
building on our leadership position in retail credit and focusing on leveraging
our corporate relationships to increase our market share in non-fund-based
working capital products and fee-based services. We aim to provide
comprehensive and integrated services, and to increase the cross-selling of our
products and services and maximize the value of our corporate relationships
through
1
the effective use of technology, speedy response times, quality service
and the provision of products and services designed to meet specific customer
needs.
Maintaining and Enhancing our Strong Corporate Franchise: Our commercial
banking services to corporate customers will continue to focus on leveraging
our strong corporate relationships and increased capital base to increase our
market share in non-fund based working capital products and fee-based services.
Our corporate lending activities will continue to focus on structured finance,
corporate finance and working capital lending to highly rated corporations. We
aim to increase the cross selling of our products and services and maximize the
value of our corporate relationships through the effective use of technology,
speedy response times, quality service and the provision of products and
services designed to meet specific customer needs.
Build an International Presence: We believe that the international markets
present a major growth opportunity. We have therefore expanded to countries
other than India to cater to our customers' cross border needs and offer our
commercial banking products in select international markets, and aim to develop
an international presence. We have entered into alliances with existing banks in
various markets, to leverage our complementary capabilities, the banks' existing
physical distribution network in the overseas markets and our India-linked
products and services for the Indian community. We have entered into alliances
with Lloyds TSB in the United Kingdom, Bank of Montreal in Canada, DBS Bank in
Singapore, Emirates Bank in the United Arab Emirates and Wells Fargo in the
United States. We also offer various commercial banking products to
international customers, such as trade finance, letters of credit and a wire
transfer remittance facility. In fiscal 2005, our estimated market share of
remittances into India was approximately 15%.
Build a Rural Banking Franchise: Our rural banking strategy seeks to adopt
a holistic approach to the financial services needs of various segments of the
rural population in the medium to long-term, by delivering a comprehensive
product suite encompassing credit, transaction banking, deposit, investment and
insurance, through a range of channels. Our rural delivery channels include
branches, internet kiosks, franchisees and micro-finance institution partners.
Strengthen Our Insurance and Asset Management Businesses: We believe that
the insurance and asset management sectors have significant growth potential.
According to a study by Swiss Re, India's total insurance premium as a
percentage of GDP was 3.3% in 2003 which was relatively lower than countries
such as the United Kingdom, Singapore and Malaysia. We believe that our
subsidiaries, ICICI Prudential Life Insurance Company Limited, ICICI Lombard
General Insurance Company Limited and Prudential ICICI Asset Management Company
Limited have built a platform for continued growth, high market share and
profitability in the medium term based on extensive distribution efforts, brand
recall and underwriting and portfolio management capabilities. According to
statistics published by the Insurance Regulatory & Development Authority, ICICI
Prudential Life Insurance Company is the largest private sector life insurance
company in India, with a market share of approximately 32% based on new
business premiums (excluding group business and including 10% of single
premium) of private sector life insurance companies in India during the
six-month period ended September 30, 2005. ICICI Lombard General Insurance is
the largest private sector general insurance company in India and had a market
share of 31% among the private sector general insurance companies in India
during the six-month period ended September 30, 2005. Prudential ICICI Asset
Management Company had a market share of about 11% in assets under management
of the mutual fund industry at September 30, 2005 and is the largest private
sector asset management company in India. We also provide venture capital and
private equity funding to start-up companies and a range of companies through
our subsidiary ICICI Venture Funds Management Company. We seek to leverage the
synergies we have with our insurance and asset management subsidiaries.
Emphasize Conservative Risk Management Practices and Enhance Asset Quality:
We believe that conservative credit risk management policies and procedures are
critical to maintain competitive advantages in our business, and we continue to
build on our credit risk management tools, and aim to mitigate credit risk by
adopting various measures.
Use Technology for Competitive Advantage: We seek to be at the forefront
of technology usage in the financial services sector. All of our technology
initiatives are aimed at enhancing value, offering customer convenience and
improving service levels while optimizing costs. We expect to continue with our
policy of making investments in
2
technology to achieve a significant competitive advantage. The key objectives
behind our information technology strategy continue to be:
o building a cost-efficient distribution network to accelerate the
development of our retail franchise;
o enhancing cross selling and client segmenting capability by using
analytical tools and efficient data storage and retrieval systems;
o improving credit risk and market risk management;
o improving product and client profitability analysis; and
o leveraging our technology competencies and cost efficiencies in
international markets.
Attract and Retain Talented Professionals: We have been successful in
building a team of talented professionals with relevant experience. We believe a
key to our success will be our ability to continue to maintain and grow a pool
of strong and experienced professionals. We intend to continuously develop our
management and organizational structure to allow us to respond effectively to
changes in the business environment and enhance our overall performance.
------------------
Our principal executive offices are located at ICICI Bank Towers,
Bandra-Kurla Complex, Mumbai 400051, India; our telephone number is (91)
22-2653-1414 and our website address is www.icicibank.com. Our registered agent
in the United States is Mr. Madhav Kalyan, Joint General Manager, ICICI Bank
Limited, New York Representative Office, 500 Fifth Avenue, Suite 2830, New York,
New York 10110. The information on our website is not a part of this prospectus.
------------------
Recent Developments
In November 2005, Ms. Ramni Nirula succeeded Mr. Balaji Swaminathan as head
of corporate banking as he decided to leave ICICI Bank to explore other
professional opportunities.
In its mid-term review of its annual policy statement for fiscal 2006
announced on October 25, 2005, the Reserve Bank of India has raised the reverse
repo rate by 25 basis points to 5.25% with effect from October 26, 2005. The
bank rate has remained unchanged at 6.0%. In addition, the Reserve Bank of India
has proposed to limit a bank's capital market exposure to 40.0% of its net worth
on a standalone and consolidated basis and the consolidated direct capital
market exposure to 20.0% of the consolidated net worth. The general provisioning
requirement on standard advances has also been increased from 0.25% to 0.40%
(excluding direct advances to the agricultural and small and medium enterprise
sectors).
3
THE OFFERING
ADSs offered .................... ADSs representing equity shares,
constituting approximately % of our issued
and outstanding equity shares, which is
expected to include a public offering
without listing in Japan, referred to herein
as the Japanese Public Offering. We are
currently intending to allocate 6,000,000
ADSs representing 12,000,000 equity shares
to the Japanese Public Offering. The final
number of ADSs allocated to the Japanese
Public Offering will depend on market
conditions and other factors. The completion
of this ADS offering is not conditional upon
the completion of the Japanese Public
Offering.
This ADS offering is conditional upon the
completion of the Indian public offering
described below, which condition may be
waived by mutual agreement of the
underwriters and ourselves, provided that all
relevant Indian regulations are complied
with. The Indian public offering is subject
to customary conditions and there is no
assurance that the Indian public offering
will close.
The number of ADSs to be sold is expected to
equal the number that will result in gross
proceeds of approximately US$ 438 million (or
US$ 503 million assuming full exercise of the
underwriters' over-allotment option),
assuming a public offering price determined
by reference to the prevailing market price
and market conditions at the time of pricing.
Over-allotment option granted
by us ........................ We have granted the underwriters an option
exercisable within 30 days from the date of
this prospectus to purchase up to an
aggregate of an additional ADSs,
representing an additional equity
shares, at the initial price to the public,
less the underwriting discount.
The ADSs ........................ Each offered ADS represents two equity shares
of par value Rs. 10 per share. The offered
ADSs are evidenced by American Depositary
Receipts. See "Description of the American
Depositary Shares" and "Description of
Equity Shares" incorporated by reference in
this prospectus.
ADSs to be outstanding after
this offering ................. (assumes no exercise of the underwriters'
over-allotment option to purchase additional
ADSs).
Equity shares to be outstanding
after this offering ...........
Offering price .................. The offered ADSs are being offered at a price
of $ per ADS.
Depositary ...................... Deutsche Bank Trust Company Americas.
Use of proceeds ................. We intend to use the net proceeds of this
offering for future asset growth and
compliance with regulatory requirements. The
objects of the offering are to augment our
capital base to meet the capital
requirements arising out of growth in our
assets, primarily our loan and investment
portfolio due to the growth of the Indian
economy, compliance with regulatory
requirements and for other general corporate
purposes including meeting the expenses of
the ADS offering.
4
Listing ......................... We are listing the offered ADSs on the New
York Stock Exchange. Our outstanding equity
shares are principally traded in India on the
Bombay Stock Exchange Limited and the
National Stock Exchange of India Limited.
New York Stock Exchange symbol
for ADSs ...................... IBN
Dividends ....................... The declaration, amount and payment of
dividends are subject to the recommendation
of our board of directors and the approval
of our shareholders. Under Indian
regulations currently in force, the
declaration of dividends by banks is subject
to certain additional conditions. If we
comply with such conditions, we are allowed
to declare a dividend but only up to a
certain percentage of our profits. For any
dividends beyond such percentage, we are
required to obtain permission from the
Reserve Bank of India. Holders of equity
shares and ADSs will be entitled to
dividends paid, if any. In fiscal 2005, we
paid a dividend of Rs. 7.50 per equity
share. In fiscal 2006, in addition to the
dividend of Rs. 7.50 per equity share for
the year, we paid a special dividend,
excluding dividend tax, of Rs. 1.00 per
equity share. See also "Dividends" in our
annual report on Form 20-F for the fiscal
year ended March 31, 2005, which is
incorporated by reference in this
prospectus.
Voting rights ................... The ADSs will have no voting rights. Under
the deposit agreement, the depositary will
vote the equity shares deposited with it as
directed by our board of directors. See
"Restriction on Foreign Ownership of Indian
Securities."
Delivery and Settlement .......... It is expected that delivery of the ADSs to
the underwriters will be made against
payment on a delayed basis. The exact time of
delivery will be agreed among the Joint
Global Coordinators and us and is subject to
certain regulatory approvals in India,
which may be obtained only after pricing. The
time of delivery is expected to occur no
later than the ninth business day after
the date of pricing, subject to these
regulatory approvals. We will notify you of
the time of delivery through a press release
which we will post on our website at
www.icicibank.com. Prospective investors
should be aware that the notification of the
exact time of delivery may not occur until
two or three business days before such time
of delivery. Rule 15c6-1 under the Securities
Exchange Act of 1934, as amended, generally
requires that securities trades in the
secondary market settle in three business
days, unless the parties to the trade
expressly agree otherwise. Accordingly,
purchasers who wish to trade ADSs on any day
prior to the third business day before the
delivery of the ADSs will be required, by
virtue of the fact that the ADSs initially
will settle on a delayed basis, to specify an
alternate settlement cycle at the time of any
such trade, or to make any necessary
arrangements to ensure that ADSs are
available on the third business day after
trading for settlement, to prevent a failed
settlement. Purchasers of ADSs who wish to
make such trades should consult their own
advisors. Purchasers who are not able to
borrow ADSs or make any other necessary
arrangements to prevent a failed settlement
may not be able to make any trades of ADSs
prior to the third business day before the
delivery of the ADSs to the underwriters.
5
Public Offering in India
We have obtained the approval of our shareholders through postal ballot to
issue equity shares up to an aggregate par value of Rs. 2,000 million,
including equity shares issued pursuant to over-allotment options granted to
the underwriters, which represents 20.0% of our authorized equity share
capital. Part of the equity shares will be offered in India and other
jurisdictions outside the United States, where permitted, under an Indian
prospectus filed with the Registrar of Companies, or the RoC, in India (the
"Indian public offering"). Another part of the equity shares will be offered as
ADSs representing equity shares to the public in the United States under this
prospectus, and to the public in Japan pursuant to the Japanese Public Offering
(the "ADS offering").
The number of equity shares to be sold in the Indian public offering is
expected to equal the number that will result in gross proceeds of Rs. 50
billion or approximately US$ 1.1 billion (or Rs. 57.5 billion or approximately
US$ 1.26 billion assuming full exercise of the underwriters' over-allotment
option). The ADS offering is conditional on the completion of the Indian public
offering but not vice versa, which condition may be waived by mutual agreement
of the underwriters and ourselves, provided that all relevant Indian regulations
are complied with. The Indian public offering is subject to customary conditions
and there is no assurance that the Indian public offering will close. We, in our
discretion, may decide to withdraw the ADS offering at any time.
The prospectus used for the Indian public offering may not be distributed
or made available in the United States. The prospectus may also not be
distributed in any other jurisdiction outside India where such distribution
would be unlawful.
6
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth our summary financial and operating data on
a consolidated basis. The summary data for fiscal 2003, fiscal 2004 and fiscal
2005 have been derived from our audited consolidated financial statements as of
the end of and for each of these years prepared in accordance with US GAAP, and
included in our annual report on Form 20-F for the fiscal year ended March 31,
2005, which is incorporated by reference in this prospectus. The summary data
for ICICI for fiscal 2001 and fiscal 2002 have been derived from the audited
consolidated financial statements of ICICI as of the end of and for each of
these fiscal years prepared in accordance with US GAAP. The summary data for
the six-month periods ended September 30, 2004 and September 30, 2005 have been
derived from our interim unaudited condensed consolidated financial statements,
prepared in accordance with US GAAP, and included in this prospectus. Our
consolidated financial statements for the six-month periods ended September 30,
2004 and September 30, 2005 include our unaudited condensed consolidated
statements of operations, unaudited condensed consolidated statements of cash
flows and unaudited condensed consolidated statements of stockholders' equity
and other comprehensive income.
You should be aware that the financial statements of ICICI Bank included
in the prospectus used for the Indian public offering were prepared for the
domestic Indian market on an unconsolidated basis and presented in accordance
with Indian GAAP, the Indian Companies Act, 1956 and SEBI Guidelines. Indian
GAAP differs significantly from US GAAP.
You should read the following data with the more detailed information
contained in "Operating and Financial Review and Prospects" included elsewhere
in this prospectus and our consolidated financial statements and the related
notes included elsewhere and incorporated by reference in this prospectus.
Historical results do not necessarily predict the results in the future. Certain
reclassifications in the following table have been made in the financial
statements of prior years to conform to classifications used in the current
year. These changes have no impact on previously reported results of operations
or stockholders' equity.
Six months ended
Year ended March 31, September 30,
--------------------------------------------------------- ---------------------------------
2001 2002 2003 2004 2005 2004 2005 2005(1)
--------- --------- --------- --------- --------- --------- --------- ---------
(Unaudited)
(in millions, except per common share data)
Selected income statement data:
Interest income (including
dividends)............... Rs.80,104 Rs.78,867 Rs.98,103 Rs.91,119 Rs.92,260 Rs.42,521 Rs.59,537 US$ 1,355
Interest expense............ (67,893) (69,520) (83,208) (72,375) (68,409) (32,561) (46,164) (1,051)
--------- --------- --------- --------- --------- --------- --------- ---------
Net interest income......... 12,211 9,347 14,895 18,744 23,851 9,960 13,373 304
Provisions for loan losses.. (9,892) (9,743) (19,649) (20,055) (14,677) (4,379) (5,795) (132)
------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income/(loss),
after provisions for
loan losses.............. 2,319 (396) (4,754) (1,311) 9,174 5,581 7,578 172
Non-interest income......... 9,243 8,148 13,253 36,678 34,645 13,772 25,095 572
--------- --------- --------- --------- --------- --------- --------- ---------
Net revenue................. 11,562 7,752 8,499 35,367 43,819 19,353 32,673 744
Non-interest expense........ (5,479) (7,596) (18,609) (27,101) (33,089) (15,035) (20,849) (475)
------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Equity in earnings/(loss)
of affiliates............ 735 294 (958) (1,437) (577) (670) (541) (12)
Minority interest........... 1 83 24 28 14 4 (31) (1)
--------- --------- --------- --------- --------- --------- --------- ---------
Income/(loss) before income
taxes and cumulative
effect of accounting
changes.................. 6,819 533 (11,044) 6,857 10,167 3,652 11,252 256
Income tax (expense)/benefit (189) (251) 3,061 (1,638) (1,637) (874) (3,522) (80)
--------- --------- --------- --------- --------- --------- --------- ---------
Income /(loss) before
cumulative effect of
accounting changes, net
of tax................... 6,630 282 (7,983) 5,219 8,530 2,778 7,730 176
Cumulative effect of
accounting changes, net
of tax(2)................ - 1,265 - - - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net income/ (loss)......... Rs. 6,630 Rs. 1,547 Rs.(7,983) Rs. 5,219 Rs. 8,530 Rs. 2,778 Rs. 7,730 US$ 176
Per common share:(3)
Net income/(loss) from
continuing operations -
Basic(4)................. Rs. 16.88 Rs. 3.94 Rs.(14.18) Rs. 8.50 Rs. 11.72 Rs. 3.86 Rs. 10.46 US$ 0.24
7
Six-month period ended
Year ended March 31, September 30,
--------------------------------------------------------- ---------------------------------
2001 2002 2003 2004 2005 2004 2005 2005(1)
--------- --------- --------- --------- --------- --------- --------- ---------
(Unaudited)
(in millions, except per common share data)
Net income/(loss) from
continuing operations -
Diluted(5)............... 16.81 3.94 (14.18) 8.43 11.60 3.82 10.35 0.24
Dividends(6)................ 11.00 22.00 - 7.50 7.50 7.50 8.50 0.19
Book value(7)............... 193.35 181.70 150.42 153.35 173.73 161.75 176.97 4.03
Common shares outstanding
at end of period (in
millions of common
shares).................. 393 393 613 616 737 735 741 -
Weighted average common
shares outstanding -
Basic (in millions of
common shares)........... 393 393 563 614 728 720 739 -
Weighted average common
shares outstanding -
Diluted (in millions of
common shares)........... 393 393 563 619 734 726 747 -
--------------------
(1) Rupee amounts for the six-month period ended September 30, 2005 have been
translated into US dollars using the noon buying rate of Rs. 43.94 =
US$ 1.00 in effect on September 30, 2005.
(2) In June 2001, the FASB issued SFAS No. 141, which requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. The excess of the cost of an acquired entity
over the net of the amounts assigned to assets acquired and liabilities
assumed shall be recognized as goodwill. SFAS No. 141 specifies that
intangible assets acquired in a purchase method business combination must
be recognized and reported apart from goodwill, noting that any purchase
price allocated to an assembled workforce need not be accounted separately.
The excess of the fair value of the net assets over the cost of acquired
entity is allocated pro rata to specified non-financial assets and
remaining excess, if any, is recognized as an extraordinary gain. As of
April 1, 2001, ICICI had an unamortized deferred credit of Rs. 1.3 billion
(US$ 29 million) relating to the excess of the fair value of assets
acquired over the cost of acquisition of SCICI. As required by SFAS No.
141, in conjunction with the early adoption of SFAS No. 142, the
unamortized deferred credit as of April 1, 2001, was written-off and
recognized as the effect of a change in the accounting principle.
(3) For fiscal years 2001 and 2002, based on the exchange ratio of 1:2 in which
the shareholders of ICICI were issued shares of ICICI Bank, number of
shares has been adjusted by dividing by two. Hence, these numbers are
different from the numbers reported in the annual report on Form 20-F for
fiscal 2002.
(4) Represents net income/(loss) before dilutive impact.
(5) Represents net income/(loss) adjusted for full dilution. All convertible
instruments are assumed to be converted to common shares at the beginning
of the year, at prices that are most advantageous to the holders of these
instruments. Options to purchase 2,546,675, 7,015,800, 12,610,275 and
1,098,225 equity shares granted to employees at a weighted average exercise
price of Rs. 226.0, Rs. 81.3, Rs. 154.7 and Rs. 266.6 were outstanding in
fiscal 2001, 2002, 2003 and 2004, respectively, but were not included in
the computation of diluted earnings per share because the exercise price of
the options was greater than the average market price of the equity shares
during the period. In fiscal 2003, we reported a net loss and accordingly
all outstanding options at year-end fiscal 2003 are anti-dilutive. Options
to purchase 7,397,125 and 70,600 equity shares granted to employees at a
weighted average exercise price of Rs. 300.05 and Rs. 498.20 were
outstanding in the six-month periods ended September 30, 2004 and 2005,
respectively, but were not included in the computation of diluted earnings
per share of the respective periods because the exercise price of the
options was greater than the average market price of the equity shares
during the period.
(6) We declared a dividend of Rs. 7.50 per equity share for fiscal 2004, which
was paid out in September 2004, i.e. in the six-month period ended
September 30, 2004. We declared a dividend of Rs. 8.50 per equity share,
including a special dividend of Rs. 1.00 per equity share, for fiscal 2005,
which was paid in August 2005, i.e. in the six-month period ended September
30, 2005. The dividend per equity share shown above is based on the total
amount of dividends paid out on the equity shares during the year,
exclusive of dividend tax. This was different from the dividend declared
for the year. In US dollars, dividend was US$ 0.19 per equity share for
fiscal 2005.
(7) Represents the stockholders' equity divided by the number of equity shares
outstanding at the year/period end.
8
The following table sets forth, for the periods indicated, selected income
statement data expressed as a percentage of average total assets for the
respective period (percentages for the six-month periods ended September 30,
2004 and September 30, 2005 are annualized).
Six months ended
Year ended March 31, September 30,
--------------------------------------------------------- ---------------------
2001 2002 2003 2004 2005 2004 2005
--------- --------- --------- --------- --------- --------- ---------
(Unaudited)
Selected income statement data:
Interest income(including dividends).. 11.34% 10.57% 8.66% 7.17% 5.90% 5.88% 6.01%
Interest expense...................... (9.61) (9.31) (7.35) (5.70) (4.37) (4.51) (4.66)
--------- --------- --------- --------- --------- --------- ---------
Net interest income.................. 1.73 1.26 1.31 1.47 1.53 1.37 1.35
Provisions for loan losses............ (1.40) (1.31) (1.73) (1.58) (0.94) (0.61) (0.59)
--------- --------- --------- --------- --------- --------- ---------
Net interest income/(loss), after
provisions for loan losses........ 0.33 (0.05) (0.42) (0.11) 0.59 0.76 0.76
Non-interest income................... 1.32 1.09 1.17 2.89 2.22 1.91 2.53
--------- --------- --------- --------- --------- --------- ---------
Net revenue........................... 1.65 1.04 0.75 2.78 2.81 2.67 3.29
Non-interest expense.................. (0.78) (1.02) (1.64) (2.13) (2.12) (2.08) (2.10)
Equity in earnings/(loss) of
affiliates......................... 0.10 0.04 (0.08) (0.11) (0.04) (0.09) (0.05)
Minority interest..................... 0.00 0.01 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) before income taxes and
cumulative effect of accounting
changes............................ 0.97 0.07 (0.97) 0.54 0.65 0.50 1.14
Income tax (expense)/benefit (0.03) (0.03) 0.27 (0.13) (0.10) (0.12) (0.36)
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) before cumulative
effect of accounting changes, net
of tax............................. 0.94 0.04 (0.70) 0.41 0.55 0.38 0.78
Cumulative effect of accounting
changes, net of tax................ - 0.17 - - - - -
Net income/(loss)..................... 0.94% 0.21% (0.70)% 0.41% 0.55% 0.38% 0.78%
========= ========= ========= ========= ========= ========= =========
At March 31, At September 30,
------------------------------------------------------------------ ----------------------------------------
2001 2002 2003 2004 2005 2004 2005 2005(1)
----------- ----------- ------------ ------------- ------------- ------------- ------------- ------------
(Unaudited)
(in millions, except percentages)
Selected balance
sheet data:
Total assets........ Rs. 739,892 Rs. 743,362 Rs. 1,180,263 Rs. 1,409,131 Rs. 1,863,447 Rs. 1,498,133 Rs. 2,077,435 US$ 47,279
Securities.......... 18,861 60,046 280,621 310,368 380,959 324,892 436,751 9,939
Loans, net(2)....... 602,023 523,601 630,421 728,520 999,858 775,132 1,170,154 26,631
Troubled debt
restructuring
(restructured
loans), net....... 32,309 77,366 122,659 121,417 95,589 100,942 85,022 1,935
Other impaired
loans, net........ 20,081 33,187 55,319 28,764 14,196 26,354 7,292 166
Total liabilities... 663,829 671,754 1,087,926 1,313,556 1,733,383 1,378,177 1,940,426 44,161
Long-term debt...... 492,882 511,458 400,812 373,449 367,499 355,763 357,443 8,135
Deposits............ 6,072 7,380 491,290 684,955 1,016,534 722,731 1,226,463 27,912
Redeemable
preferred
stock(3).......... 698 772 853 944 1,044 994 1,099 25
Stockholders'
equity............ 75,927 71,348 92,213 94,525 127,996 118,845 131,116 2,984
Common stock ....... 3,924 3,922 6,127 6,164 7,368 7,345 7,409 169
Period average(4):
Total assets........ 706,343 746,330 1,132,638 1,269,638 1,562,983 1,440,819 1,976,983 44,993
Interest-earning
assets............ 615,164 641,141 924,573 1,017,009 1,198,058 1,100,990 1,541,573 35,084
Loans, net(2)....... 570,989 591,398 606,496 662,752 799,169 731,268 1,042,556 23,727
Total
liabilities(5).... 631,324 670,750 1,038,377 1,173,961 1,442,117 1,324,354 1,847,431 42,044
Interest-bearing
liabilities...... 576,474 613,401 905,226 977,941 1,148 ,995 1,059,848 1,539,538 35,037
Long-term debt...... 462,916 504,103 455,347 382,674 359,724 359,031 363,861 8,281
Stockholders'
equity............ Rs. 75,019 Rs. 75,580 Rs. 94,261 Rs. 95,678 Rs. 120,866 Rs. 116,465 Rs. 129,552 US$ 2,948
Profitability(6):
Net income/(loss) as
a percentage of:
Average total
assets........ 0.94% 0.21% (0.70)% 0.41% 0.55% 0.38% 0.78% -
Average
stockholders'
equity........ 8.84 2.05 (8.47) 5.45 7.06 4.76 11.90 -
9
At March 31, At September 30,
---------------------------------------------------------------- --------------------------------------
2001 2002 2003 2004 2005 2004 2005 2005(1)
---------- ---------- ------------ ------------ ------------ ------------ ------------ ----------
(Unaudited)
(in millions, except percentages)
Average
stockholders'
equity
(including
redeemable
preferred
stock(7)............. 8.89 2.12 (8.31) 5.50 7.08 4.80 11.89 -
Dividend payout ratio(8)... 52.90 635.20 - 88.10 64.57 198.25 81.40 -
Spread(9).................. 1.19 0.93 1.38 1.52 1.71 1.54 1.70 -
Net interest margin(10).... 1.93 1.42 1.57 1.80 1.95 1.77 1.71 -
Cost-to-income ratio(11)... 25.54 43.42 66.11 48.90 56.57 63.35 54.20 -
Cost-to-average assets
ratio(12)............... 0.78 1.02 1.64 2.13 2.12 2.08 2.10 -
Capital:
Average shareholders'
equity as a percentage of
average total assets..... 10.62 10.13 8.32 7.54 7.73 8.08 6.55 -
Average stockholders'
equity (including
redeemable preferred
stock) as a percentage of
average total assets(13). 10.95 10.23 8.39 7.61 7.80 8.15 6.61 -
At or for
the six
months
ended
At or for the year ended March 31, September 30,
------------------------------------------------------------------ -------------
2001 2002 2003 2004 2005 2005
---------- ------------ ------------ ------------ ------------ -------------
(Unaudited)
(in percentages)
Asset quality:
Net restructured loans as a
percentage of net loans............. 5.37% 14.78% 19.45% 16.67% 9.56% 7.27%
Net other impaired loans as a
percentage of net loans............. 3.34 6.34 8.77 3.95 1.42 0.62
Allowance for loan losses on
restructured loans as a
percentage of gross
restructured loans.................. 26.03 18.64 16.78 25.23 36.07 38.91
Allowance for loan losses on other
impaired loans as a percentage
of gross impaired loans............. 51.89 34.61 33.48 42.74 52.22 66.45
Allowance for loan losses as a
percentage of gross loans........... 5.20 6.54 7.92 8.40 7.06 6.16
--------------------
(1) Rupee amounts at September 30, 2005 have been translated into US dollars
using the noon buying rate of Rs. 43.94 = US$ 1.00 in effect at September
30, 2005.
(2) Net of allowance for loan losses, security deposits and unearned income in
respect of restructured and other impaired loans and allowances for
non-impaired loans.
(3) ICICI had issued preferred stock redeemable at face value after 20 years.
Banks in India are not currently allowed to issue preferred stock. However,
we are currently exempt from this restriction for the existing preferred
stock.
(4) For the six-month periods ended September 30, 2004 and September 30, 2005,
the average balances are the average of quarterly balances outstanding at
the end of March of the previous fiscal year, June and September of that
year. For fiscal years 2002, 2003, 2004 and 2005, the average balances are
the average of quarterly balances outstanding at the end of March of the
previous fiscal year, June, September, December and March of that fiscal
year. For fiscal 2001, due to deconsolidation of ICICI Bank, the average
balances are calculated as the average of quarterly balances outstanding at
the end of June, September, December and March of that fiscal year.
(5) Represents the average of the quarterly balance of total liabilities and
minority interest.
(6) Profitability data for the six-month periods ended September 30, 2004 and
September 30, 2005 is annualized.
(7) Represents the ratio of net income plus dividend on redeemable preferred
stock to the sum of average stockholders' equity and average redeemable
preferred stock. Under Indian tax laws, dividend on preferred stock is not
tax deductible.
10
(8) Represents the ratio of total dividends paid on common stock, exclusive of
dividend distribution tax, as a percentage of net income.
(9) Represents the difference between yield on average interest-earning assets
and cost of average interest-bearing liabilities. Yield on average
interest-earning assets is the ratio of interest income to average
interest-earning assets. Cost of average interest-bearing liabilities is
the ratio of interest expense to average interest-bearing liabilities.
(10) Represents the ratio of net interest income to average interest-earning
assets. The difference in net interest margin and spread arises due to the
difference in the amount of average interest-earning assets and average
interest-bearing liabilities. If average interest-earning assets exceed
average interest-bearing liabilities, net interest margin is greater than
spread, and if average interest-bearing liabilities exceed average
interest-earning assets, net interest margin is less than spread.
(11) Represents the ratio of non-interest expense to the sum of net interest
income and non-interest income.
(12) Represents the ratio of non-interest expense to average total assets.
(13) ICICI Bank's capital adequacy is computed in accordance with the Reserve
Bank of India's guidelines and is based on unconsolidated financial
statements prepared in accordance with Indian GAAP. At September 30, 2005,
ICICI Bank's total capital adequacy ratio was 11.52% with a Tier 1 capital
adequacy ratio of 7.24% and a Tier 2 capital adequacy ratio of 4.28%.
11
RISK FACTORS
Investing in the securities offered using this prospectus involves risk.
You should consider carefully the following risk factors as well as the risks
described in the documents incorporated by reference into this prospectus
before you decide to buy our securities. If any of these risks actually occur
you may lose all or part of your investment.
Risks Relating to India
A slowdown in economic growth in India could cause our business to suffer.
Any slowdown in the Indian economy or volatility of global commodity
prices, in particular oil and steel prices, could adversely affect our
borrowers and contractual counterparties. Because of the importance of our
commercial banking operations for retail customers and the increasing
importance of our agricultural loan portfolio to our business, any slowdown in
the growth of the housing, automobiles and agricultural sectors could adversely
impact our business, including our ability to grow our asset portfolio, the
quality of our assets, our financial performance, our stockholders' equity, our
ability to implement our strategy and the price of our equity shares and ADSs.
A significant increase in the price of crude oil could adversely affect
the Indian economy, which could adversely affect our business.
India imports approximately 70.0% of its requirements of crude oil, which
constituted approximately 27.9% of total imports in fiscal 2005. The sharp
increase in global crude oil prices during fiscal 2001 adversely affected the
Indian economy in terms of volatile interest and exchange rates. This adversely
affected the overall state of liquidity in the banking system leading to
intervention by the Reserve Bank of India. Over the last year, there has been a
sharp increase in global crude oil prices which was due to both increased
demand and pressure on production and refinery capacity. The full burden of the
oil price increase has not yet been passed to Indian consumers and has been
largely absorbed by the government and government-owned oil marketing
companies. Sustained high levels, further increases or volatility of oil prices
and the pass-through of recent increases to Indian consumers could have a
material negative impact on the Indian economy and the Indian banking and
financial system in particular, including through a rise in inflation and
market interest rates and a higher trade deficit. This could adversely affect
our business including our liquidity, our ability to grow, the quality of our
assets, our financial performance, our stockholders' equity, our ability to
implement our strategy and the price of our equity shares and ADSs.
A significant change in the Indian government's economic liberalization
and deregulation policies could adversely affect our business and the
price of our equity shares and ADSs.
Our assets and customers are predominantly located in India. The Indian
government has traditionally exercised and continues to exercise a dominant
influence over many aspects of the economy. Government policies could adversely
affect business and economic conditions in India, our future financial
performance, our stockholders' equity and the price of our equity shares and
ADSs.
Financial instability in other countries, particularly emerging market
countries and countries where we have established operations, could
adversely affect our business and the price of our equity shares and ADSs.
The Indian economy is influenced by economic and market conditions in
other countries, particularly emerging market countries in Asia. We have also
established operations in several other countries. A loss of investor
confidence in the financial systems of other emerging markets and countries
where we have established operations or any worldwide financial instability may
cause increased volatility in the Indian financial markets and, directly or
indirectly, adversely affect the Indian economy and financial sector, our
business, our future financial performance, our stockholders' equity and the
price of our equity shares and ADSs.
12
If regional hostilities, terrorist attacks or social unrest in some parts
of the country increase, our business and the price of our equity shares
and ADSs could be adversely affected.
India has from time to time experienced social and civil unrest and
hostilities both internally and with neighboring countries. In the past, there
have been military confrontations between India and Pakistan. India has also
experienced terrorist attacks in some parts of the country. These hostilities
and tensions could lead to political or economic instability in India and
adversely affect our business, our future financial performance and the price
of our equity shares and ADSs.
Trade deficits could adversely affect our business and the price of our
equity shares and ADSs.
India's trade relationships with other countries and its trade deficit,
driven to a major extent by global crude oil prices, may adversely affect
Indian economic conditions. If trade deficits increase or are no longer
manageable because of the rise in global crude oil prices or otherwise, the
Indian economy, and therefore our business, our financial performance, our
stockholders' equity and the price of our equity shares and our ADSs could be
adversely affected.
Natural calamities could adversely affect the Indian economy, our business
and the price of our equity shares and ADSs.
India has experienced natural calamities like earthquakes, floods and
drought in the past few years. The extent and severity of these natural
disasters determine their impact on the Indian economy. For example, in fiscal
2003, many parts of India received significantly less than normal rainfall. As
a result of the drought conditions in the economy during fiscal 2003, the
agricultural sector recorded a negative growth of 7.0%. Also, the erratic
progress of the monsoon in fiscal 2005 adversely affected sowing operations for
certain crops and resulted in a decline in the growth rate of the agriculture
sector from 9.1% in fiscal 2004 to 1.1% in fiscal 2005. Further prolonged
spells of below or above normal rainfall or other natural calamities could
adversely affect the Indian economy, our business and the price of our equity
shares and ADSs.
Financial difficulty and other problems in certain financial institutions
in India could adversely affect our business and the price of our equity
shares and ADSs.
As an Indian bank, we are exposed to the risks of the Indian financial
system which may be affected by the financial difficulties faced by certain
Indian financial institutions because the commercial soundness of many
financial institutions may be closely related as a result of credit, trading,
clearing or other relationships. This risk, which is sometimes referred to as
"systemic risk", may adversely affect financial intermediaries, such as
clearing agencies, banks, securities firms and exchanges with whom we interact
on a daily basis. Any such difficulties or instability of the Indian financial
system in general could create an adverse market perception about Indian
financial institutions and banks and adversely affect our business, our future
financial performance, our Stockholders' equity and the price of our equity
shares and ADSs. See also "Overview of the Indian Financial Sector" in our
annual report on Form 20-F for the fiscal year ended March 31, 2005, which is
incorporated by reference in this prospectus. As the Indian financial system
operates within an emerging market, it faces risks of a nature and extent not
typically faced in more developed economies, including the risk of deposit runs
notwithstanding the existence of a national deposit insurance scheme. For
example, in April 2003, unsubstantiated rumours, believed to have originated in
Gujarat, a state in India, alleged that we were facing liquidity problems.
Although our liquidity position was sound, we witnessed higher than normal
deposit withdrawals on account of these unsubstantiated rumours for several
days in April 2003. We successfully controlled the situation in this instance,
but any failure to control such situations in the future could result in high
volumes of deposit withdrawals which would adversely impact our liquidity
position.
A decline in India's foreign exchange reserves may affect liquidity and
interest rates in the Indian economy which could adversely impact us.
A decline in India's foreign exchange reserves could result in reduced
liquidity and higher interest rates in the Indian economy, which could
adversely affect our business, our future financial performance, our
stockholders' equity and the price of our equity shares and ADSs. See also "--
Risks Relating to Our Business."
13
Any downgrading of India's debt rating by an international rating agency
could adversely affect our business and the price of our equity shares and
ADSs.
Any adverse revisions to India's credit ratings for domestic and
international debt by international rating agencies may adversely affect our
business, our future financial performance, our stockholders' equity and the
price of our equity shares and ADSs.
Risks Relating to Our Business
Our business is particularly vulnerable to interest rate risk and
volatility in interest rates could adversely affect our net interest
margin, the value of our fixed income portfolio, our income from treasury
operations and our financial performance.
As a result of certain reserve requirements of the Reserve Bank of India,
we are more structurally exposed to interest rate risk than banks in many other
countries. See "Supervision and Regulation - Legal Reserve Requirements" in our
annual report on Form 20-F for the fiscal year ended March 31, 2005, which is
incorporated by reference in this prospectus. These requirements result in our
maintaining a large portfolio of fixed income government of India securities,
and we could be materially adversely impacted by a rise in interest rates,
especially if the rise were sudden or sharp. These requirements also have a
negative impact on our net interest income and net interest margin because we
earn interest on a portion of our assets at rates that are generally less
favorable than those typically received on our other interest-earning assets.
If our cost of funds does not decline at the same time or to the same extent as
the yield on our interest-earning assets, or if the yield on our
interest-earning assets does not increase at the same time or to the same
extent as our cost of funds, our net interest income and net interest margin
would be adversely impacted. We are also exposed to interest rate risk through
our treasury operations and our subsidiary ICICI Securities, which is a primary
dealer in government of India securities. A rise in interest rates or greater
interest rate volatility could adversely affect our income from treasury
operations or the value of our fixed income securities trading portfolio.
A large proportion of ICICI's loans consisted of project finance
assistance, a substantial portion of which is particularly vulnerable to
completion and other risks.
Long-term project finance assistance constituted a significant proportion
of ICICI's asset portfolio and, despite the growth of our retail loan
portfolio, continues to be a significant proportion of our loan portfolio. The
viability of these projects depends upon a number of factors, including market
demand, government policies and the overall economic environment in India and
the international markets. These projects are particularly vulnerable to a
variety of risks, including completion risk and counterparty risk, which could
adversely impact their ability to generate revenues. We cannot be sure that
these projects will perform as anticipated. Over the last several years, we
experienced a high level of impaired loans in our project finance loan
portfolio as a result of the downturn in certain global commodity markets and
increased competition in India. Future project finance losses or high levels of
loan impairment could have a materially adverse effect on our profitability and
the quality of our loan portfolio.
We have a high concentration of loans to certain customers and sectors and
impairment of a substantial portion of these loans could adversely affect
the overall quality of our loan portfolio, our business and the price of
our equity shares and ADSs.
Our loan portfolio, gross restructured loan portfolio and gross other
impaired loan portfolio have a high concentration in certain customers and
sectors. See "Business - Loan Portfolio" in our annual report on Form 20-F for
the fiscal year ended March 31, 2005, which is incorporated by reference in
this prospectus. In the past, these borrowers and sectors have been adversely
affected by economic conditions in varying degrees. Credit losses or financial
difficulties of these borrowers and sectors in the future could adversely
affect our business, our financial performance, our stockholders' equity and
the price of our equity shares and ADSs.
If we are not able to control or reduce the level of impaired loans in our
portfolio, our business will suffer.
We have experienced rapid growth in our retail loan portfolio. See
"Business - Loan Portfolio" in our annual report on Form 20-F for the fiscal
year ended March 31, 2005, which is incorporated by reference in this
prospectus. Various factors, including a rise in unemployment, prolonged
recessionary conditions, a sharp and sustained rise in
14
interest rates, developments in the Indian economy, movements in global
commodity markets and exchange rates and global competition could cause an
increase in the level of impaired loans on account of these retail loans and
have a material adverse impact on the quality of our loan portfolio. In
addition, under the directed lending norms of the Reserve Bank of India, we are
required to extend 50.0% of our residual net bank credit (excluding the
advances of ICICI at year-end fiscal 2002) to certain eligible sectors, which
are categorized as "priority sectors." See "Business - Loan Portfolio -
Directed Lending" in our annual report on Form 20-F for the fiscal year ended
March 31, 2005, which is incorporated by reference in this prospectus. We may
experience a significant increase in impaired loans in our directed lending
portfolio, particularly loans to the agriculture sector and small-scale
industries, where we are less able to control the portfolio quality and where
economic difficulties are likely to affect our borrowers more severely. We may
not be able to control or reduce the level of impaired loans in our project and
corporate finance portfolio or assure that troubled debt restructuring will be
successful or that borrowers will meet their obligations under the restructured
terms. We may not be successful in our efforts to improve collections and
foreclose on existing impaired loans.
If we are not able to control or reduce the level of impaired loans, the
overall quality of our loan portfolio may deteriorate and our business, our
future financial performance, our stockholders' equity and the price of our
equity shares and ADSs may be adversely affected.
Further deterioration of our impaired loan portfolio and an inability to
improve our allowance for loan losses as a percentage of impaired loans
could adversely affect the price of our equity shares and ADSs.
The level of our impaired loans is significantly higher than the average
percentage of impaired loans in the portfolios of banks in more developed
countries. Although we believe that our allowances for loan losses will be
adequate to cover all known losses in our asset portfolio, we cannot assure you
that there will be no deterioration in the allowance for loan losses as a
percentage of gross impaired loans or otherwise or that the percentage of
impaired loans that we will be able to recover will be similar to our and
ICICI's past experience of recoveries of impaired loans. In the event of any
further deterioration in our impaired loan portfolio, there could be an adverse
impact on our business, our future financial performance, our stockholders'
equity and the price of our equity shares and ADSs.
The value of our collateral may decrease or we may experience delays in
enforcing our collateral when borrowers default on their obligations to us
which may result in failure to recover the expected value of collateral
security exposing us to a potential loss.
A substantial portion of our loans to corporate and retail customers are
secured by collateral. See "Business - Loan Portfolio - Collateral - Completion,
Perfection and Enforcement" in our annual report on Form 20-F for the fiscal
year ended March 31, 2005, which is incorporated by reference in this
prospectus. We may not be able to realize the full value of our collateral as a
result of delays in bankruptcy and foreclosure proceedings, defects in the
perfection of collateral, fraudulent transfers by borrowers and other factors.
There can be no assurance that any legislation in this area will have a
favorable impact on our efforts to resolve non-performing assets. See also
"Overview of the Indian Financial Sector - Recent Structural Reforms -
Legislative Framework for Recovery of Debts due to Banks" in our annual report
on Form 20-F for the fiscal year ended March 31, 2005, which is incorporated by
reference in this prospectus. Failure to recover the expected value of
collateral could expose us to potential losses, which could adversely affect
our business, our future financial performance, our stockholders' equity and
the price of our equity shares and ADSs.
We face greater credit risks than banks in developed economies.
Our credit risk is higher because most of our borrowers are based in
India. Unlike several developed economies, a nationwide credit bureau has
become operational in India only recently. This may affect the quality of
information available to us about the credit history of our borrowers,
especially individuals and small businesses. In addition, the credit risk of
our borrowers, particularly small and middle market companies, is higher than
borrowers in more developed economies due to the greater uncertainty in the
Indian regulatory, political, economic and industrial environment and the
difficulties of many of our borrowers to adapt to global technological
advances. Also, several of our borrowers suffered from low profitability
because of increased competition from economic liberalization, a
15
sharp decline in commodity prices, a high debt burden and high interest rates
in the Indian economy at the time of their financing, and other factors. This
may lead to an increase in the level of our impaired loans, there could be an
adverse impact on our business, our future financial performance, our
stockholders' equity and the price of our equity shares and ADSs.
Our funding is primarily short-term and if depositors do not roll over
deposited funds upon maturity, our business could be adversely affected.
Most of our incremental funding requirements, including replacement of
maturing liabilities of ICICI (which generally had longer maturities), are met
through short-term funding sources, primarily in the form of deposits including
inter-bank deposits. Our customer deposits generally have a maturity of less
than one year. However, a large portion of our assets, primarily the assets of
ICICI and our home loan portfolio, have medium or long-term maturities,
creating the potential for funding mismatches. High volumes of deposit
withdrawals or failure of a substantial number of our depositors to roll over
deposited funds upon maturity or to replace deposited funds with fresh
deposits, could have an adverse effect on our liquidity position, our business,
our future financial performance, our stockholders' equity and the price of our
equity shares and ADSs. See also "- Risks Relating to India - Financial
difficulty and other problems in certain financial institutions in India could
adversely affect our business and the price of our equity shares and ADSs."
Regulatory changes or enforcement initiatives in India or any of the
jurisdictions in which we operate may adversely affect our business and
the price of our equity shares and ADSs.
We are subject to a wide variety of banking and financial services laws
and regulations and a large number of regulatory and enforcement authorities in
each of the jurisdictions in which we operate. The laws and regulations or the
regulatory or enforcement environment in any of those jurisdictions may change
at any time and may have an adverse effect on the products or services we
offer, the value of our assets or our business in general. Also, the laws and
regulations governing the banking and financial services industry have become
increasingly complex governing a wide variety of issues, including interest
rates, liquidity, capital adequacy, securitization, investments, ethical
issues, money laundering, privacy, record keeping, and marketing and selling
practices, with sometimes overlapping jurisdictional or enforcement
authorities. In its mid-term review of the annual policy statement for fiscal
2005, the Reserve Bank of India increased the risk weight for the computation
of capital adequacy from 50% to 75% in the case of housing loans and from 100%
to 125% in the case of consumer credit (including personal loans and credit
cards) as a temporary counter-cyclical measure. This had a negative impact of
104 basis points on our capital adequacy ratio at year-end fiscal 2005. In
April 2005, the Reserve Bank of India issued draft guidelines on securitization
of standard assets implemented in their present form would require a
significantly higher level of capital to be maintained for securitized assets
and may have an adverse impact on our business, capital adequacy and financial
performance. In July 2005, the Reserve Bank of India increased the risk weight
for capital market exposure and exposure to commercial real estate from 100% to
125%. In October 2005, the Reserve Bank of India increased the requirement of
general provisioning on standard advances from 25 basis points to 40 basis
points. See "Supervision and Regulation" in our annual report on Form 20-F for
the fiscal year ended March 31, 2005, which is incorporated by reference in
this prospectus. Future changes in laws and regulations and failure or the
apparent failure to address any regulatory changes or enforcement initiatives
could have an adverse impact our business, our future financial performance and
our stockholders' equity, harm our reputation, subject us to penalties, fines,
disciplinary actions or suspensions of any kind, or increase our litigation
risk and have an adverse effect on the price of our equity shares and ADSs.
A determination against us in respect of disputed tax assessments may
adversely impact our financial performance.
We have been assessed a significant amount in additional taxes by the
government of India's tax authorities in excess of our provisions. See
"Business - Legal and Regulatory Proceedings" in our annual report on Form 20-F
for the fiscal year ended March 31, 2005, which is incorporated by reference in
this prospectus. We have appealed all of these demands. While we expect that no
additional liability will arise out of these disputed demands, there can be no
assurance that these matters will be settled in our favor or that no further
liability will arise out of these demands. Any additional tax liability may
adversely impact our financial performance and the price of our equity shares
and ADSs.
16
We are involved in various litigations and any final judgment awarding
material damages against us could have a material adverse impact on our
future financial performance, our stockholders' equity and the price of
our equity shares and ADSs.
We are often involved in litigations for a variety of reasons, which
generally arise because we seek to recover our dues from borrowers or because
customers seek claims against us. The majority of these cases arise in the
normal course and we believe, based on the facts of the cases and consultation
with counsel, that these cases generally do not involve the risk of a material
adverse impact on our financial performance or stockholders' equity. Where we
assess that there is a probable risk of loss, it is our policy to make
provisions for the loss. However, we do not make provisions or disclosures in
our financial statements where our assessment is that the risk is
insignificant. See "Business - Legal and Regulatory Proceedings" in our annual
report on Form 20-F for the fiscal year ended March 31, 2005, which is
incorporated by reference in this prospectus. We cannot guarantee that the
judgments in any of the litigation in which we are involved would be favorable
to us and if our assessment of the risk changes, our view on provisions will
also change.
Our inability to grow further or succeed in retail products and services
may adversely affect our business.
We are a relatively new entrant in the retail loan business and have
achieved significant growth in this sector since the amalgamation. See
"Business - Loan Portfolio" in our annual report on Form 20-F for the fiscal
year ended March 31, 2005, which is incorporated by reference in this
prospectus. While we anticipate continued significant demand in this area, we
cannot assure you that our retail portfolio will continue to grow as expected.
Our inability to grow further or succeed in retail products and services may
adversely affect our business, our future financial performance, our
stockholders' equity and the price of our equity shares and ADSs. See also "-
If we are not able to control or reduce the level of impaired loans in our
portfolio, our business will suffer," "- There is operational risk associated
with our industry which, when realized, may have an adverse impact on our
results" and "- We depend on the accuracy and completeness of information about
customers and counterparties."
Our inability to succeed in our new business areas or to manage the new
challenges and risks that we face, may cause us to miss our projected
earnings and growth targets and may have a material adverse impact on our
future financial performance, our stockholders' equity and the price of
our equity shares and ADSs.
We provide a wide range of insurance products and services through our
subsidiaries ICICI Prudential Life Insurance Company and ICICI Lombard General
Insurance Company. Recently, we have also pursued an international expansion
strategy establishing subsidiaries or opening branches or representative
offices in various countries, including the United Kingdom, Canada, Russia,
Singapore, Bahrain, Hong Kong and the United States. See "Business - Investment
Banking - Insurance" and "Business - Overview of Products and Services -
Commercial Banking for International Customers" in our annual report on Form
20-F for the fiscal year ended March 31, 2005, which is incorporated by
reference in this prospectus. This international expansion strategy exposes us
to a new variety of regulatory and business challenges and risks, including
cross-cultural risk. The skills required for this business could be different
from those required for our Indian business and we may not be able to attract
the required talented professionals. Our inability to manage these new
challenges and risks, our failure to raise the substantial capital required for
our international expansion or our insurance business or any adverse
developments concerning our joint venture partners in the insurance business,
may cause us to miss our projected earnings and growth targets and may have a
material adverse effect on our business, our reputation, our future financial
performance, our stockholders' equity and the price of our equity shares and
ADSs.
We are exposed to fluctuations in foreign exchange rates.
As a financial intermediary we are exposed to exchange rate risk. See
"Business - Risk Management - Quantitative and Qualitative Disclosures About
Market Risk - Exchange Rate Risk" in our annual report on Form 20-F for the
fiscal year ended March 31, 2005, which is incorporated by reference in this
prospectus. Adverse movements and volatility in foreign exchange rates may
adversely affect our borrowers, the quality of our exposure to our borrowers,
our business, our future financial performance, our shareholders' funds and the
price of our equity shares and ADSs.
17
Our business is very competitive and our growth strategy depends on our
ability to compete effectively.
We face intense competition from Indian and foreign commercial banks in
all our products and services. Foreign banks also operate in India through
non-banking finance companies. Further liberalization of the Indian financial
sector, could lead to a greater presence or new entries of foreign banks
offering a wider range of products and services, which would significantly
toughen our competitive environment. In addition, the Indian financial sector
may experience further consolidation, resulting in fewer banks and financial
institutions, some of which may have greater resources than us. The Reserve
Bank of India has announced a roadmap for the presence of foreign banks in
India that would, after a review in 2009, allow foreign banks to acquire up to
74.0% shareholding in an Indian private sector bank. See "Business -
Competition" and "Overview of the Indian Financial Sector - Commercial Banks"
in our annual report on Form 20-F for the fiscal year ended March 31, 2005,
which is incorporated by reference in this prospectus. Due to competitive
pressures, we may be unable to successfully execute our growth strategy and
offer products and services at reasonable returns and this may adversely impact
our business, our future financial performance, our stockholders' equity and
the price of our equity shares and ADSs.
Fraud and significant security breaches in our computer system and network
infrastructure could adversely impact our business.
Our business operations are based on a high volume of transactions.
Although we take adequate measures to safeguard against system-related and
other fraud, there can be no assurance that we would be able to prevent fraud.
Our reputation could be adversely affected by fraud committed by employees,
customers or outsiders. Physical or electronic break-ins, security breaches,
other disruptive problems caused by our increased use of the Internet or power
disruptions could also affect the security of information stored in and
transmitted through our computer systems and network infrastructure. Although
we have implemented security technology and operational procedures to prevent
such occurrences, there can be no assurance that these security measures will
be successful. A significant failure in security measures could have a material
adverse effect on our business, our future financial performance and the price
of our equity shares and ADSs.
System failures could adversely impact our business.
Given the increasing share of retail products and services and transaction
banking services in our total business, the importance of systems technology to
our business has increased significantly. Our principal delivery channels
include ATMs, call centers and the Internet. Any failure in our systems,
particularly for retail products and services and transaction banking, could
significantly affect our operations and the quality of customer service and
could result in business and financial losses and adversely affect the price of
our equity shares and ADSs.
There is operational risk associated with our industry which, when
realized, may have an adverse impact on our results.
We, like all financial institutions, are exposed to many types of
operational risk, including the risk of fraud or other misconduct by employees
or outsiders, unauthorized transactions by employees or operational errors,
including clerical or recordkeeping errors or errors resulting from faulty
computer or telecommunications systems. We use direct marketing associates for
marketing our retail credit products. We also outsource some functions to other
agencies. Given our high volume of transactions, certain errors may be repeated
or compounded before they are discovered and successfully rectified. In
addition, our dependence upon automated systems to record and process
transactions may further increase the risk that technical system flaws or
employee tampering or manipulation of those systems will result in losses that
are difficult to detect. We may also be subject to disruptions of our operating
systems, arising from events that are wholly or partially beyond our control
(including, for example, computer viruses or electrical or telecommunication
outages), which may give rise to a deterioration in customer service and to
loss or liability to us. We are further exposed to the risk that external
vendors may be unable to fulfill their contractual obligations to us (or will
be subject to the same risk of fraud or operational errors by their respective
employees as are we), and to the risk that its (or its vendors') business
continuity and data security systems prove not to be sufficiently adequate. We
also face the risk that the design of our controls and procedures prove
inadequate, or are circumvented, thereby causing delays in detection or errors
in information. Although we maintain a system of controls designed to keep
operational risk at appropriate levels, like all banks we have suffered losses
from operational risk and there can be no assurance that we will not suffer
losses from operational risks in the future
18
that may be material in amount. For a discussion of how operational risk is
managed see "Business - Risk Management - Operational Risk" in our annual
report on Form 20-F for the fiscal year ended March 31, 2005, which is
incorporated by reference in this prospectus.
We are subject to credit, market and liquidity risk which may have an
adverse effect on our credit ratings and our cost of funds.
To the extent any of the instruments and strategies we use to hedge or
otherwise manage our exposure to market or credit risk are not effective, we
may not be able to mitigate effectively our risk exposures in particular market
environments or against particular types of risk. Our balance sheet growth will
be dependent upon economic conditions, as well as upon our determination to
securitize, sell, purchase or syndicate particular loans or loan portfolios.
Our trading revenues and interest rate risk are dependent upon our ability to
properly identify, and mark to market, changes in the value of financial
instruments caused by changes in market prices or rates. Our earnings are
dependent upon the effectiveness of our management of migrations in credit
quality and risk concentrations, the accuracy of our valuation models and our
critical accounting estimates and the adequacy of our allowances for loan
losses. To the extent our assessments, assumptions or estimates prove
inaccurate or not predictive of actual results, we could suffer higher than
anticipated losses. See also "- Further deterioration of our impaired loan
portfolio and an inability to improve our allowance for loan losses as a
percentage of impaired loans, could adversely affect the price of our equity
shares and ADSs." The successful management of credit, market and operational
risk is an important consideration in managing our liquidity risk because it
affects the evaluation of our credit ratings by rating agencies. Rating
agencies may reduce or indicate their intention to reduce the ratings at any
time. See also "-Any downgrading of India's debt rating by an international
rating agency could adversely affect our business and the price of our equity
shares and ADSs." The rating agencies can also decide to withdraw their ratings
altogether, which may have the same effect as a reduction in our ratings. Any
reduction in our ratings may increase our borrowing costs, limit our access to
capital markets and adversely affect our ability to sell or market our
products, engage in business transactions, particularly longer-term and
derivatives transactions, or retain our customers. This, in turn, could reduce
our liquidity and negatively impact our operating results and financial
condition. For more information relating to our ratings, see "Operating and
Financial Review and Prospects - Liquidity Risk" in our annual report on Form
20-F for the fiscal year ended March 31, 2005, which is incorporated by
reference in this prospectus.
We depend on the accuracy and completeness of information about customers
and counterparties.
In deciding whether to extend credit or enter into other transactions with
customers and counterparties, we may rely on information furnished to us by or
on behalf of customers and counterparties, including financial statements and
other financial information. We may also rely on certain representations as to
the accuracy and completeness of that information and, with respect to
financial statements, on reports of independent auditors. For example, in
deciding whether to extend credit, we may assume that a customer's audited
financial statements conform with generally accepted accounting principles and
present fairly, in all material respects, the financial condition, results of
operations and cash flows of the customer. Our financial condition and results
of operations could be negatively affected by relying on financial statements
that do not comply with generally accepted accounting principles or other
information that is materially misleading.
Any inability to attract and retain talented professionals may adversely
impact our business.
Attracting and retaining talented professionals is a key element of our
strategy and we believe it to be a significant source of competitive advantage.
See "Business - Employees" in our annual report on Form 20-F for the fiscal
year ended March 31, 2005, which is incorporated by reference in this
prospectus. Our inability to attract and retain talented professionals or the
loss of key management personnel could have an adverse impact on our business,
our future financial performance and the price of our equity shares and ADSs.
19
Risks Relating to the ADSs and Equity Shares
You will not be able to vote your ADSs and your ability to withdraw equity
shares from the depositary facility is uncertain and may be subject to
delays.
Our ADS holders have no voting rights unlike holders of our equity shares
who have voting rights. For certain information regarding the voting rights of
the equity shares underlying your ADSs, see "Business - Shareholding Structure
and Relationship with the Government of India" in our annual report on Form
20-F for the fiscal year ended March 31, 2005, which is incorporated by
reference in this prospectus. If you wish, you may withdraw the equity shares
underlying your ADSs and seek to vote the equity shares you obtain from the
withdrawal. However, for foreign investors, this withdrawal process may be
subject to delays and is subject to a cap of 49% on the total shareholding of
foreign institutional investors and non-resident Indians in us. For a
discussion of the legal restrictions triggered by a withdrawal of the equity
shares from the depositary facility upon surrender of ADSs, see "Restriction on
Foreign Ownership of Indian Securities."
US investors will be subject to special tax rules, including the possible
imposition of interest charges, if we are considered to be a passive
foreign investment company.
Based upon certain proposed US Treasury regulations which are proposed to
be effective for taxable years beginning after December 31, 1994 and upon
certain management estimates, we do not expect to be a Passive Foreign
Investment Company (a "PFIC"). However, since there can be no assurance that
such proposed Treasury regulations will be finalized in their current form, and
since the composition of our income and assets will vary over time, there can
be no assurance that we will not be considered a PFIC for any taxable year. If
we are a PFIC for any taxable year during which a US investor holds any of our
equity shares or ADSs, the US investor would be subject to special adverse tax
rules, including the possible imposition of interest charges (see "Taxation -
United States Tax - Passive Foreign Investment Company Rules."
Your ability to sell in India any equity shares withdrawn from the
depositary facility, the conversion of rupee proceeds from such sale into
a foreign currency and the repatriation of such foreign currency may be
subject to delays if specific approval of the Reserve Bank of India is
required.
ADS holders seeking to sell in India any equity shares withdrawn upon
surrender of ADSs, convert the rupee proceeds from such sale into a foreign
currency or repatriate such foreign currency may need the Reserve Bank of
India's approval for each such transaction. See "Restriction on Foreign
Ownership of Indian Securities." We cannot guarantee that any such approval
will be obtained in a timely manner or at terms favorable to the investor.
Because of possible delays in obtaining the requisite approvals, investors in
equity shares may be prevented from realizing gains during periods of price
increases or limiting losses during periods of price declines.
Restrictions on deposit of equity shares in the depositary facility could
adversely affect the price of our ADSs.
Under current Indian regulations, an ADS holder who surrenders ADSs and
withdraws equity shares may deposit those equity shares again in the depositary
facility in exchange for ADSs. An investor who has purchased equity shares in
the Indian market may also deposit those equity shares in the ADS program.
However, the deposit of equity shares may be subject to securities law
restrictions and the restriction that the cumulative aggregate number of equity
shares that can be deposited as of any time cannot exceed the cumulative
aggregate number represented by ADSs converted into underlying equity shares as
of such time. These restrictions increase the risk that the market price of our
ADSs will be below that of the equity shares.
Certain shareholders own a large percentage of our equity shares and their
actions could adversely affect the price of our equity shares and ADSs.
Life Insurance Corporation of India and General Insurance Corporation of
India, each of which is directly or indirectly controlled by the Indian
government, are among our principal shareholders. Our other large shareholders
include Allamanda Investments Pte. Limited, a subsidiary of Temasek Holdings
(Private) Limited, the government of Singapore, HWIC Asia Fund, an affiliate of
Fairfax Financial Holdings Limited, and Bajaj Auto Limited, an Indian private
sector company. See "Business - Shareholding Structure and Relationship with
the Government of India" in our annual report on Form 20-F for the fiscal year
ended March 31, 2005, which is incorporated by
20
reference in this prospectus. Any substantial sale of our equity shares by
these or other large shareholders could adversely affect the price of our
equity shares and ADSs.
Conditions in the Indian securities market may adversely affect the price
or liquidity of our equity shares and ADSs.
The Indian securities markets are smaller and more volatile than
securities markets in developed economies. In the past, the Indian stock
exchanges have experienced high volatility and other problems that have
affected the market price and liquidity of the listed securities, including
temporary exchange closures, broker defaults, settlement delays and strikes by
brokers. In March 1995, the Bombay Stock Exchange Limited, or the BSE, was
closed for three days following a default by a broker. In March 2001, the BSE
dropped 667 points or 15.6% and there were also rumors of insider trading in
the BSE leading to the resignation of the BSE president and several other
members of the governing board. In the same month, the Kolkata Stock Exchange
suffered a payment crisis when several brokers defaulted and the exchange
invoked guarantees provided by various Indian banks. In April 2003, the decline
in the price of the equity shares of a leading Indian software company created
volatility in the Indian stock markets and created temporary concerns regarding
our exposure to the equity markets. On May 17, 2004, the BSE Sensex fell by 565
points from 5,070 to 4,505, creating temporary concerns regarding our exposure
to the equity markets. Both the BSE and the National Stock Exchange, or the
NSE, halted trading on the exchanges on May 17, 2004 in view of the sharp fall
in prices of securities. The Indian securities markets have experienced rapid
appreciation over the past few months and relatively higher volatility
recently. In addition, the governing bodies of the Indian stock exchanges have
from time to time imposed restrictions on trading in certain securities,
limitations on price movements and margin requirements. Further, from time to
time, disputes have arisen between listed companies and stock exchanges and
other regulatory bodies, which in some cases had a negative effect on market
sentiment. In recent years, there have been changes in laws and regulations for
the taxation of dividend income, which have impacted the Indian equity capital
markets. See "Dividends" in our annual report on Form 20-F for the fiscal year
ended March 31, 2005, which is incorporated by reference in this prospectus.
Similar problems or changes in the future could adversely affect the market
price and liquidity of our equity shares and ADSs.
An active or liquid trading market for our ADSs is not assured.
Although our ADSs are listed and traded on the New York Stock Exchange, we
cannot be certain that an active, liquid market for our ADSs will be sustained.
Indian legal restrictions may limit the supply of ADSs and a loss of liquidity
could increase the price volatility of our ADSs.
Settlement of trades of equity shares on Indian stock exchanges may be
subject to delays.
The equity shares represented by the ADSs are currently listed on the BSE
and the NSE. Settlement on those stock exchanges may be subject to delays and
an investor in equity shares withdrawn from the depositary facility upon
surrender of ADSs may not be able to settle trades on such stock exchanges in a
timely manner.
Changes in Indian regulations on foreign ownership, a change in investor
preferences or an increase in the number of ADSs outstanding could
adversely affect the price of our ADSs.
ADSs issued by companies in certain emerging markets, including India, may
trade at a discount or a premium to the underlying equity shares, in part
because of the restrictions on foreign ownership of the underlying equity
shares. See "Restriction on Foreign Ownership of Indian Securities."
Historically, our ADSs have generally traded at a premium to the trading price
of our underlying equity shares on the Indian stock exchanges, see "Market
Price Information." We believe that this price premium resulted from the
limited portion of our market capitalization represented by ADSs, restrictions
imposed by Indian law on the conversion of equity shares into ADSs and an
apparent preference for some investors to trade dollar-denominated securities.
In fiscal 2005, we sponsored an offering of ADSs by our shareholders which
increased the number of outstanding ADSs and we may conduct similar offerings
in the future. Also, over time, some of the restrictions on the issuance of
ADSs imposed by Indian law have been relaxed and other restrictions may also be
relaxed in the future though the timing is uncertain. As a result, any premium
enjoyed by the ADSs as compared to the equity shares may be reduced or
eliminated as a result of offerings made or sponsored by us, changes in Indian
law permitting further conversion of equity shares into ADSs or a change in
investor preferences.
21
Your holdings may be diluted by additional issuances of equity and any
dilution may adversely affect the market price of our equity shares and
ADSs.
We may conduct additional equity offerings to fund the growth of our
business, including our international operations, our insurance business or our
other subsidiaries. Any future issuance of equity shares would dilute the
positions of investors in equity shares and ADSs and could adversely affect the
market price of our equity shares and ADSs.
You may be unable to exercise preemptive rights available to other
shareholders.
A company incorporated in India must offer its holders of equity shares
preemptive rights to subscribe and pay for a proportionate number of shares to
maintain their existing ownership percentages prior to the issuance of any new
equity shares, unless these rights have been waived by at least 75.0% of the
company's shareholders present and voting at a shareholders' general meeting.
US investors in ADSs may be unable to exercise these preemptive rights for
equity shares underlying ADSs unless a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") is effective with
respect to such rights or an exemption from the registration requirements of
the Securities Act is available. Our decision to file a registration statement
will depend on the costs and potential liabilities associated with any such
registration as well as the perceived benefits of enabling US investors in ADSs
to exercise their preemptive rights and any other factors we consider
appropriate at such time. To the extent that investors in ADSs are unable to
exercise preemptive rights, their proportional ownership interests in us would
be reduced.
Because the equity shares underlying the ADSs are quoted in rupees in
India, you may be subject to potential losses arising out of exchange rate
risk on the Indian rupee.
Investors who purchase ADSs are required to pay for the ADSs in US dollars
and are subject to currency fluctuation risk and convertibility risks since the
equity shares underlying the ADSs are quoted in rupees on the Indian stock
exchanges on which they are listed. Dividends on the equity shares will also be
paid in rupees and then converted into US dollars for distribution to ADS
investors. Investors who seek to convert the rupee proceeds of a sale of equity
shares withdrawn upon surrender of ADSs into foreign currency and repatriate
the foreign currency may need to obtain the approval of the Reserve Bank of
India for each such transaction. See also "- Your ability to sell in India any
equity shares withdrawn from the depositary facility, the conversion of the
rupee proceeds from such sale into a foreign currency and the repatriation of
such foreign currency may be subject to delays if specific approval of the
Reserve Bank of India is required." and "Exchange Rates."
You may be subject to Indian taxes arising out of capital gains.
Generally, capital gains, whether short-term or long-term, arising on the
sale of the underlying equity shares in India are subject to Indian capital
gains tax. Investors are advised to consult their own tax advisers and to
carefully consider the potential tax consequences of an investment in the ADSs.
See "Taxation - Indian Tax."
There may be less company information available in Indian securities
markets than in securities markets in the United States.
There is a difference between India and the United States in the level of
regulation and monitoring of the securities markets and the activities of
investors, brokers and other market participants. The Securities and Exchange
Board of India is responsible for improving disclosure and regulating insider
trading and other matters for the Indian securities markets. There may,
however, be less publicly available information about Indian companies than is
regularly made available by public companies in the United States.
22
FORWARD-LOOKING STATEMENTS
We have included statements in this prospectus or documents incorporated by
reference herein which contain words or phrases such as "will", "would", "aim",
"aimed", "will likely result", "is likely", "are likely", "believe", "expect",
"expected to", "will continue", "will achieve", "anticipate", "estimate",
"estimating", "intend", "plan", "contemplate", "seek to", "seeking to", "trying
to", "target", "propose to", "future", "objective", "goal", "project", "should",
"can", "could", "may", "will pursue", "our judgment" and similar expressions or
variations of such expressions, that are "forward-looking statements." These
statements are intended as "Forward-Looking Statements" under the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those suggested by the forward-looking statements due to certain risks or
uncertainties associated with our expectations with respect to, but not limited
to, the actual growth in demand for banking and other financial products and
services, our ability to successfully implement our strategy, including our use
of the Internet and other technology, our ability to integrate recent or future
mergers or acquisitions into our operations, future levels of impaired loans,
our growth and expansion in domestic and overseas markets, the adequacy of our
allowance for credit and investment losses, technological changes, investment
income, our ability to market new products, cash flow projections, the outcome
of any legal or regulatory proceedings we are or become a party to, the future
impact of new accounting standards, our ability to implement our dividend
policy, the impact of Indian banking regulations on us, which includes the
assets and liabilities of ICICI, a former financial institution not subject to
Indian banking regulations, our ability to roll over our short-term funding
sources and our exposure to market risks. By their nature, certain of the market
risk disclosures are only estimates and could be materially different from what
actually occurs in the future. As a result, actual future gains, losses or
impact on net interest income and net income could materially differ from those
that have been estimated.
In addition, other factors that could cause actual results to differ
materially from those estimated by the forward-looking statements contained in
this offering memorandum include, but are not limited to, the monetary and
interest rate policies of India and the other markets in which we operate,
natural calamities, general economic, financial or political conditions,
instability or uncertainty in India, southeast Asia, or any other country which
have a direct or indirect impact on our business activities or investments,
caused by any factor including terrorist attacks in India, the United States or
elsewhere, anti-terrorist or other attacks by the United States, a United
States-led coalition or any other country, tensions between India and Pakistan
related to the Kashmir region, military armament or social unrest in any part of
India, inflation, deflation, unanticipated turbulence in interest rates, changes
or volatility in the value of the rupee, foreign exchange rates, equity prices
or other market rates or prices, the performance of the financial markets in
general, changes in domestic and foreign laws, regulations and taxes, changes in
the competitive and pricing environment in India, and general or regional
changes in asset valuations. For a further discussion on the factors that could
cause actual results to differ, see the discussion under "Risk Factors" included
or incorporated by reference in this prospectus. The forward-looking statements
made in this prospectus speak only as of the date of this prospectus. We do not
intend to publicly update or revise these forward-looking statements to reflect
events or circumstances after the date of this prospectus, and we do not assume
any responsibility to do so.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
ICICI Bank is a limited liability company under the laws of India.
Substantially all of our directors and executive officers and certain experts
named in this prospectus reside outside the United States, and a substantial
portion of our assets and the assets of such persons are located outside the
United States. As a result, it may be difficult for investors to effect service
of process upon such persons within the United States or to enforce against us
or such persons in US courts judgments obtained in US courts, including
judgments predicated upon the civil liability provisions of the federal
securities laws of the United States.
India is not a party to any international treaty in relation to the
recognition or enforcement of foreign judgments. We have been advised by our
Indian legal counsel, Amarchand & Mangaldas & Suresh A. Shroff & Co., that in
India the statutory basis for recognition of foreign judgments is found in
Section 13 of the Indian Code of Civil Procedure 1908, or the Civil Code, which
provides that a foreign judgment shall be conclusive as to any matter
23
directly adjudicated upon except: (i) where the judgment has not been
pronounced by a court of competent jurisdiction; (ii) where the judgment has
not been given on the merits of the case; (iii) where the judgment appears on
the face of the proceedings to be founded on an incorrect view of international
law or a refusal to recognize the law of India in cases where such law is
applicable; (iv) where the proceedings in which the judgment was obtained were
opposed to natural justice; (v) where the judgment has been obtained by fraud;
or (vi) where the judgment sustains a claim founded on a breach of any law in
force in India. Section 44A of the Civil Code provides that where a foreign
judgment has been rendered by a court in any country or territory outside India
which the government of India has by notification declared to be a
reciprocating territory, it may be enforced in India by proceedings in
execution as if the judgment had been rendered by the relevant court in India.
The United States has not been declared by the government of India to be a
reciprocating territory for purposes of Section 44A. Accordingly, a judgment of
a court in the United States may be enforced in India only by a suit upon the
judgment, not by proceedings in execution. The suit must be brought in India
within three years from the date of the judgment in the same manner as any
other suit filed to enforce a civil liability in India. It is unlikely that a
court in India would award damages on the same basis as a foreign court if an
action is brought in India. Furthermore, it is unlikely that an Indian court
would enforce foreign judgments if it viewed the amount of damages awarded as
excessive or inconsistent with Indian practice. A party seeking to enforce a
foreign judgment in India is required to obtain approval from the Reserve Bank
of India under the Foreign Exchange Management Act, 1999 to execute such a
judgment or to repatriate any amount recovered. We have also been advised by
our Indian counsel that a party may file suit in India against us, our
directors or our executive officers as an original action predicated upon the
provisions of the federal securities laws of the United States.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We will furnish to you, through the depositary, English language versions
of any reports, notices and other communications that we generally transmit to
holders of our equity shares. The principal executive office of Deutsche Bank
Trust Company Americas, the depositary, is located at 60 Wall Street, New York,
New York 10005.
We are subject to the registration requirements of the Securities Exchange
Act of 1934, as amended, and, in accordance with this act, we file annual
reports and other information with the SEC. You may read and copy any of this
information in the SEC's Public Reference Room, 100 F Street, NE, Room 2521,
Washington, D.C. 20549. You may also obtain copies of this information by mail
from the Public Reference Section of the SEC, 100 F Street, NE, Room 2521,
Washington, D.C. 20549, at prescribed rates. You can obtain information on the
operation of the SEC's Public Reference Room in Washington, D.C. by calling the
SEC at 1-800-SEC-0330.
The SEC also maintains an Internet web-site that contains reports, proxy
statements and other information about issuers, like us, that file
electronically with the SEC. The address of that site is http://www.sec.gov.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them. This means that we can disclose important information to you by
referring you to those documents. Each document incorporated by reference is
current only as of the date of such document, and the incorporation by reference
of such documents shall not create any implication that there has been no change
in our affairs since the date thereof or that the information contained therein
is current as of any time subsequent to its date. The information incorporated
by reference is considered to be a part of this prospectus and should be read
with the same care. When we update the information contained in documents that
have been incorporated by reference by making future filings with the SEC,
the information incorporated by reference in this prospectus is considered to be
automatically updated and superseded. In other words, in the case of a conflict
or inconsistency between information contained in this prospectus and
information incorporated by reference into this prospectus, you should rely on
the information contained in the document that was filed later.
24
We incorporate by reference the documents listed below:
o The sections "Description of Equity Shares" and "Description of the
American Depositary Shares" of the Preliminary Prospectus contained in
our registration statement on Form F-1 filed on March 27, 2000 (File
No. 333-30132);
o Our annual report on Form 20-F for the fiscal year ended March 31,
2005 filed on September 30, 2005; and
o All reports on Form 20-F and any report on Form 6-K that so indicates
it is being incorporated by reference, in each case, that we file with
the Securities and Exchange Commission on or after the date on which
the registration statement is first filed with the Securities and
Exchange Commission and until the termination or completion of the
offering of the offered ADSs.
Our annual report on Form 20-F for the fiscal year ended March 31, 2005
contains a description of our business and audited consolidated financial
statements with a report by our independent auditors. These financial
statements and our unaudited consolidated financial statements for the six
months ended September 30, 2005 and September 30, 2004 are prepared in
accordance with generally accepted accounting principles applicable in the
United States, or US GAAP.
Copies of all documents incorporated by reference in this prospectus, other
than exhibits to those documents unless such exhibits are specially incorporated
by reference in this prospectus, will be provided at no cost to each person,
including any beneficial owner, who receives a copy of this prospectus on the
written or oral request of that person made to:
Mr. Rakesh Jha or Mr. Anindya Banerjee
ICICI Bank Limited
ICICI Bank Towers
Bandra-Kurla Complex
Mumbai 400051
India
Tel. No.: 011-91-22-2653-6157
Tel. No.: 011-91-22-2653-7131
You should rely only on the information that we incorporate by reference or
provide in this prospectus. We have not authorized anyone to provide you with
different information. We are not making any offer of these securities in any
jurisdiction where the offer is not permitted. You should not assume that the
information in this prospectus is accurate as of any date other than the date on
the front of those documents.
25
USE OF PROCEEDS
We intend to use the net proceeds of this offering for future asset growth
and compliance with regulatory requirements. The objects of the offering are to
augment our capital base to meet the capital requirements arising out of growth
in our assets, primarily our loan and investment portfolio due to the growth of
the Indian economy, compliance with regulatory requirements and for other
general corporate purposes including meeting the expenses of the ADS offering.
MARKET PRICE INFORMATION
Equity Shares
Our outstanding equity shares are currently listed and traded on the
Bombay Stock Exchange Limited or the BSE and on the National Stock Exchange of
India Limited or the NSE. For information regarding conditions in the Indian
securities markets, see "Risk Factors--Risks Relating to India."
At November 4, 2005, 741 million equity shares were outstanding. The prices
for equity shares as quoted in the official list of each of the Indian stock
exchanges are in Indian rupees.
The following table shows:
o the reported high and low closing prices quoted in rupees for our
equity shares on the NSE; and
o the reported high and low closing prices for our equity shares,
translated into US dollars, based on the noon buying rate on the
last business day of each period presented.
Price per equity share(1)
-------------------------------------------
High Low High Low
---------- ---------- ---------- ----------
Annual prices:
Fiscal 2001..........................Rs. 247.45 Rs. 109.20 US$ 5.28 US$ 2.33
Fiscal 2002 ......................... 188.35 67.95 3.86 1.39
Fiscal 2003 ......................... 161.75 110.55 3.40 2.32
Fiscal 2004 ......................... 348.25 120.80 8.02 2.78
Fiscal 2005.......................... 413.05 230.40 9.47 5.28
Quarterly prices:
Fiscal 2004:
First Quarter........................ 150.15 120.80 3.24 2.60
Second Quarter....................... 204.50 145.10 4.47 3.17
Third Quarter........................ 302.20 204.40 6.63 4.49
Fourth Quarter....................... 348.25 267.75 8.02 6.17
Fiscal 2005:
First Quarter........................ 319.35 230.40 6.94 5.01
Second Quarter....................... 295.35 234.40 6.43 5.10
Third Quarter........................ 374.00 285.35 8.64 6.59
Fourth Quarter....................... 413.05 337.50 9.47 7.74
Fiscal 2006:
First Quarter........................ 433.95 359.95 9.97 8.27
Second Quarter....................... 601.70 421.25 13.69 9.59
Third Quarter
(through November 23, 2005)........ 593.40 479.90 12.98 10.50
Monthly prices:
May 2005............................. 402.55 360.35 9.23 8.26
June 2005............................ 433.95 392.15 9.97 9.01
July 2005............................ 534.45 421.25 12.31 9.71
August 2005 ......................... 538.40 467.95 12.24 10.64
September 2005....................... 601.70 481.50 13.69 10.96
26
Price per equity share(1)
-------------------------------------------
High Low High Low
---------- ---------- ---------- ----------
October 2005......................... 593.40 479.90 13.16 10.64
November 2005
(through November 23, 2005)........ 545.40 498.65 11.93 10.91
--------------------
(1) Data from the NSE. The prices quoted on the BSE and other stock exchanges
may be different.
At November 23, 2005, the closing price of equity shares on the NSE was
Rs. 527.90 equivalent to US$ 11.55 per equity share (US$ 23.09 per ADS on an
imputed basis) translated at the noon buying rate of Rs. 45.71 per US$ 1.00 on
November 23, 2005.
At November 4, 2005, there were approximately 411,594 holders of record of
equity shares, of which 111 had registered addresses in the United States and
held an aggregate of approximately 101,503 equity shares.
ADSs
Our ADSs, each representing two equity shares, were originally issued in
March 2000 in a public offering and are listed and traded on the New York Stock
Exchange under the symbol IBN. The equity shares underlying the ADSs are
currently listed on the Bombay Stock Exchange Limited and the National Stock
Exchange of India Limited.
At October 31, 2005, we had approximately 101 million ADSs, equivalent to
201 million equity shares, outstanding. At this date, there were 101 record
holders of our ADSs, all of which have registered addresses in the United
States.
The following table sets forth, for the periods indicated, the reported
high and low closing prices on the New York Stock Exchange for our outstanding
ADSs traded under the symbol IBN.
Price per ADS
-------------------------
High Low
----------- ----------
Annual prices:
Fiscal 2001.......................................... US$ 17.63 US$ 4.75
Fiscal 2002.......................................... 7.50 2.70
Fiscal 2003.......................................... 8.26 4.84
Fiscal 2004.......................................... 18.33 5.27
Fiscal 2005.......................................... 22.65 11.25
Quarterly prices:
Fiscal 2004:
First Quarter........................................ 7.27 5.27
Second Quarter....................................... 10.56 7.23
Third Quarter........................................ 17.91 10.90
Fourth Quarter....................................... 18.33 13.50
Fiscal 2005:
First Quarter........................................ 17.25 11.57
Second Quarter....................................... 13.91 11.25
Third Quarter........................................ 20.45 13.76
Fourth Quarter....................................... 22.65 18.27
Fiscal 2006:
First Quarter........................................ 22.23 18.08
Second Quarter....................................... 28.25 22.00
Third Quarter (through November 23, 2005)............ 27.78 22.04
27
Price per ADS
-------------------------
High Low
----------- ----------
Monthly prices:
May 2005............................................. 20.21 18.50
June 2005............................................ 22.23 19.80
July 2005............................................ 26.41 22.00
August 2005.......................................... 25.65 22.77
September 2005....................................... 28.25 23.35
October 2005......................................... 27.78 22.04
November 2005 (through November 23, 2005)............ 25.67 23.59
28
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2005
prepared in accordance with US GAAP in Indian rupees and, for convenience, in
US dollars:
As of September 30, 2005 As of September 30, 2005
------------------------ ------------------------
(Rupees in (US dollars (Rupees in (US dollars
millions) in millions) millions) in millions)
(Actual) (As adjusted)
Indebtedness:
Short-term liabilities(1)
Deposits ........................................... 751,675 17,107 751,675 17,107
Short-term borrowings .............................. 131,197 2,986 131,197 2,986
Long-term debt maturing within one year ............ 93,666 2,132 93,666 2,132
--------- ------ --------- ------
Total short-term liabilities........................... 976,538 22,225 976,538 22,225
--------- ------ --------- ------
Long-term liabilities:
Deposits ........................................... 474,788 10,805 474,788 10,805
Long-term debt, net of current maturities .......... 263,777 6,003 263,777 6,003
Total long-term liabilities............................ 738,565 16,808 738,565 16,808
--------- ------ --------- ------
Total indebtedness..................................... 1,715,103 39,033 1,715,103 39,033
--------- ------ --------- ------
Stockholders' equity:
Common stock(2)..................................... 7,409 169
Additional paid-in capital.......................... 98,027 2,231
Retained earnings................................... 21,137 481 21,137 481
Deferred compensation costs (41) (1) (41) (1)
Other comprehensive income(3)....................... 4,584 104 4,584 104
--------- ------ --------- ------
Total stockholders' equity............................. 131,116 2,984
--------- ------ --------- ------
Total capitalization................................... 1,846,219 42,017
--------- ------ --------- ------
--------------------
(1) Short-term liabilities have residual maturity of less than one year while
long-term liabilities have residual maturity of one year and more.
(2) Common stock at Rs. 10 par value; 1,000,000,000 shares authorized as of
September 30, 2005; 740,881,117 shares issued and outstanding as of
September 30, 2005.
(3) Represents unrealized gains and losses on marketable equity securities and
debt securities available for sale.
29
EXCHANGE RATES
Fluctuations in the exchange rate between the Indian rupee and the US
dollar will affect the US dollar equivalent of the Indian rupee price of the
equity shares on the Indian stock exchanges and, as a result, will affect the
market price of our ADSs in the United States. These fluctuations will also
affect the conversion into US dollars by the depositary of any cash dividends
paid in Indian rupees on our equity shares represented by ADSs.
During fiscal 2006 (through November 23, 2005), the rupee has depreciated
against the dollar by 4.7%. The following table sets forth, for the periods
indicated, certain information concerning the exchange rates between Indian
rupees and US dollars based on the noon buying rate.
Fiscal Year Period End(1) Average(1)(2)
----------------------------------------------- ------------- -------------
2000........................................... 43.65 43.46
2001........................................... 46.85 45.88
2002........................................... 48.83 47.80
2003........................................... 47.53 48.43
2004........................................... 43.40 45.78
2005........................................... 43.62 44.87
2006 (through November 23, 2005)............... 45.71 44.09
Month High Low
May 2005....................................... 43.62 43.21
June 2005 ..................................... 43.71 43.44
July 2005...................................... 43.59 43.05
August 2005 ................................... 44.00 43.3
September 2005 ................................ 43.98 43.75
October 2005 .................................. 45.11 44.00
November 2005 (through November 23, 2005)...... 45.78 45.02
--------------------
(1) The noon buying rate at each period end and the average rate for each
period differed from the exchange rates used in the preparation of our
financial statements.
(2) Represents the average of the noon buying rate on the last day of each
month during the period.
See also the section "Exchange Rates" in our annual report on Form 20-F for
the fiscal year ended March 31, 2005 which is incorporated by reference into
this prospectus.
30
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth our summary financial and operating data on
a consolidated basis. The summary data for fiscal 2003, fiscal 2004 and fiscal
2005 have been derived from our audited consolidated financial statements as of
the end of and for each of these years prepared in accordance with US GAAP, and
included in our annual report on Form 20-F for the fiscal year ended March 31,
2005, which is incorporated by reference in this prospectus. The summary data
for ICICI for fiscal 2001 and fiscal 2002 have been derived from the audited
consolidated financial statements of ICICI as of the end of and for each of
these fiscal years prepared in accordance with US GAAP. The summary data for
the six-month periods ended September 30, 2004 and September 30, 2005 have been
derived from our interim unaudited condensed consolidated financial statements,
prepared in accordance with US GAAP, and included in this prospectus. Our
consolidated financial statements for the six-month periods ended September 30,
2004 and September 30, 2005 include our unaudited condensed consolidated
statements of operations, unaudited condensed consolidated statements of cash
flows and unaudited condensed consolidated statements of stockholders' equity
and other comprehensive income.
You should be aware that the financial statements of ICICI Bank included
in the prospectus used for the Indian public offering were prepared for the
domestic Indian market on an unconsolidated basis and presented in accordance
with Indian GAAP, the Indian Companies Act, 1956 and SEBI Guidelines. Indian
GAAP differs significantly from US GAAP.
You should read the following data with the more detailed information
contained in "Operating and Financial Review and Prospects" included elsewhere
in this prospectus and our consolidated financial statements and the related
notes included elsewhere and incorporated by reference in this prospectus.
Historical results do not necessarily predict the results in the future. Certain
reclassifications in the following table have been made in the financial
statements of prior years to conform to classifications used in the current
year. These changes have no impact on previously reported results of operations
or stockholders' equity.
Six months ended
Year ended March 31, September 30,
--------------------------------------------------------- ---------------------------------
2001 2002 2003 2004 2005 2004 2005 2005(1)
--------- --------- --------- --------- --------- --------- --------- ---------
(Unaudited)
(in millions, except per common share data)
Selected income statement data:
Interest income (including
dividends)............... Rs.80,104 Rs.78,867 Rs.98,103 Rs.91,119 Rs.92,260 Rs.42,521 Rs.59,537 US$ 1,355
Interest expense............ (67,893) (69,520) (83,208) (72,375) (68,409) (32,561) (46,164) (1,051)
--------- --------- --------- --------- --------- --------- --------- ---------
Net interest income......... 12,211 9,347 14,895 18,744 23,851 9,960 13,373 304
Provisions for loan losses.. (9,892) (9,743) (19,649) (20,055) (14,677) (4,379) (5,795) (132)
------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Net interest income/(loss),
after provisions for
loan losses.............. 2,319 (396) (4,754) (1,311) 9,174 5,581 7,578 172
Non-interest income......... 9,243 8,148 13,253 36,678 34,645 13,772 25,095 572
--------- --------- --------- --------- --------- --------- --------- ---------
Net revenue................. 11,562 7,752 8,499 35,367 43,819 19,353 32,673 744
Non-interest expense........ (5,479) (7,596) (18,609) (27,101) (33,089) (15,035) (20,849) (475)
------------------------- --------- --------- --------- --------- --------- --------- --------- ---------
Equity in earnings/(loss)
of affiliates............ 735 294 (958) (1,437) (577) (670) (541) (12)
Minority interest........... 1 83 24 28 14 4 (31) (1)
--------- --------- --------- --------- --------- --------- --------- ---------
Income/(loss) before income
taxes and cumulative
effect of accounting
changes.................. 6,819 533 (11,044) 6,857 10,167 3,652 11,252 256
Income tax (expense)/benefit (189) (251) 3,061 (1,638) (1,637) (874) (3,522) (80)
--------- --------- --------- --------- --------- --------- --------- ---------
Income /(loss) before
cumulative effect of
accounting changes, net
of tax................... 6,630 282 (7,983) 5,219 8,530 2,778 7,730 176
Cumulative effect of
accounting changes, net
of tax(2)................ - 1,265 - - - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Net income/ (loss)......... Rs. 6,630 Rs. 1,547 Rs.(7,983) Rs. 5,219 Rs. 8,530 Rs. 2,778 Rs. 7,730 US$ 176
Per common share:(3)
Net income/(loss) from
continuing operations -
Basic(4)................. Rs. 16.88 Rs. 3.94 Rs.(14.18) Rs. 8.50 Rs. 11.72 Rs. 3.86 Rs. 10.46 US$ 0.24
Net income/(loss) from
continuing operations -
Diluted(5)............... 16.81 3.94 (14.18) 8.43 11.60 3.82 10.35 0.24
31
Six-month period ended
Year ended March 31, September 30,
--------------------------------------------------------- ---------------------------------
2001 2002 2003 2004 2005 2004 2005 2005(1)
--------- --------- --------- --------- --------- --------- --------- ---------
(Unaudited)
(in millions, except per common share data)
Dividends(6)................ 11.00 22.00 - 7.50 7.50 7.50 8.50 0.19
Book value(7)............... 193.35 181.70 150.42 153.35 173.73 161.75 176.97 4.03
Common shares outstanding
at end of period (in
millions of common
shares).................. 393 393 613 616 737 735 741 -
Weighted average common
shares outstanding -
Basic (in millions of
common shares)........... 393 393 563 614 728 720 739 -
Weighted average common
shares outstanding -
Diluted (in millions of
common shares)........... 393 393 563 619 734 726 747 -
--------------------
(1) Rupee amounts for the six-month period ended September 30, 2005 have been
translated into US dollars using the noon buying rate of Rs. 43.94 =
US$ 1.00 in effect on September 30, 2005.
(2) In June 2001, the FASB issued SFAS No. 141, which requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. The excess of the cost of an acquired entity
over the net of the amounts assigned to assets acquired and liabilities
assumed shall be recognized as goodwill. SFAS No. 141 specifies that
intangible assets acquired in a purchase method business combination must
be recognized and reported apart from goodwill, noting that any purchase
price allocated to an assembled workforce need not be accounted separately.
The excess of the fair value of the net assets over the cost of acquired
entity is allocated pro rata to specified non-financial assets and
remaining excess, if any, is recognized as an extraordinary gain. As of
April 1, 2001, ICICI had an unamortized deferred credit of Rs. 1.3 billion
(US$ 29 million) relating to the excess of the fair value of assets
acquired over the cost of acquisition of SCICI. As required by SFAS No.
141, in conjunction with the early adoption of SFAS No. 142, the
unamortized deferred credit as of April 1, 2001, was written-off and
recognized as the effect of a change in the accounting principle.
(3) For fiscal years 2001 and 2002, based on the exchange ratio of 1:2 in which
the shareholders of ICICI were issued shares of ICICI Bank, number of
shares has been adjusted by dividing by two. Hence, these numbers are
different from the numbers reported in the annual report on Form 20-F for
fiscal 2002.
(4) Represents net income/(loss) before dilutive impact.
(5) Represents net income/(loss) adjusted for full dilution. All convertible
instruments are assumed to be converted to common shares at the beginning
of the year, at prices that are most advantageous to the holders of these
instruments. Options to purchase 2,546,675, 7,015,800, 12,610,275 and
1,098,225 equity shares granted to employees at a weighted average exercise
price of Rs. 226.0, Rs. 81.3, Rs. 154.7 and Rs. 266.6 were outstanding in
fiscal 2001, 2002, 2003 and 2004, respectively, but were not included in
the computation of diluted earnings per share because the exercise price of
the options was greater than the average market price of the equity shares
during the period. In fiscal 2003, we reported a net loss and accordingly
all outstanding options at year-end fiscal 2003 are anti-dilutive. Options
to purchase 7,397,125 and 70,600 equity shares granted to employees at a
weighted average exercise price of Rs. 300.05 and Rs. 498.20 were
outstanding in the six-month periods ended September 30, 2004 and 2005,
respectively, but were not included in the computation of diluted earnings
per share of the respective periods because the exercise price of the
options was greater than the average market price of the equity shares
during the period.
(6) We declared a dividend of Rs. 7.50 per equity share for fiscal 2004, which
was paid out in September 2004, i.e. in the six-month period ended
September 30, 2004. We declared a dividend of Rs. 8.50 per equity share,
including a special dividend of Rs. 1.00 per equity share, for fiscal 2005,
which was paid in August 2005, i.e. in the six-month period ended September
30, 2005. The dividend per equity share shown above is based on the total
amount of dividends paid out on the equity shares during the year,
exclusive of dividend tax. This was different from the dividend declared
for the year. In US dollars, dividend was US$ 0.19 per equity share for
fiscal 2005.
(7) Represents the stockholders' equity divided by the number of equity shares
outstanding at the year/period end.
32
The following table sets forth, for the periods indicated, selected income
statement data expressed as a percentage of average total assets for the
respective period (percentages for the six-month periods ended September 30,
2004 and September 30, 2005 are annualized).
Six months ended
Year ended March 31, September 30,
--------------------------------------------------------- ---------------------
2001 2002 2003 2004 2005 2004 2005
--------- --------- --------- --------- --------- --------- ---------
(Unaudited)
Selected income statement data:
Interest income(including dividends).. 11.34% 10.57% 8.66% 7.17% 5.90% 5.88% 6.01%
Interest expense...................... (9.61) (9.31) (7.35) (5.70) (4.37) (4.51) (4.66)
--------- --------- --------- --------- --------- --------- ---------
Net interest income.................. 1.73 1.26 1.31 1.47 1.53 1.37 1.35
Provisions for loan losses............ (1.40) (1.31) (1.73) (1.58) (0.94) (0.61) (0.59)
--------- --------- --------- --------- --------- --------- ---------
Net interest income/(loss), after
provisions for loan losses........ 0.33 (0.05) (0.42) (0.11) 0.59 0.76 0.76
Non-interest income................... 1.32 1.09 1.17 2.89 2.22 1.91 2.53
--------- --------- --------- --------- --------- --------- ---------
Net revenue........................... 1.65 1.04 0.75 2.78 2.81 2.67 3.29
Non-interest expense.................. (0.78) (1.02) (1.64) (2.13) (2.12) (2.08) (2.10)
Equity in earnings/(loss) of
affiliates......................... 0.10 0.04 (0.08) (0.11) (0.04) (0.09) (0.05)
Minority interest..................... 0.00 0.01 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) before income taxes and
cumulative effect of accounting
changes............................ 0.97 0.07 (0.97) 0.54 0.65 0.50 1.14
Income tax (expense)/benefit (0.03) (0.03) 0.27 (0.13) (0.10) (0.12) (0.36)
--------- --------- --------- --------- --------- --------- ---------
Income/(loss) before cumulative
effect of accounting changes, net
of tax............................. 0.94 0.04 (0.70) 0.41 0.55 0.38 0.78
Cumulative effect of accounting
changes, net of tax................ - 0.17 - - - - -
Net income/(loss)..................... 0.94% 0.21% (0.70)% 0.41% 0.55% 0.38% 0.78%
========= ========= ========= ========= ========= ========= =========
At March 31, At September 30,
------------------------------------------------------------------ ----------------------------------------
2001 2002 2003 2004 2005 2004 2005 2005(1)
----------- ----------- ------------ ------------- ------------- ------------- ------------- ------------
(Unaudited)
(in millions, except percentages)
Selected balance
sheet data:
Total assets........ Rs. 739,892 Rs. 743,362 Rs. 1,180,263 Rs. 1,409,131 Rs. 1,863,447 Rs. 1,498,133 Rs. 2,077,435 US$ 47,279
Securities.......... 18,861 60,046 280,621 310,368 380,959 324,892 436,751 9,939
Loans, net(2)....... 602,023 523,601 630,421 728,520 999,858 775,132 1,170,154 26,631
Troubled debt
restructuring
(restructured
loans), net....... 32,309 77,366 122,659 121,417 95,589 100,942 85,022 1,935
Other impaired
loans, net........ 20,081 33,187 55,319 28,764 14,196 26,354 7,292 166
Total liabilities... 663,829 671,754 1,087,926 1,313,556 1,733,383 1,378,177 1,940,426 44,161
Long-term debt...... 492,882 511,458 400,812 373,449 367,499 355,763 357,443 8,135
Deposits............ 6,072 7,380 491,290 684,955 1,016,534 722,731 1,226,463 27,912
Redeemable
preferred
stock(3).......... 698 772 853 944 1,044 994 1,099 25
Stockholders'
equity............ 75,927 71,348 92,213 94,525 127,996 118,845 131,116 2,984
Common stock ....... 3,924 3,922 6,127 6,164 7,368 7,345 7,409 169
Period average(4):
Total assets........ 706,343 746,330 1,132,638 1,269,638 1,562,983 1,440,819 1,976,983 44,993
Interest-earning
assets............ 615,164 641,141 924,573 1,017,009 1,198,058 1,100,990 1,541,573 35,084
Loans, net(2)....... 570,989 591,398 606,496 662,752 799,169 731,268 1,042,556 23,727
Total
liabilities(5).... 631,324 670,750 1,038,377 1,173,961 1,442,117 1,324,354 1,847,431 42,044
Interest-bearing
liabilities...... 576,474 613,401 905,226 977,941 1,148 ,995 1,059,848 1,539,538 35,037
Long-term debt...... 462,916 504,103 455,347 382,674 359,724 359,031 363,861 8,281
Stockholders'
equity............ Rs. 75,019 Rs. 75,580 Rs. 94,261 Rs. 95,678 Rs. 120,866 Rs. 116,465 Rs. 129,552 US$ 2,948
Profitability(6):
Net income/(loss) as
a percentage of:
Average total
assets........ 0.94% 0.21% (0.70)% 0.41% 0.55% 0.38% 0.78% -
Average
stockholders'
equity........ 8.84 2.05 (8.47) 5.45 7.06 4.76 11.90 -
33
At March 31, At September 30,
---------------------------------------------------------------- --------------------------------------
2001 2002 2003 2004 2005 2004 2005 2005(1)
---------- ---------- ------------ ------------ ------------ ------------ ------------ ----------
(Unaudited)
(in millions, except percentages)
Average
stockholders'
equity
(including
redeemable
preferred
stock(7)............. 8.89 2.12 (8.31) 5.50 7.08 4.80 11.89 -
Dividend payout ratio(8)... 52.90 635.20 - 88.10 64.57 198.25 81.40 -
Spread(9).................. 1.19 0.93 1.38 1.52 1.71 1.54 1.70 -
Net interest margin(10).... 1.93 1.42 1.57 1.80 1.95 1.77 1.71 -
Cost-to-income ratio(11)... 25.54 43.42 66.11 48.90 56.57 63.35 54.20 -
Cost-to-average assets
ratio(12)............... 0.78 1.02 1.64 2.13 2.12 2.08 2.10 -
Capital:
Average shareholders'
equity as a percentage of
average total assets..... 10.62 10.13 8.32 7.54 7.73 8.08 6.55 -
Average stockholders'
equity (including
redeemable preferred
stock) as a percentage of
average total assets(13). 10.95 10.23 8.39 7.61 7.80 8.15 6.61 -
At or for
the six
months
ended
At or for the year ended March 31, September 30,
------------------------------------------------------------------ -------------
2001 2002 2003 2004 2005 2005
---------- ------------ ------------ ------------ ------------ -------------
(Unaudited)
(in percentages)
Asset quality:
Net restructured loans as a
percentage of net loans............. 5.37% 14.78% 19.45% 16.67% 9.56% 7.27%
Net other impaired loans as a
percentage of net loans............. 3.34 6.34 8.77 3.95 1.42 0.62
Allowance for loan losses on
restructured loans as a
percentage of gross
restructured loans.................. 26.03 18.64 16.78 25.23 36.07 38.91
Allowance for loan losses on other
impaired loans as a percentage
of gross impaired loans............. 51.89 34.61 33.48 42.74 52.22 66.45
Allowance for loan losses as a
percentage of gross loans........... 5.20 6.54 7.92 8.40 7.06 6.16
--------------------
(1) Rupee amounts at September 30, 2005 have been translated into US dollars
using the noon buying rate of Rs. 43.94 = US$ 1.00 in effect at September
30, 2005.
(2) Net of allowance for loan losses, security deposits and unearned income in
respect of restructured and other impaired loans and allowances for
non-impaired loans.
(3) ICICI had issued preferred stock redeemable at face value after 20 years.
Banks in India are not currently allowed to issue preferred stock. However,
we are currently exempt from this restriction for the existing preferred
stock.
(4) For the six-month periods ended September 30, 2004 and September 30, 2005,
the average balances are the average of quarterly balances outstanding at
the end of March of the previous fiscal year, June and September of that
year. For fiscal years 2002, 2003, 2004 and 2005, the average balances are
the average of quarterly balances outstanding at the end of March of the
previous fiscal year, June, September, December and March of that fiscal
year. For fiscal 2001, due to deconsolidation of ICICI Bank, the average
balances are calculated as the average of quarterly balances outstanding at
the end of June, September, December and March of that fiscal year.
(5) Represents the average of the quarterly balance of total liabilities and
minority interest.
(6) Profitability data for the six-month periods ended September 30, 2004 and
September 30, 2005 is annualized.
(7) Represents the ratio of net income plus dividend on redeemable preferred
stock to the sum of average stockholders' equity and average redeemable
preferred stock. Under Indian tax laws, dividend on preferred stock is not
tax deductible.
34
(8) Represents the ratio of total dividends paid on common stock, exclusive of
dividend distribution tax, as a percentage of net income.
(9) Represents the difference between yield on average interest-earning assets
and cost of average interest-bearing liabilities. Yield on average
interest-earning assets is the ratio of interest income to average
interest-earning assets. Cost of average interest-bearing liabilities is
the ratio of interest expense to average interest-bearing liabilities.
(10) Represents the ratio of net interest income to average interest-earning
assets. The difference in net interest margin and spread arises due to the
difference in the amount of average interest-earning assets and average
interest-bearing liabilities. If average interest-earning assets exceed
average interest-bearing liabilities, net interest margin is greater than
spread, and if average interest-bearing liabilities exceed average
interest-earning assets, net interest margin is less than spread.
(11) Represents the ratio of non-interest expense to the sum of net interest
income and non-interest income.
(12) Represents the ratio of non-interest expense to average total assets.
(13) ICICI Bank's capital adequacy is computed in accordance with the Reserve
Bank of India's guidelines and is based on unconsolidated financial
statements prepared in accordance with Indian GAAP. At September 30, 2005,
ICICI Bank's total capital adequacy ratio was 11.52% with a Tier 1 capital
adequacy ratio of 7.24% and a Tier 2 capital adequacy ratio of 4.28%.
35
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial
condition and results of operations together with our unaudited interim
condensed consolidated financial statements included elsewhere in this
prospectus and our audited consolidated financial statements in our annual
report on Form 20-F for the fiscal year ended March 31, 2005, which is
incorporated by reference in this prospectus. The following discussion is based
on our unaudited interim condensed consolidated financial statements and our
audited financial statements and accompanying notes, which have been prepared in
accordance with US GAAP.
Introduction
Our loan portfolio, financial condition and results of operations have
been, and in the future, are expected to be influenced by economic conditions in
India and certain global developments, particularly in commodity prices relating
to the business activities of our corporate customers and by economic conditions
in the United States and other countries influencing inflation and interest
rates in India. For ease of understanding the discussion of our results of
operations that follows, you should consider the introductory discussion of
these macroeconomic factors. In addition, for a meaningful comparison of our
results of operations for these years, you should also consider the amalgamation
and the effect of other acquisitions.
Indian Economy
The rate of growth of GDP was 4.0% in fiscal 2003, 8.5% in fiscal 2004 and
6.9% in fiscal 2005. India's GDP registered a growth rate of 8.1% in the first
quarter of fiscal 2006. Growth in fiscal 2003 was impacted by a negative growth
in the agriculture sector because of insufficient rainfall and resulting drought
conditions prevailing in the country. The agriculture sector, which had recorded
a negative growth of 7.0% in fiscal 2003 recorded a growth of 9.6% in fiscal
2004. In fiscal 2005, the growth of the agriculture sector declined to 1.1%
because of insufficient rainfall in many parts of the country. This was partly
offset by the sustained growth of the industrial and services sectors. The
industrial sector grew by 6.4% in fiscal 2003, 6.5% in fiscal 2004 and 8.3% in
fiscal 2005. The services sector grew by 7.9% in fiscal 2003, 8.9% in fiscal
2004 and 8.6% during fiscal 2005. During the first quarter of 2006 the
industrial and services sector grew by 10.1% and 9.6% respectively.
During the first half of fiscal 2005, there was an increase in
inflationary trends in India, primarily due to the increase in oil prices as
well as prices of certain commodities. The full burden of the oil price
increase has not yet been passed to the Indian consumers and has been largely
absorbed by the government and government owned oil marketing companies. See
also "Risk Factors - Risks Relating to India - A significant increase in the
price of crude oil could adversely affect the Indian economy, which could
adversely affect our business." The annual average rate of inflation measured
by the Wholesale Price Index was 6.4% during fiscal 2005 compared to 5.4%
during the previous year. The average annual rate of inflation decreased to
4.7% during fiscal 2006 (through October 16, 2005) from 8.7% during the
corresponding period in the previous year. The average annual rate of inflation
measured by the Consumer Price Index for industrial workers was 3.4% for August
2005. The Indian rupee depreciated by 4.8% against the US dollar during fiscal
2006 through November 8, 2005, moving from Rs. 43.75 per US$ 1.00 at year-end
fiscal 2005 to Rs. 45.72 per US$ 1.00 on November 8 , 2005. During fiscal 2005,
the Indian rupee depreciated by 0.8% against the US dollar. It also depreciated
against the pound sterling and the euro and appreciated against the Japanese
yen.
The impact of these and other factors and the overall growth in industry,
agriculture and services during fiscal 2006 will affect the performance of the
banking sector as it will affect the level of credit disbursed by banks, and the
overall growth prospects of our business, including our ability to grow, the
quality of our assets, the value of our investment portfolio and our ability to
implement our strategy.
Banking Sector
According to the Reserve Bank of India's data, total deposits of all
scheduled commercial banks increased by 12.4% in fiscal 2003, 17.7% in fiscal
2004, 14.3% in fiscal 2005 and 7.9% in fiscal 2006 (through October 14, 2005).
Growth in deposits in fiscal 2003 includes the impact of the amalgamation, as
some of ICICI's liabilities which were not included in banking deposits at
year-end fiscal 2002, were included at year-end fiscal 2003. Bank credit of
scheduled commercial banks grew by 14.7% in fiscal 2003, 15.5% in fiscal 2004,
29.9% in fiscal 2005 and
36
15.8% in fiscal 2006 (through October 14, 2005). Credit growth in fiscal 2003
included the impact of the amalgamation, as ICICI's credit was included in
total banking system credit at year-end fiscal 2003 but not included at
year-end fiscal 2002. The increase in credit growth during fiscal 2005 was
driven by the continued growth in retail credit as well as credit to the
industrial and agricultural sectors. Also, after its conversion into a
scheduled commercial bank with effect from October 11, 2004, Industrial
Development Bank of India Limited's credit was included in total banking sector
credit at year-end fiscal 2005. Excluding Industrial Development Bank of India
Limited's credit, bank credit of scheduled commercial banks grew at 26.0%
during fiscal 2005.
Until fiscal 2005, there was a downward movement in interest rates, barring
intra-year periods when interest rates were higher temporarily due to extraneous
circumstances. This movement was principally due to the Reserve Bank of India's
policy of assuring adequate liquidity in the banking system and generally
lowering the rate at which it would lend to Indian banks to ensure that
borrowers had access to funding at competitive rates. Banks generally followed
the direction of interest rates set by the Reserve Bank of India and adjusted
both their deposit rates and lending rates downwards until fiscal 2005. The
inflationary trends in fiscal 2005 resulted in an increase in benchmark
secondary market yields on government securities. The Reserve Bank of India also
increased the risk weight for housing loans from 50.0% to 75.0% and for consumer
credit, including personal loans and credit cards, from 100% to 125%, as a
temporary counter-cyclical measure given the rapid growth in these segments. The
Reserve Bank of India increased the cash reserve ratio to 5.0% effective October
2, 2004. In its mid-term review of the annual policy statement for fiscal 2005
released in October 2004, the Reserve Bank of India raised the reverse repo rate
(i.e., the annualized interest earned by the lender in a repurchase transaction
between a bank and the Reserve Bank of India) by 25 basis points to 4.75% in
response to inflationary pressures in the economy. In the annual policy
statement for fiscal 2006 announced in April 2005, the Reserve Bank of India
further raised the reverse repo rate by 25 basis points to 5.0%. In the mid-term
review of the annual policy statement released in October 2005, the Reserve Bank
of India announced further increase in the reverse repo rate by 25 basis points
to 5.25%. The following table sets forth the bank rate and reverse repo rate for
the periods indicated. As a result of these increases, banks have also raised
their deposit and lending rates.
Reverse
Fiscal year Bank rate repo rate
----------------------------------------- --------- ---------
(in percentages)
2001..................................... 7.0% 7.0%
2002..................................... 6.50 6.0
2003..................................... 6.25 5.0
2004..................................... 6.0 4.5
2005..................................... 6.0 4.75
2006 (through November 8, 2005).......... 6.0 5.25
--------------------
Source: Reserve Bank of India: Handbook of Statistics on Indian Economy, 2002,
Annual Report 2003-2004 and Weekly Statistical Supplements and Annual Policy
Statement 2005-06, Mid-term review of Annual policy statement 2005-06.
Results of Operations
From fiscal 2002, we have experienced major changes and developments in
our business and strategy. An understanding of these events and developments is
necessary for an understanding of the discussion and analysis that follows.
These changes are reflected in our financial statements in connection with or
since the amalgamation of ICICI Limited into ICICI Bank. The first change
reflects the impact of our history upon our average cost of funds. Consequent
to the amalgamation, the businesses formerly conducted by ICICI became subject
for the first time to various regulations applicable to banks. These include
the prudential reserve and liquidity requirements, namely the statutory
liquidity ratio and the cash reserve ratio. See "Supervision and Regulation -
Legal Reserve Requirements" in our annual report on Form 20-F for the fiscal
year ended March 31, 2005 which is incorporated by reference in this
prospectus. While we have benefited from the lower cost of funding as a bank as
compared to ICICI as a non-bank financial institution, the imposition of the
statutory liquidity ratio and the cash reserve ratio on the liabilities of
ICICI have impacted our spread. As the average yield on investments in
government of India securities and cash balances maintained with the Reserve
Bank of India is typically lower than the yield on other interest-earning
assets, our net interest margin has been adversely impacted. As a result, our
net interest margin has been and is expected to continue to be lower than other
banks in India until we repay the borrowings of ICICI. We are expanding our
deposit
37
base and changing the mix of our liabilities away from the legacy ICICI
liabilities towards the lower average cost deposits. The increase in investment
in government securities has substantially increased our exposure to market
risk. In a declining interest rate environment, we made gains on sale of
government securities. A rise in interest rates would cause the value of our
fixed income portfolio to decline and adversely affect the income from our
treasury operations. See also "Risk Factors - Risks Relating to Our Business -
Our business is particularly vulnerable to interest rate risk and volatility in
interest rates could adversely affect our net interest margin, the value of our
fixed income portfolio, our income from treasury operations and our financial
performance."
Another key change reflects the implementation of our strategy to grow our
retail loan portfolio. The results of our implementation of this strategy can be
seen in the rapid growth in the retail loan portfolio. While we cannot guarantee
that growth will continue at the same rate, we see continued significant demand
for retail loans.
Long-term project finance was a major proportion of ICICI's asset portfolio
and continues to be a significant portion of our loan portfolio, though we have
diversified our lending towards retail loans and working capital financing. Over
the past several years, we and ICICI experienced a high level of impaired loans
in our loan portfolio as a result of downturn in certain global commodity
markets, increased competition in India, the high level of debt in the financing
of projects and capital structures of Indian companies and high interest rates
in the Indian economy during the period in which a large number of projects
contracted their borrowings, as well as delays experienced in enforcement of
collateral when borrowers defaulted on their obligations to us. Our loan
portfolio includes loans to projects under implementation and there are risks
and uncertainties associated with the timely completion and viability of these
projects. Our retail loans have grown rapidly and the level of impaired loans in
our retail portfolio could increase if there is a rise in unemployment,
prolonged recessionary conditions and a sharp and sustained rise in interest
rates in India. See also "Risk Factors - Risks Relating to Our Business - If we
are not able to control or reduce the level of impaired loans in our portfolio,
our business will suffer."
In addition to the above, the directed lending norms of Reserve Bank of
India require commercial banks to lend 40.0% of their net bank credit to
specific sectors (known as priority sectors), such as agriculture, small-scale
industry, small businesses and housing finance. Prior to the amalgamation, the
advances of ICICI were not subject to the requirement applicable to banks in
respect of priority sector lending. Pursuant to the terms of Reserve Bank of
India's approval to the amalgamation, we are required to maintain a total of
50.0% of our net bank credit on the residual portion of our advances (i.e., the
portion of our total advances excluding advances of ICICI at year-end fiscal
2002) in the form of priority sector advances. This additional requirement of
10.0% by way of priority sector advances will apply until such time as the
aggregate priority sector advances reach a level of 40.0% of our net bank
credit. The Reserve Bank of India's existing instructions on sub-targets under
priority sector lending and eligibility of certain types of investments and
funds for reckoning as priority sector advances also apply to us. See
"Supervision and Regulation - Directed Lending - Priority Sector Lending"and
"Business - Loan Portfolio - Directed Lending - Priority Sector Lending" in our
annual report on Form 20-F for the fiscal year ended March 31, 2005 which is
incorporated by reference into this prospectus.
Average Balance Sheet
For the six-month periods ended September 30, 2004 and September 30, 2005,
the average balances are the average of quarterly balances outstanding at the
end of March of the previous fiscal year, and June and September of that year.
The average yield on average interest-earning assets is the ratio of interest
income to average interest-earning assets. The amortized portion of loan
origination fees (net of loan origination costs) was included in interest
income on loans, representing an adjustment to the yield. The average cost on
average interest-bearing liabilities is the ratio of interest expense to
average interest-bearing liabilities. The average balances of loans include
impaired loans and are net of allowance for loan losses. We did not recalculate
tax-exempt income on a tax-equivalent basis because we believed that the effect
of doing so would not be significant. Total interest income also includes other
interest income, which is primarily interest on refund of income tax.
The following table sets forth, for the periods indicated, the average
balances of the assets and liabilities outstanding, which are major components
of interest income, interest expense and net interest income. The average
balances of loans include impaired loans and are net of allowance for loan
losses.
38
Six-month period ended September 30,
----------------------------------------------------------------------------------
2004 2005
------------------------------------------ -------------------------------------
Interest Average Interest/ Average
Average income/ yield/ Average income yield/
Balance expense cost(1) balance expense cost(1))
------------- ------------ ------------- ------------ ------------ ---------
(in millions, except percentages)
Assets:
Cash, cash equivalents and
trading assets:
Rupee..................... Rs. 63,149 Rs. 1,663 5.25% Rs. 65,296 Rs. 2,039 6.23%
Foreign currency.......... 22,359 204 1.82 40,405 684 3.38
------------- ------------ ------------- ------------
Total cash, cash equivalents
and trading assets....... 85,508 1,867 4.35 105,701 2,723 5.14
Securities--debt:
Rupee..................... 284,051 6,328 4.44 373,432 10,784 5.76
Foreign currency.......... 163 - 0.07 19,884 508 5.10
------------- ------------ ------------- ------------
Total securities--debt........ 284,214 6,328 4.44 393,316 11,292 5.73
Loans, net:
Rupee..................... 643,209 30,867 9.57 885,686 40,340 9.08
Foreign currency.......... 88,059 2,301 5.21 156,870 4,513 5.74
------------- ------------ ------------- ------------
Total loans, net............. 731,268 33,168 9.05 1,042,556 44,853 8.58
Other interest income........ 976 498
Interest-earning assets:
Rupee..................... 990,409 39,834 8.02 1,324,414 53,661 8.08
Foreign currency.......... 110,581 2,505 4.52 217,159 5,705 5.24
------------- ------------ ------------- ------------
Total interest-earning assets 1,100,990 42,339 7.67 1,541,573 59,366 7.68
Securities--equity:
Rupee..................... 32,176 182 1.13 26,615 171 1.28
Foreign currency.......... - - - -
------------- ------------ ------------- ------------
Total securities--equity..... 32,176 182 1.13 26,615 171 1.28
Earning assets:
Rupee..................... 1,022,585 40,016 7.81 1,351,029 53,832 7.95
Foreign currency.......... 110,581 2,505 4.52 217,159 5,705 5.24
------------- ------------ ------------- ------------
Total earning assets......... 1,133,166 42,521 7.48 1,568,188 59,537 7.57
Cash and cash equivalents... 65,054 - 124,421 -
Acceptances.................. 80,425 - 72,497 -
Property and equipment....... 23,159 - 26,454 -
Other assets................. 139,015 - 185,423 -
------------- ------------ ------------- ------------
Total non-earning assets..... 307,653 - 408,795 -
------------- ------------ ------------- ------------
Total assets................. Rs. 1,440,819 Rs. 42,521 Rs. 1,976,983 Rs. 59,537
============= ============ ============= ============
39
Six-month period ended September 30,
-----------------------------------------------------------------------------------
2004 2005
----------------------------------------- ---------------------------------------
Interest Average Interest/ Average
Average income/ yield/ Average income yield/
Balance expense cost(1) balance expense cost(1)
------------ ------------ ------------- ------------ ------------- ---------
(in millions, except percentages)
Savings account deposits:
Rupee..................... Rs. 88,449 Rs. 966 2.18% Rs. 130,027 Rs. 1,577 2.42%
Foreign currency.......... 99 - 0.06 5,620 20 0.71
------------ ------------ ------------- -------------
Total savings account
deposits.................. 88,548 966 2.18 135,647 1,597 2.35
Time deposits:
Rupee..................... 498,256 13,593 5.44 804,256 24,089 5.97
Foreign currency.......... 27,719 346 2.49 59,908 1,136 3.78
------------ ------------ ------------ -------------
Total time deposits.......... 525,975 13,939 5.29 864,164 25,225 5.82
Long-term debt:
Rupee..................... 294,774 14,112 9.55 277,024 13,402 9.65
Foreign currency.......... 64,257 1,394 4.33 86,837 1,656 3.80
------------ ------------ ------------- -------------
Total long-term debt......... 359,031 15,506 8.61 363,861 15,058 8.25
Redeemable preferred stock... 969 50 10.29 1,072 55 10.23
Trading account and other
liabilities:
Rupee.................... 65,824 1,940 5.88 83,215 2,470 5.92
Foreign currency......... 19,501 160 1.64 91,579 1,759 3.83
------------ ------------ ------------- -------------
Total trading account and
other liabilities......... 85,325 2,100 4.91 174,794 4,229 4.83
Interest-bearing liabilities:
Rupee..................... 948,272 30,661 6.45 1,295,594 41,593 6.40
Foreign currency.......... 111,576 1,900 3.40 243,944 4,571 3.74
------------ ------------ ------------- -------------
Total interest-bearing
liabilities............... 1,059,848 32,561 6.13 1,539,538 46,164 5.98
Non-interest-bearing
deposits:
Rupee..................... 74,275 - 91,173 -
Foreign currency.......... 428 - 272 -
------------ ------------ ------------- -------------
Total non-interest-bearing
deposits.................. 74,703 - 91,445 -
Other liabilities............ 189,803 - 216,448 -
------------ ------------ ------------- -------------
Total non-interest-bearing
liabilities............... 264,506 - 307,893 -
Total liabilities............ Rs.1,324,354 Rs. 32,561 Rs. 1,847,431 Rs. 46,164
------------ ------------ ------------- -------------
Stockholders' equity........ Rs. 116,465 - Rs. 129,552 -
------------ ------------ ------------- -------------
Total liabilities and
stockholders' equity...... Rs.1,440,819 Rs. 32,561 Rs. 1,976,983 Rs. 46,164
============ ============ ============= =============
--------------------
(1) Average yield and average cost for the six-month periods ended September
30, 2004 and 2005 are annualized.
Analysis of changes in interest income and interest expense volume and rate
analysis
The following table sets forth, for the periods indicated, the changes in
the components of net interest income. The changes in net interest income
between periods have been reflected as attributed either to volume or rate
changes. For the purpose of this table, changes, which are due to both volume
and rate, have been allocated solely to volume.
40
Six-month period ended September 30, 2005
vs.
Six-month period ended September 30, 2004
-----------------------------------------
Increase (decrease) due to
-----------------------------------------
Change in Change in
average average
Net change volume rate
---------- --------- -----------
(in millions)
Interest income:
Cash, cash equivalents and trading assets:
Rupee...................................................... 376 67 309
Foreign currency........................................... 480 306 174
---------- --------- -----------
Total cash, cash equivalents and trading assets................ 856 373 483
Securities:
Rupee...................................................... 4,456 2,581 1,875
Foreign currency........................................... 508 504 4
---------- --------- -----------
Total securities............................................... 4,964 3,085 1,879
Loans:
Rupee...................................................... 9,473 11,044 (1,571)
Foreign currency........................................... 2,212 1,979 233
---------- --------- -----------
Total loans.................................................... 11,685 13,023 (1,338)
Other interest income.......................................... (478) (478) -
---------- --------- -----------
Total interest income:
Rupee...................................................... 13,827 13,214 613
Foreign currency........................................... 3,200 2,789 411
---------- --------- -----------
Total interest income.......................................... 17,027 16,003 1,024
Interest expense:
Savings account deposits:
Rupee...................................................... 611 504 107
Foreign currency........................................... 20 20 -
---------- --------- -----------
Total savings account deposits................................. 631 524 107
Time deposits:
Rupee...................................................... 10,496 9,166 1,330
Foreign currency........................................... 790 610 180
---------- --------- -----------
Total time deposits............................................ 11,286 9,776 1,510
Long-term debt:
Rupee...................................................... (710) (859) 149
Foreign currency........................................... 262 431 (169)
---------- --------- -----------
Total long-term debt........................................... (448) (428) (20)
Redeemable preferred stock(1).................................. 5 6 (1)
Trading account and other liabilities:
Rupee...................................................... 530 516 14
Foreign currency........................................... 1,599 1,385 214
---------- --------- -----------
Total trading account and other liabilities.................... 2,129 1,901 228
Total interest expense:
Rupee...................................................... 10,932 9,333 1,599
Foreign currency........................................... 2,671 2,446 225
========== ========= ===========
Total interest expense......................................... 13,603 11,779 1,824
Net interest income:
Rupee...................................................... 2,895 3,881 (986)
Foreign currency........................................... 529 343 186
========== ========= ===========
Total net interest income...................................... 3,424 4,224 (800)
========== ========= ===========
--------------------
(1) Banks in India are not allowed to issue preferred stock. However, we have
been currently exempted from this restriction for the existing preferred
stock of ICICI Limited.
41
Yields, Spreads and Margins
The following table sets forth, for the periods indicated, the yields,
spreads and net interest margins on interest-earning assets.
Six-month period ended
Year ended March 31, September 30,
---------------------------------------- ----------------------------
2003 2004 2005 2004 2005
----------- ------------ ------------- ------------ -------------
(in millions, except percentages)
Interest income....................... Rs. 97,714 Rs. 90,688 Rs. 91,775 Rs. 42,339 Rs. 59,366
Average interest-earning assets....... 924,573 1,017,009 1,198,058 1,100,990 1,541,573
Interest expense...................... 83,208 72,375 68,409 32,561 46,164
Average interest-bearing liabilities.. 905,226 977,941 1,148,995 1,059,848 1,539,538
Average total assets.................. 1,132,638 1,269,638 1,562,983 1,440,819 1,976,983
----------- ------------ ------------- ------------ -------------
Average interest-earning assets as a
percentage of average total assets. 81.63% 80.10% 76.65% 76.41% 77.98%
Average interest-bearing liabilities
as a percentage of average total
assets............................. 79.92 77.03 73.51 73.56 77.87
Average interest-earning assets as a
percentage of average
interest-bearing liabilities....... 102.14 103.99 104.27 103.88 100.13
Yield(1).............................. 10.57 8.92 7.66 7.67 7.68
Rupee.............................. 11.06 9.19 7.99 8.02 8.08
Foreign currency................... 5.42 5.73 5.27 4.52 5.24
Cost of funds(1)...................... 9.19 7.40 5.95 6.13 5.98
Rupee.............................. 9.82 7.83 6.31 6.45 6.40
Foreign currency................... 3.59 3.03 3.53 3.40 3.74
Spread(1)(2).......................... 1.38 1.52 1.71 1.54 1.70
Rupee.............................. 1.24 1.36 1.68 1.57 1.68
Foreign currency................... 1.84 2.69 1.74 1.12 1.50
Net interest margin(1)(3)............. 1.57 1.80 1.95 1.77 1.71
Rupee.............................. 1.59 1.74 1.99 1.85 1.82
Foreign currency................... 1.35 2.45 1.69 1.09 1.04
--------------------
(1) Yield, cost of funds, spread and net interest margin are annualized for the
six-month periods ended September 30, 2004 and 2005.
(2) Spread is the difference between yield on average interest-earning assets
and cost of average interest-bearing liabilities. Yield on average
interest-earning assets is the ratio of interest income to average
interest-earning assets. Cost of average interest-bearing liabilities is
the ratio of interest expense to average interest-bearing liabilities.
(3) Net interest margin is the ratio of net interest income to average
interest-earning assets. The difference in net interest margin and spread
arises due to the difference in amount of average interest-earning assets
and average interest-bearing liabilities. If average interest-earning
assets exceed average interest-bearing liabilities, net interest margin is
greater than the spread and if average interest-bearing liabilities exceed
average interest-earning assets, net interest margin is less than the
spread.
Summary for the six-month period ended September 30, 2005, compared to the
six-month period ended September 30, 2004
Net income amounted to Rs. 7.7 billion (US$ 176 million) for the
six-month period ended September 30, 2005 compared to Rs. 2.8 billion (US$ 63
million) for the six-month period ended September 30, 2004, primarily due to a
34.3% increase in net interest income before provisions for loan losses to Rs.
13.4 billion (US$ 304 million) for the six-month period ended September 30,
2005 and a 82.2% increase in non-interest income to Rs. 25.1 billion (US$ 572
million) for the six-month period ended September 30, 2005, offset, in part by
a 38.7% increase in non-interest expense to Rs. 20.8 billion (US$ 475
million) for the six-month period ended September 30, 2005 and a 32.3% increase
in provisions for loan losses to Rs. 5.8 billion (US$ 132 million).
o Net interest income before provisions for loan losses increased 34.3%
to Rs. 13.4 billion (US$ 304 million) for the six-month period ended
September 30, 2005 from Rs. 10.0 billion (US$ 227 million) for the
six-month period ended September 30, 2004 reflecting an increase of
40.0% in the average volume of interest-earning assets and an increase
of 16 basis points in spread.
42
o Non-interest income increased by 82.2% for the six-month period ended
September 30, 2005 to Rs. 25.1 billion (US$ 572 million) from Rs.
13.8 billion (US$ 313 million) for the six-month period ended
September 30, 2004 primarily due to increase in fee, commission and
brokerage and gain on sale of securities.
o Non-interest expense increased by 38.7% for the six-month period
ended September 30, 2005 to Rs. 20.8 billion (US$ 475 million) from
Rs. 15.0 billion (US$ 342 million) for the six-month period ended
September 30, 2004 primarily due to an increase in administration
expense and employee expenses.
o Provisions for loan losses for the six-month period ended September
30, 2005 increased 32.3% to Rs. 5.8 billion (US$ 132 million) from
Rs. 4.4 billion (US$ 100 million) for the six-month period ended
September 30, 2004 primarily due to increase in allowances on
consumer loans and credit card receivables reflecting an increase in
portfolio by 74.3% to Rs. 668.3 billion (US$ 15.2 billion) at
September 30, 2005 from Rs. 383.4 billion (US$ 8.7 billion) at
September 30, 2004.
o Gross restructured loans decreased 6.9% to Rs. 139.2 billion (US$
3.2 billion) at September 30, 2005 from Rs. 149.5 billion (US$ 3.4
billion) at year-end fiscal 2005. Gross other impaired loans
decreased 26.9% to Rs. 21.7 billion (US$ 495 million) at September
30, 2005 from Rs. 29.7 billion (US$ 676 million) at year-end fiscal
2005.
o Total assets increased 11.5% to Rs. 2,077.4 billion (US$ 47.3
billion) at September 30, 2005 compared to Rs. 1,863.4 billion (US$
42.4 billion) at year-end fiscal 2005 reflecting an increase in the
portfolio of consumer loans and credit card receivables to Rs. 668.3
billion (US$ 15.2 billion) from Rs. 531.2 billion (US$ 12.1
billion) at year-end fiscal 2005.
Net Interest Income
The following table sets forth, for the periods indicated, the principal
components of net interest income .
Six-month period ended September 30,
----------------------------------------------------
2005/2004
2004 2005 2005 % change
------------ ------------ ----------- ---------
(in millions, except percentages)
Interest income.......... Rs. 42,521 Rs. 59,537 US$ 1,355 40.0%
Interest expense......... (32,561) (46,164) (1,051) 41.8
Net interest income...... Rs. 9,960 Rs. 13,373 US$ 304 34.3%
Net interest income increased 34.3% to Rs. 13.4 billion (US$ 304
million) for the six-month period ended September 30, 2005 from Rs. 10.0
billion (US$ 227 million) for the six-month period ended September 30, 2004
reflecting mainly the following:
o an increase of Rs. 334.0 billion (US$ 7.6 billion) or 33.7% in the
average volume of interest-earning rupee assets;
o an increase of Rs. 106.6 billion (US$ 2.4 billion) or 96.4% in the
average volume of interest-earning foreign currency assets;
o an increase of 11 basis points in rupee spread to 1.7% for the
six-month period ended September 30, 2005 from 1.6% for the six-month
period ended September 30, 2004; and
o an increase of 38 basis points in foreign currency spread to 1.5% for
the six-month period ended September 30, 2005 from 1.1% for the
six-month period ended September 30, 2004.
The average volume of interest-earning rupee assets increased by 33.7% or
Rs. 334.0 billion (US$ 7.6 billion) to Rs. 1,324.4 billion (US$ 30.1 billion)
for the six-month period ended September 30, 2005 from Rs. 990.4 billion (US$
22.5 billion) for the six-month period ended September 30, 2004, primarily due
to the increase in the volume
43
of loans. The average volume of loans increased by 42.6% to Rs. 1,042.6 billion
(US$ 23.7 billion) for the six- month period ended September 30, 2005 from Rs.
731.3 billion (US$ 16.6 billion) for the six-month period ended September 30,
2004. The average volume of rupee loans increased by 37.7% or Rs.242.5 billion
(US$ 5.5 billion) to Rs. 885.7 billion (US$ 20.2 billion) for the six-month
period ended September 30, 2005 from Rs. 643.2 billion (US$ 14.6 billion) for
the six-month period ended September 30, 2004. This increase in average loans
was primarily due to increased disbursements of retail finance loans offset, in
part, by sell-down/securitization and repayments of loans. The average volume
of foreign currency loans increased by 78.1% to Rs. 156.9 billion (US$ 3.6
billion) for the six-month period ended September 30, 2005 from Rs. 88.1
billion (US$ 2.0 billion) for the six-month period ended September 30, 2004
primarily due to increased disbursement of loans by our foreign banking
subsidiaries and branches.
Our gross loans at September 30, 2005 increased 15.9% to Rs. 1,247.0
billion (US$ 28.4 billion) from Rs. 1,075.8 billion (US$ 24.5 billion) at
year-end fiscal 2005, primarily due to the increase in gross consumer loans and
credit card receivables. The growth in our gross consumer loans and credit card
receivables to Rs. 668.3 billion (US$ 15.2 billion) at September 30, 2005
from Rs. 531.2 billion (US$ 12.1 billion) at year-end fiscal 2005 was driven
by the growth in the consumer credit market and our continued strategic focus
on this area. Our project and corporate finance and working capital finance
loans increased 5.1% to Rs. 486.1 billion (US$ 11.1 billion) at September 30,
2005 compared to Rs. 462.5 billion (US$ 10.5 billion) at year-end fiscal
2005. Gross foreign currency loans increased 28.3% to Rs. 191.7 billion (US$
4.4 billion) at September 30, 2005 compared to Rs. 149.3 billion (US$ 3.4
billion) at year-end fiscal 2005 primarily due to increase in loans outstanding
at our international branches and foreign banking subsidiaries.
The average volume of cash, cash equivalents and trading account assets
increased by 23.6% to Rs. 105.7 billion (US$ 2.4 billion) for the six-month
period ended September 30, 2005 from Rs. 85.5 billion (US$ 1.9 billion) for
the six-month period ended September 30, 2004. Trading account assets decreased
by Rs. 15.9 billion (US$ 363 million) to Rs. 59.6 billion (US$ 1.4 billion)
at September 30, 2005, from Rs. 75.5 billion (US$ 1.7 billion) at year-end
fiscal 2005.
Total interest income increased 40.0% to Rs. 59.5 billion (US$ 1.4
billion) for the six-month period ended September 30, 2005 from Rs. 42.5
billion (US$ 968 million) for the six-month period ended September 30, 2004
primarily due to increase of 33.7% in the average interest earning rupee assets
to Rs. 1,324.4 billion (US$ 30.1 billion) for the six-month period ended
September 30, 2005 from Rs. 990.4 billion (US$ 22.5 billion) for the
six-month period ended September 30, 2004. The yield on interest-earning rupee
assets increased 6 basis points to 8.1% for the six-month period ended
September 30, 2005 from 8.0% for the six-month period ended September 30, 2004
primarily due to increase in yield on securities, offset, in part, by a decline
in the yield on loans. The increase in yield on securities was in line with the
increase in market yields on government securities. There was a decline of 47
basis points in the yield on loans from 9.1% for the six-month period ended
September 30, 2004 to 8.6% for the six-month period ended September 30, 2005
primarily due to origination of new loans at lower rates and a reduction in
higher yield loans. The yield on interest-earning foreign currency assets
increased to 5.2% for the six-month period ended September 30, 2005 from 4.5%
for the six-month period ended September 30, 2004.
Total interest expense increased 41.8% to Rs. 46.2 billion (US$ 1.1
billion) for the six-month period ended September 30, 2005 from Rs. 32.6
billion (US$ 741 million) for the six-month period ended September 30, 2004
primarily due to an increase of 45.3% in average interest bearing liabilities
to Rs. 1,539.5 billion (US$ 35.0 billion) for the six-month period ended
September 30, 2005 from Rs. 1,059.8 billion (US$ 24.1 billion) for the
six-month period ended September 30, 2004. Average deposits, with an average
cost of 4.9% for the six-month period ended September 30, 2005 constituted
70.9% of total average interest-bearing liabilities compared to 65.0% of the
total average interest-bearing liabilities with an average cost of 4.3% for the
six-month period ended September 30, 2004. The average cost of time deposits
increased to 5.82% for the six-month period ended September 30, 2005 from 5.29%
for the six-month period ended September 30, 2004. The average cost of savings
account deposits increased to 2.35% for the six-month period ended September
30, 2005 from 2.18% for the six-month period ended September 30, 2004. The
average cost of long-term rupee debt increased to 9.7% for the six-month period
ended September 30, 2005 from 9.6% for the six-month period ended September 30,
2004. The average cost of foreign currency liabilities increased to 3.7% for
the six-month period ended September 30, 2005 from 3.4% for the six-month
period ended September 30, 2004. The foreign currency spread increased 38 basis
points to 1.5% for the six-month period ended September 30, 2005 from 1.1% for
the six-month period ended September 30, 2004. The spread increased by 16
44
basis points to 1.7% for the six-month period ended September 30, 2005 from
1.5% for the six-month period ended September 30, 2004. Our spread continues to
be lower than that of other banks in India primarily due to maintenance of
statutory liquidity ratio and cash reserve ratio on ICICI's liabilities, which
were not subject to these ratios prior to the amalgamation. The net interest
margin is also impacted by the relatively lower net interest margin earned by
our overseas branches, which is offset by the higher fee income that we are
able to earn by leveraging our international presence and our ability to meet
the foreign currency borrowing requirements of Indian companies.
Non-Interest Income
The following table sets forth, for the periods indicated, the principal
components of non-interest income.
Six-month period ended September 30,
---------------------------------------------------------
2005/2004
2004 2005 2005 % change
------------ ------------- -------------- ---------
(in millions, except percentages)
Fees, commission and brokerage..................... Rs. 7,598 Rs. 11,420 US$ 260 50.3%
Trading account revenue(1)......................... (1,067) 2,422 55 327.0
Securities transactions(2)......................... 2,753 4,405 100 60.0
Foreign exchange transactions(3)................... (355) 660 15 285.9
Gain on sale of loans and credit substitutes....... 2,745 2,430 56 (11.5)
Software development and services.................. 670 1,164 27 73.7
Profit on sale of certain premises and equipment... (85) 50 1 158.8
Other income....................................... 1,513 2,544 58 68.1
------------ ------------ -------------- --------
Total non-interest income.......................... Rs. 13,772 Rs. 25,095 US$ 572 82.2%
============ ============ ============== ========
--------------------
(1) Primarily reflects income from trading in government of India securities,
corporate debt securities and mutual fund units.
(2) Primarily reflects capital gains/(losses) realized on the sale of
securities, including fixed income and equity, venture capital investments
and revenues from investment banking subsidiary less other than temporary
diminution.
(3) Arises primarily from purchase and sale of foreign exchange on behalf of
corporate clients and revaluation of foreign currency assets and
liabilities and outstanding forward contracts.
Non-interest income increased by 82.2% for the six-month period ended
September 30, 2005 to Rs. 25.1 billion (US$ 572 million), from Rs. 13.8
billion (US$ 313 million) for the six-month period ended September 30, 2004
primarily due to increase in income from fees, commission and brokerage,
trading account revenue and income on securities transactions, offset, in part
by a decrease in income from gain on sale of loans.
Fees, commission and brokerage increased 50.3% to Rs. 11.4 billion (US$
260 million) for the six-month period ended September 30, 2005 from Rs. 7.6
billion (US$ 173 million) for the six-month period ended September 30, 2004
with growth across all our fee generating businesses. The large increase was
primarily due to growth in retail banking fee income arising from retail
liability product income like account servicing charges, increase in
transaction banking fee income from corporate banking and increase in fee
income from international banking operations.
Trading account revenue and gain on securities transactions increased to
Rs. 6.8 billion (US$ 155 million) for the six-month period ended September 30,
2005 from Rs. 1.7 billion (US$ 38 million) for the six-month period ended
September 30, 2004, due to capital gains realised on the sale of equity
investments as we capitalised on the opportunities created by the buoyant
capital markets. This level of trading profits and capital gains is the result
of the specific market conditions and investors should be aware that such gains
may not be repeated in future periods.
In the six-month period ended September 30, 2005, gain on the sale of loans
(including credit substitutes) decreased by 11.5% to Rs. 2.4 billion (US$ 56
million) from Rs. 2.7 billion (US$ 62 million) in the six-month period ended
September 30, 2004. Income from software development and services increased
73.7% to Rs. 1.2 billion (US$ 27 million) for the six-month period ended
September 30, 2005 from Rs. 670 million (US$ 15 million) for the six-month
period ended September 30, 2004 primarily due to addition of new clients and
increased sale of software products by 3i Infotech Limited (formerly ICICI
Infotech Limited).
45
Other income has increased on account of increase in income from
transaction processing services, earned by ICICI OneSource Limited to Rs. 2.4
billion (US$ 54 million) for the six-month period ended September 30, 2005
from Rs. 1.3 billion (US$ 30 million) for the six-month period ended
September 30, 2004, primarily due to increase in the operations of ICICI
OneSource Limited due to acquisition made in fiscal 2005.
Non-Interest Expense
The following table sets forth, for the periods indicated, the principal
components of non-interest expense.
Six-month period ended September 30,
---------------------------------------------------------
2005/2004
2004 2005 2005 % change
------------ ------------- ------------ ---------
(in millions, except percentages)
Employee expense:
Salaries........................................ Rs. 4,547 Rs. 6,933 US$ 158 52.5%
Employee benefits............................... 632 874 20 38.3
------------ ------------- ------------
Total employee expense............................. 5,179 7,807 178 50.7
Premises and equipment expense..................... 3,466 4,150 95 19.7
Administration and other expense................... 6,088 8,577 195 40.9
Amortization of goodwill and intangible assets..... 302 315 7 4.3
------------ ------------- ------------
Total non-interest expense......................... Rs. 15,035 Rs. 20,849 US$ 475 38.7%
============ ============= ============
Non-interest expense increased by 38.7% for the six-month period ended
September 30, 2005 to Rs. 20.8 billion (US$ 475 million) from Rs. 15.0 billion
(US$ 342 million) for the six-month period ended September 30, 2004 primarily
due to an increase in administration expense and salary expenses.
Employee expenses increased 50.7% to Rs. 7.8 billion (US$ 178 million)
for the six-month period ended September 30, 2005 from Rs. 5.2 billion (US$
118 million) for the six-month period ended September 30, 2004, primarily due
to a 47.0% increase in the number of employees in ICICI Bank to 22,992
employees at September 30, 2005 from 15,639 employees at September 30, 2004.
The increase in employees is commensurate with the growth in our retail
business.
Premises and equipment expense increased 19.7% to Rs. 4.2 billion (US$
95 million) for the six-month period ended September 30, 2005 from Rs. 3.5
billion (US$ 79 million) for the six-month period ended September 30, 2004,
primarily due to increased maintenance and depreciation expenses on premises,
branches, ATMs, computers and computer software. Our number of ATMs increased
from 1,814 at September 30, 2004 to 2,030 at September 30, 2005 and the number
of branches and extension counters increased from 470 at September 30, 2004 to
583 at September 30, 2005.
Administrative and other expenses increased 40.9% to Rs. 8.6 billion
(US$ 195 million) for the six-month period ended September 30, 2005 from Rs.
6.1 billion (US$ 139 million) for the six-month period ended September 30,
2004, primarily due to an increase in advertisement expense, repairs and
maintenance and retail business expenses in line with the increase in business
volumes and increased expenses of the internet-based brokering services
subsidiary and our business process outsourcing subsidiary.
46
Provisions for Loan Losses
The following table set forth, at the dates indicated, certain information
regarding restructured and other impaired loans.
September/
September 30, September 30, March
March 31, 2005 2005 2005 % change
-------------- ------------- ------------- ----------
(in millions, except percentages)
Gross restructured loans..................... Rs. 149,518 Rs. 139,184 US$ 3,168 (6.9)%
Allowance for loan losses on restructured
loans..................................... (53,929) (54,162) (1,233) 0.4
Net restructured loans....................... 95,589 85,022 1,935 (11.1)
-------------- ------------- -------------
Gross other impaired loans................... 29,713 21,732 495 (26.9)
Allowance for loan losses on other impaired
loans..................................... (15,517) (14,440) (329) (6.9)
-------------- ------------- -------------
Net other impaired loans..................... 14,196 7,292 166 (48.6)
-------------- ------------- -------------
Gross restructured and other impaired loans.. 179,231 160,916 3,663 (10.2)
Allowance for loan losses(1)................. (69,446) (68,602) (1,562) (1.2)
-------------- ------------- -------------
Net restructured and other impaired loans.... 109,785 92,314 2,101 (15.9)
-------------- ------------- -------------
Gross total loans............................ 1,075,758 1,246,968 28,379 15.9
Net total loans.............................. 999,858 1,170,154 26,631 17.0
Gross restructured loans as a percentage of
gross loans(2)............................ 13.90% 11.16%
Gross other impaired loans as a percentage
of gross loans(2)......................... 2.76 1.74
Net restructured loans as a percentage of
net loans(2).............................. 9.56 7.27
Net other impaired loans as a percentage of
net loans(2).............................. 1.42 0.62
Allowance for loans losses on restructured
loans as a percentage of gross
restructured loans(2)..................... 36.07 38.91
Allowance for loan losses on other impaired
loans as a percentage of gross other
impaired loans(2)......................... 52.22 66.45
Allowance on loan losses as a percentage of
gross loans(2)(3)......................... 7.06 6.16
--------------------
(1) Excludes provisions on non-impaired loans.
(2) Percentages for the six-month period ended September 30, 2005 are not
annualized.
(3) Includes allowances on non-impaired loans.
The following table sets forth, for the periods indicated, certain
information regarding provisions for loan losses.
Six month period ended September 30,
---------------------------------------------------------
2004 2005 2005 % change
------------ ------------- ------------- ---------
(in millions, except percentages)
Total provisions for the period.............. Rs. 4,379 Rs. 5,795 US$ 132 32.3%
Provision for loan losses as a percentage of
net loans................................. 0.56% 0.50%
Gross restructured loans decreased 6.9% to Rs. 139.2 billion (US$ 3.2
billion) at September 30, 2005 from Rs. 149.5 billion (US$ 3.4 billion) at
year-end fiscal 2005 primarily due to reclassification of certain loans as
non-
47
impaired based on satisfactory performance of the borrower accounts and
reclassification of other impaired loans that were restructured or transferred
to an asset reconstruction company during the year. Gross other impaired loans
decreased 26.9% to Rs. 21.7 billion (US$ 495 million) at September 30, 2005
from Rs. 29.7 billion (US$ 676 million) at year-end fiscal 2005 primarily due
to reclassification of a large loan as unimpaired and reclassification of
certain other impaired loans that were restructured or transferred to an asset
reconstruction company during the year, as restructured loans. As a percentage
of net loans, net restructured loans were 7.3% at September 30, 2005 and 9.6%
at year-end fiscal 2005 and net other impaired loans were 0.6% at September 30,
2005 and 1.4% at year-end fiscal 2005.
Provisions for loan losses for the six-month period ended September 30,
2005 increased 32.3% to Rs. 5.8 billion (US$ 132 million) from Rs. 4.4 billion
(US$ 100 million) for the six-month period ended September 30, 2004 primarily
due to increase in the allowances on consumer loans and credit card receivables
reflecting an increase in the underlying portfolio to Rs. 668.3 billion (US$
15.2 billion) at September 30, 2005 from Rs. 383.4 billion (US$ 8.7 billion) at
September 30, 2004. The coverage ratio on gross restructured loans increased to
38.9% at September 30, 2005 from 36.1% at year-end fiscal 2005. The coverage
ratio on other impaired loans increased to 66.5% at September 30, 2005 from
52.2% at year-end fiscal 2005 primarily due to reclassification of a large loan
as unimpaired and reclassification of certain other impaired loans that were
restructured or transferred to an asset reconstruction company during the year,
as restructured loans.
Income Tax Expense
Income tax expense amounted to Rs. 3.5 billion (US$ 80 million) for the
six-month period ended September 30, 2005 compared to income tax expense of Rs.
874 million (US$ 20 million) for the six-month period ended September 30,
2004. In the current period, the enacted corporate income tax rate decreased
from 36.59% to 33.66% and the tax rate in respect of long-term capital gains
increased from 20.91% to 22.44%. The net effect of this was an increase in
income tax expenses of Rs. 516 million (US$ 12 million) for the six-month
period ended September 30, 2005.
Financial Condition
Assets
The following table sets forth, at the dates indicated, the principal
components of assets.
September/
September 30, September 30, March
March 31, 2005 2005 2005 % change
-------------- ------------- ------------- ----------
(in millions, except percentages)
Cash and cash equivalents................... Rs. 155,639 Rs. 151,095 US$ 3,439 (2.9)%
Trading account assets(1)................... 75,538 59,588 1,356 (21.1)
Securities, excluding venture capital
investments(2)........................... 377,027 434,673 9,892 15.3
Venture capital investments................. 3,932 2,078 47 (47.2)
Investments in affiliates................... 4,725 5,052 115 6.9
Loans, net:
Rupee.................................... 926,420 1,055,307 24,017 13.9
Foreign currency......................... 149,338 191,661 4,362 28.3
Less: Allowances......................... (75,900) (76,814) (1,748) 1.2
-------------- ------------- ------------
Total loans, net............................ 999,858 1,170,154 26,631 17.0
Acceptances................................. 74,116 73,522 1,673 (0.8)
Property and equipment...................... 26,055 26,695 608 2.5
Other assets................................ 146,557 154,578 3,518 5.5
-------------- ------------- ------------ ---------
Total assets................................ Rs. 1,863,447 Rs. 2,077,435 US$ 47,279 11.5%
============== ============= ============ =========
--------------------
(1) Primarily includes government of India securities and corporate debt
securities.
(2) Primarily includes government of India securities and to a much smaller
extent, corporate debt securities and equity securities.
48
Our total assets increased 11.5% to Rs. 2,077.4 billion (US$ 47.3
billion) at September 30, 2005 compared to Rs. 1,863.4 billion (US$ 42.4
billion) at year-end fiscal 2005, primarily due to an increase in loans,
securities and other assets.
Our net loans increased 17.0% to Rs. 1,170.1 billion (US$ 26.6 billion)
at September 30, 2005 compared to Rs. 999.9 billion (US$ 22.8 billion) at
year-end fiscal 2005. Gross consumer loans and credit card receivables
increased 25.8% to Rs. 668.3 billion (US$ 15.2 billion) at September 30, 2005
from Rs. 531.2 billion (US$ 12.1 billion) at year-end fiscal 2005 in
accordance with our strategy to grow our retail asset portfolio.
Securities, excluding venture capital investments increased 15.3% to Rs.
434.7 billion (US$ 9.9 billion) at September 30, 2005 from Rs. 377.0 billion
(US$ 8.6 billion) at year-end fiscal 2005 primarily due to increase in our
investments in government securities. Venture capital investments declined
47.2% to Rs. 2.1 billion (US$ 47 million) at September 30, 2005 compared to
year-end fiscal 2005 primarily due to sale of investments. Cash, cash
equivalents and trading account assets decreased 8.9% to Rs. 210.7 billion
(US$ 4.8 billion) at September 30, 2005 from Rs. 231.2 billion (US$ 5.3
billion) at year-end fiscal 2005.
Investment in affiliates increased to Rs. 5.1 billion (US$ 115 million)
at September 30, 2005 from Rs. 4.7 billion (US$ 108 million) at year-end
fiscal 2005 primarily due to additional infusion of equity capital into ICICI
Prudential Life Insurance Company Limited. Property and equipment increased to
Rs. 26.7 billion (US$ 608 million) at September 30, 2005 from Rs. 26.1
billion (US$ 593 million) at year-end fiscal 2005 primarily due to increase
in our operations.
Other assets increased 5.5% to Rs. 154.6 billion (US$ 3.5 billion) at
September 30, 2005 from Rs. 146.6 billion (US$ 3.3 billion) at year-end
fiscal 2005. At September 30, 2005, other assets included deferred tax asset of
Rs. 8.4 billion (US$ 191 million), intangible assets (including goodwill) of
Rs. 12.0 billion (US$ 274 million) and Rs. 3.4 billion (US$ 76 million) of
assets held for sale, which were primarily acquired through foreclosure of
loans.
Liabilities and Stockholders' Equity
The following table sets forth, at the dates indicated, the principal
components of liabilities and stockholders' equity.
September/
September 30, September 30, March
March 31, 2005, 2005, 2005, % change
--------------- ------------- ------------- ----------
(in millions, except percentages)
Deposits.................................... Rs. 1,016,534 Rs. 1,226,463 US$ 27,912 20.7%
Trading account liabilities................. 24,258 20,880 475 (13.9)
Short-term borrowings....................... 91,951 110,317 2,511 20.0
Acceptances................................. 74,116 73,522 1,673 (0.8)
Long-term debt:
Rupee.................................... 284,979 267,245 6,082 (6.2)
Foreign currency......................... 82,520 90,218 2,053 9.3
--------------- ------------- ------------ ---------
Total long-term debt........................ 367,499 357,443 8,135 (2.7)
Other liabilities........................... 140,096 134,622 3,064 (3.9)
Taxes and dividends payable................. 17,885 16,080 366 (10.1)
Redeemable preferred stock(1)............... 1,044 1,099 25 5.3
Total liabilities........................... 1,733,383 1,940,426 44,161 11.9
Minority interest........................... 2,068 5,893 134 185.0
Stockholders' equity........................ 127,996 131,116 2,984 2.4
--------------- ------------- ------------ ---------
Total liabilities and stockholders'
equity................................... Rs. 1,863,447 Rs. 2,077,435 US$ 47,279 11.5
=============== ============= ============ =========
-------------------
(1) In line with the existing regulatory requirements in India, preferred stock
issued by ICICI needed to be compulsorily redeemed within a specified time
period. Accordingly, all series of preferred stock issued by ICICI were
redeemable in accordance with the terms of the issue.
49
Deposits increased by 20.7% to Rs. 1,226.5 billion (US$ 27.9 billion) at
September 30, 2005 from Rs. 1,016.5 billion (US$ 23.1 billion) at year-end
fiscal 2005. This significant growth in deposits was primarily achieved through
increased focus on retail and corporate customers by offering a wide range of
products designed to meet varied individual and corporate needs and leveraging
on our network of branches, extension counters and ATMs. Our long-term debt
decreased 2.7% to Rs. 357.4 billion (US$ 8.1 billion) at September 30, 2005
from Rs. 367.5 billion (US$ 8.4 billion) at year-end fiscal 2005 primarily due
to 6.2% decrease in long-term rupee debt, offset, in part, by 9.3% increase in
long-term foreign currency debt. Our short-term borrowings increased 20.0% to
Rs. 110.3 billion (US$ 2.5 billion) at September 30, 2005 compared to Rs. 92.0
billion (US$ 2.1 billion) at year-end fiscal 2005. Trading account liabilities
decreased to Rs. 20.9 billion (US$ 475 million) at September 30, 2005 compared
to Rs. 24.3 billion (US$ 552 million) at year-end fiscal 2005. Taxes and
dividends payable decreased 10.1% to Rs. 16.1 billion (US$ 366 million) at
September 30, 2005 from Rs. 17.9 billion (US$ 407 million) at year-end fiscal
2005. The carrying amount of redeemable preferred stock increased to Rs. 1,099
million (US$ 25 million) at September 30, 2005 from Rs. 1,044 million (US$ 24
million) at year-end fiscal 2005. Minority interest increased to Rs. 5.9
billion (US$ 134 million) at September 30, 2005 from Rs. 2.1 billion (US$ 47
million) at year-end fiscal 2005 primarily due to step acquisition of ICICI
Prudential Asset Management Company and reduction in our share in 3i Infotech
Limited and certain variable interest entities. Stockholders' equity increased
2.4% at September 30, 2005 to Rs. 131.1 billion (US$ 3.0 billion) from Rs.
128.0 billion (US$ 2.9 billion) at year-end fiscal 2005.
Off Balance Sheet Items, Commitments and Contingencies
Foreign Exchange and Derivative Contracts
We enter into foreign exchange forwards, options, swaps and other
derivative products to enable customers to transfer, modify or reduce their
foreign exchange and interest rate risks and to manage our own interest rate and
foreign exchange positions. These instruments are used to manage foreign
exchange and interest rate risk relating to specific groups of on-balance sheet
assets and liabilities. Since adoption of SFAS No. 133 and SFAS No. 138
effective April 1, 2001, all derivatives have been recorded as assets or
liabilities on the balance sheet at their respective fair values with unrealized
gains or losses recorded either in accumulated other comprehensive income or in
the statement of income, depending on the purpose for which the derivative is
held. Derivatives that do not meet the criteria for designation as a hedge under
SFAS No. 133 at inception, or fail to meet the criteria thereafter, are
accounted for in "Other assets" with changes in fair value recorded in the
statement of income.
The following table sets forth, at the dates indicated, the notional amount
of derivative contracts.
Notional principal amounts Balance sheet credit exposure(1)
--------------------------------------------------------- ---------------------------------------------
At March 31, At September 30, At March 31, At September 30,
---------------------------- --------------------------- -------------------- ---------------------
2004 2005 2005 2005 2004 2005 2005 2005
------------- ------------- ------------- ------------ --------- -------- ---------- ---------
(in millions)
Interest rate products:
Swap agreements......... Rs. 1,456,182 Rs. 1,352,576 Rs. 1,669,613 US$ 37,998 Rs. 1,552 Rs. 582 Rs. (834) US$ (19)
Others.................. 43,073 479,098 404,467 9,205 43 (6) (168) (4)
------------- ------------- ------------- ------------ --------- -------- ---------- ---------
Total interest rate
products............. Rs. 1,499,255 Rs. 1,831,674 Rs. 2,074,080 US$ 47,203 Rs. 1,595 Rs. 576 Rs.(1,002) US$ (23)
============= ============= ============= ============ ========= ======== ========== =========
Foreign exchange
products:
Forward contracts....... Rs. 620,415 Rs. 867,644 Rs. 937,093 US$ 21,327 Rs. 398 Rs. (222) Rs. (534) US$ (12)
Swap agreements......... 46,724 97,496 126,817 2,886 263 1,830 2,715 62
Others.................. 44,401 - 6,641 151 (345) - 4 -
------------- ------------- ------------- ------------ --------- -------- ---------- ---------
Total foreign exchange
products............. Rs. 711,540 Rs. 965,140 Rs 1,070,551 US$ 24,364 Rs. 316 Rs.1,608 Rs. 2,185 US$ 50
============= ============= ============= ============ ========= ======== ========== =========
-------------------
(1) Denotes the mark-to-market impact of the derivative and foreign exchange
products on the reporting date.
The significant increase in the volumes of interest rates swaps and foreign
exchange forward contracts was primarily due to increased transactions carried
out by us on behalf of our customers and growth in the market for such products.
An interest rate swap does not entail exchange of notional principal and
the cash flow arises on account of the difference between the interest rate pay
and receive legs of the swap which is generally much lower than the
50
notional principal of the swap. A large proportion of interest rate swaps,
currency swaps and forward exchange contracts are on account of market making
which involves providing regular two-way prices to customers or inter-bank
counter-parties. This results in generation of a higher number of outstanding
transactions, and hence a large value of gross notional principal of the
portfolio. For example, if a transaction entered into with a customer is
covered by an exactly opposite transaction entered into with another
counter-party, the net market risk of the two transactions will be zero
whereas, the notional principle of the portfolio will be the sum of both the
transactions.
Securitization
We primarily securitize commercial loans through "pass-through"
securitizations. In the six-month period ended September 30, 2005, we
securitized loans and credit substitutes which resulted in gains of Rs. 2.4
billion (US$ 56 million) compared to Rs. 2.7 billion (US$ 62 million) in the
six-month period ended September 30, 2004. The gains are reported as a component
of gain on sale of loans and credit substitutes. After the securitization, we
generally continue to maintain customer account relationships and service loans
transferred to the securitization trust. The securitizations are either with or
without recourse. In certain cases, we may enter into derivative transactions
such as written put options and interest rate swaps with the transferees. In
certain cases, we write put options, which require us to purchase, upon request
of the holders, securities issued in certain securitization transactions. The
put options seek to provide liquidity to holders of such instruments. If
exercised, we are obligated to purchase the securities at the pre-determined
exercise price.
Variable Interest Entities
We have transferred certain impaired loans to borrower specific
funds/trusts managed by an asset reconstruction company set up under the
Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 and guidelines issued by the Reserve Bank of India.
The trusts/funds (which are separate legal entities) issued security receipts to
us and other transferors as consideration for the transaction. Certain transfers
did not qualify for sale accounting under SFAS No. 140 and continue to be
reflected as loans on our balance sheet. Other transfers qualified for sale
accounting but were impacted by FIN 46/FIN 46R. We have consolidated entities in
which we are the primary beneficiary at September 30, 2005. Funds/trusts which
are VIEs but in which we are not the primary beneficiary have not been
consolidated.
Our venture capital subsidiary is accounted for pursuant to specialized
industry guidance applicable to investment companies. Pursuant to this guidance
investment holdings are accounted for at estimated fair value irrespective of
the level of equity ownership. Some of these investment holdings may be deemed
to be VIEs as defined in FIN 46R. The FASB permitted non-registered investment
companies to defer consolidation of VIEs in which they are involved until the
proposed Statement of Position on the clarification of the scope of the
Investment Company Audit Guide is finalized. Following issuance of the Statement
of Position, the FASB will consider further modification to FIN 46R to provide
an exception for companies that qualify to apply the revised Audit Guide. We
applied this deferral provision and did not consolidate additional assets in
potential VIEs in which we are involved at September 30, 2005. Following
issuance of the revised Audit Guide and further modification, if any, to FIN
46R, we will assess the effect of such guidance on our venture capital
subsidiary.
Loan Commitments
We have outstanding undrawn commitments to provide loans and financing to
customers. These loan commitments aggregated Rs. 75.7 billion (US$ 1.7
billion) at September 30, 2005. The interest rate on these commitments is
dependent on the lending rates on the date of the loan disbursement. Further,
the commitments have fixed expiration dates and are contingent upon the
borrower's ability to maintain specific credit standards.
Capital Commitments
We are obligated under a number of capital contracts. Capital contracts are
job orders of a capital nature, which have been committed. Estimated amounts of
contracts remaining to be executed on capital account aggregated Rs. 1.8 billion
(US$ 42 million) at September 30, 2005 compared to Rs. 604 million (US$ 14
million) at year-end fiscal 2005 signifying the unpaid amount for acquisition of
fixed assets as per contracts entered into with suppliers.
51
Operating Lease Commitments
We have commitments under long-term operating leases principally for
premises. The following table sets forth, a summary of future minimum lease
rental commitments at September 30, 2005, for non-cancelable leases.
Lease rental commitments for period/year ended March 31, (in millions)
------------------------------------------------------------- -------------
2006......................................................... Rs. 536
2007......................................................... 890
2008......................................................... 849
2009......................................................... 784
2010......................................................... 744
2011......................................................... 708
Thereafter................................................... 2,272
-------------
Total minimum lease commitments.............................. Rs. 6,783
=============
Guarantees
As a part of our financing activities, we issue guarantees to enhance the
credit standing of our customers. The guarantees are generally for a period not
exceeding 10 years. The credit risk associated with these products, as well as
the operating risks, are similar to those relating to other types of financial
instruments. We have the same appraisal process for guarantees as that for any
other loan product. Guarantees increased by 10.0% to Rs. 176.5 billion
(US$ 4.0 billion) at September 30, 2005 from Rs. 160.5 billion (US$ 3.7
billion) at year-end fiscal 2005.
The following table sets forth, at the dates indicated, guarantees
outstanding.
September/
At September 30, At September 30, March
At March 31, 2005 2005 2005 % change
----------------- --------------- ---------------- -----------
(in millions, except percentages)
Financial guarantees(1).... Rs. 60,672 Rs. 59,533 US$ 1,355 (1.9)%
Performance guarantees(2).. 99,808 116,992 2,662 17.2
------------- ------------- --------------- ------
Total guarantees........... Rs. 160,480 Rs. 176,525 US$ 4,017 10.0%
============= ============= =============== ======
--------------------
(1) Consists of instruments guaranteeing the timely contractual payment of loan
obligations, primarily to foreign lenders on behalf of project companies.
(2) Consists of instruments guaranteeing the performance by a company of an
obligation, such as exports.
The following table sets forth contractual obligations on long-term debt
and operating lease at September 30, 2005.
Payments due by period
-------------------------------------------------------------------
Between Between
April 2006 April 2009
Up to March and and From April
Contractual Obligations Total 2006 March 2009 March 2011 2011 onwards
-------------------------------------------------------------------------------------------------------------
(in millions)
Long-term debt obligations......... Rs. 358,123 Rs. 37,686 Rs. 171,190 Rs. 74,310 Rs. 74,937
Operating lease obligations........ 6,783 536 2,523 1,452 2,272
----------- ----------- ----------- ----------- -----------
Total.............................. Rs. 364,906 Rs. 38,222 Rs. 173,713 Rs. 75,762 Rs. 77,209
=========== =========== =========== =========== ===========
52
The following table sets forth contractual obligations on guarantees at the
six-month period ended September 30, 2005.
Payments due by period
-------------------------------------------------------------------
Less than More than
Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years
----------- ----------- ----------- ----------- -----------
(in millions)
Guarantees
Financial guarantees............ Rs. 59,533 Rs. 32,231 Rs. 12,601 Rs. 6,920 Rs. 7,781
Performance guarantees.......... 116,992 45,872 46,320 18,475 6,325
----------- ----------- ----------- ----------- -----------
Total............................... Rs. 176,525 Rs. 78,103 Rs. 58,921 Rs. 25,395 Rs. 14,106
=========== =========== =========== =========== ===========
Capital Resources
ICICI Bank is subject to the capital adequacy requirements of the Reserve
Bank of India, which are primarily based on the capital adequacy accord reached
by the Basel Committee of Banking Supervision, Bank of International Settlements
in 1988. ICICI Bank is required to maintain a minimum ratio of total capital to
risk adjusted assets of 9.0%, at least half of which must be Tier 1 capital.
At September 30, 2005, ICICI Bank's capital adequacy ratio calculated in
accordance with the Reserve Bank of India guidelines and based on its
unconsolidated financial statements prepared in accordance with Indian GAAP was
11.5%. Using the same basis of calculation, at September 30, 2005, ICICI Bank's
Tier 1 capital adequacy ratio was 7.2% and its Tier 2 capital adequacy ratio was
4.3%.
The following table sets forth, at the dates indicated, risk-based capital,
risk-weighted assets and risk-based capital adequacy ratios computed in
accordance with the applicable Reserve Bank of India guidelines and based on
ICICI Bank's unconsolidated financial statements prepared in accordance with
Indian GAAP.
At September 30, 2005
---------------------------------
(in millions, except percentages)
Tier 1 capital........................... Rs. 108,318 US$ 2,465
Tier 2 capital........................... 64,120 1,459
-------------- --------------
Total capital............................ Rs. 172,438 US$ 3,924
============== ==============
On- balance sheet risk weighted assets... Rs. 1,251,431 US$ 28,481
Off-balance sheet risk weighted assets... 212,844 4,844
Risk weighted assets on trading book 32,141 731
============== ==============
Total risk weighted assets............... Rs. 1,496,416 US$ 34,056
============== ==============
Tier 1 capital adequacy ratio............ 7.2%
Tier 2 capital adequacy ratio............ 4.3
--------------
Total capital adequacy ratio............. 11.5%
--------------
The principal off-balance sheet items for ICICI Bank were loan commitments,
guarantees, put options and lease and capital commitments. ICICI Bank entered
into these arrangements for normal business purposes. See "Operating and
Financial Review and Prospects - Off Balance Sheet Items, Commitments and
Contingencies" included elsewhere in this prospectus. Capital was provided for
these items based on the existing capital adequacy guidelines of the Reserve
Bank of India. See "Supervision and Regulation - Reserve Bank of India
Regulations - Capital Adequacy Requirements" in our annual report on Form 20-F
for the fiscal year ended March 31, 2005 which is incorporated by reference into
this prospectus. Lease commitments were not expected to materially affect
capital requirements. ICICI Bank provides capital on the put options outstanding
and forward contracts and derivatives contracts outstanding at September 30,
2005 as per existing capital adequacy guidelines of the Reserve Bank of India.
53
Liquidity Risk
Liquidity risk arises in the funding of lending, trading and investment
activities and in the management of trading positions. It includes both the
risk of unexpected increases in the cost of funding an asset portfolio at
appropriate maturities and the risk of being unable to liquidate a position in
a timely manner at a reasonable price. The goal of liquidity management is to
be able, even under adverse conditions, to meet all liability repayments on
time and fund all investment opportunities.
We maintain diverse sources of liquidity to facilitate flexibility in
meeting funding requirements. Incremental operations are principally funded by
accepting deposits from retail and corporate depositors. The deposits are
augmented by borrowings in the short-term inter-bank market and through the
issuance of bonds. Loan maturities and sale of investments also provide
liquidity. Most of the funds raised are used to extend loans or purchase
securities. Generally, deposits are of a shorter average maturity than loans or
investments.
Most of our incremental funding requirements, including replacement of
maturing liabilities of ICICI which generally had longer maturities, are met
through short-term funding sources, primarily in the form of deposits including
inter-bank deposits. However, a large portion of our assets, primarily the
assets of ICICI and our home loan portfolio, have medium or long-term
maturities, creating a potential for funding mismatches. We actively monitor
our liquidity position and attempt to maintain adequate liquidity at all times
to meet all requirements of all depositors and bondholders, while also meeting
the requirement of lending groups. From time to time, we may buy back some of
our outstanding bonds at our discretion in the open market or in privately
negotiated transactions depending on market conditions, interest rates and
other factors. We seek to establish a continuous information flow and an active
dialogue between the funding and borrowing divisions of the organization to
enable optimal liquidity management. A separate group is responsible for
liquidity management.
Another source of liquidity risk is the put options written by us on the
loans, which we have securitized. These options are binding on us and require
us to purchase, upon request of the holders, securities issued in such
securitized transactions. The options seek to provide liquidity to the security
holders. If exercised, we will be obligated to purchase the securities at the
pre-determined exercise price. All put options were out-of-the-money for the
holders.
Under the Reserve Bank of India's statutory liquidity ratio requirement,
we are required to maintain 25.0% of our total demand and time liabilities by
way of approved securities, such as government of India securities and state
government securities. We maintain the statutory liquidity ratio through a
portfolio of government of India securities that we actively manage to optimize
the yield and benefit from price movements. Until September 17, 2004, under the
Reserve Bank of India's cash reserve ratio requirements, we were required to
maintain 4.5% of our demand and time liabilities in a current account with the
Reserve Bank of India. The Reserve Bank of India increased the cash reserve
ratio to 5.0% in two stages (4.75% effective September 18, 2004 and 5.0%
effective October 2, 2004).
We also have recourse to the liquidity adjustment facility and the
refinance window, which are short-term funding arrangements provided by the
Reserve Bank of India. We maintain a substantial portfolio of liquid high
quality securities that may be sold on an immediate basis to meet our liquidity
needs.
We also have the option of managing liquidity by borrowing in the
inter-bank market on a short-term basis. The overnight market which is a
significant part of the inter-bank market, is susceptible to volatile interest
rates. These interest rates on certain occasions, have touched historical highs
of 100.0% and above. To curtail reliance on such volatile funding, our
liquidity management policy has stipulated daily limits for borrowing and
lending in this market. The limit on daily borrowing is more stringent than the
limit set by the Reserve Bank of India. ICICI Securities, like us, relies for a
certain proportion of its funding on the inter-bank market for overnight money
and is therefore also exposed to similar risk of volatile interest rates.
We are required to submit gap analysis on a monthly basis to the Reserve
Bank of India. Pursuant to the Reserve Bank of India guidelines, the liquidity
gap (if negative) must not exceed 20.0% of outflows in the 1-14 day and the
15-28 day time category. We prepare fortnightly maturity gap analysis to review
our liquidity position. Static gap analysis is also supplemented by a dynamic
analysis for the short-term, to enable the liability raising units
54
to have a fair estimate of the short-term funding requirements. In addition, we
also monitor certain liquidity ratios on a fortnightly basis.
Our bonds are rated AAA by two Indian credit rating agencies, ICRA Limited
and Credit Analysis & Research Limited. Our term deposits are rated AAA by ICRA
Limited. Our long-term foreign currency borrowings are rated Baa3 by Moody's
Investors Service and BB+ by Standard and Poor's. Our short-term foreign
currency ratings are Ba2/ Not Prime by Moody's Investors Service and B by
Standard and Poor's. The outlook from Standard and Poor is stable. Moody's has
a positive outlook on our Baa3 foreign currency senior debt rating, a stable
outlook on our Baa3 subordinated debt rating and also a stable outlook on our
Ba2 ratings on foreign currency deposits. Any downgrade in these credit
ratings, or any adverse change in these ratings relative to other banks and
financial intermediaries, could adversely impact our ability to raise resources
to meet our funding requirements, which in turn could adversely impact our
liquidity position.
Capital Expenditure
The following tables set forth, for the periods indicated, certain
information related to capital expenditure by category of fixed assets.
Six- month period ended September 30, 2005
---------------------------------------------------------------------------------
Cost at
March 31, Additions/ Deletions/ Net assets at
2005 transfers transfers Depreciation September 30, 2005
------------ ----------- ----------- ------------ -----------------------
(in millions)
Land...................... Rs. 1,648 Rs. 4 Rs. (30) Rs. 268 Rs. 1,354 US$ 31
Buildings................. 14,555 1,025 (816) 2,108 12,656 288
Equipment, furniture and
others................. 21,101 2,694 (138) 12,325 11,332 258
Construction in progress.. 1,237 562 (439) 7 1,353 31
------------ ----------- ----------- ----------- ----------- ---------
Total..................... Rs. 38,541 Rs. 4,285 Rs. (1,423) Rs. 14,708 Rs. 26,695 US$ 608
============ =========== =========== =========== =========== =========
Our capital expenditure on property and equipment was Rs. 4.3 billion
(US$ 98 million) for the six-month period ended September 30, 2005. Capital
expenditure of Rs. 2.7 billion (US$ 61 million) on equipment, furniture and
others included Rs. 1.2 billion (US$ 27 million) on computers and software.
Significant Changes
Except as stated in this prospectus, no significant changes have occurred
to our business since the date of the interim consolidated financial statements
as of September 30, 2005, contained in this prospectus.
Segment Revenues and Assets
Subsequent to the amalgamation, the composition of our operating segments
has changed. Our operations are now classified into the following segments:
commercial banking segment, investment banking segment and others. Segment data
for previous periods has been reclassified on a comparable basis.
The commercial banking segment provides medium-term and long-term project
and infrastructure financing, securitization, factoring, lease financing,
working capital finance and foreign exchange services to clients. Further, it
provides deposit and loan products to retail customers. The investment banking
segment includes ICICI Bank's treasury operations and the operations of ICICI
Securities, and deals in the debt, equity and money markets and provides
corporate advisory products such as mergers and acquisition advice, loan
syndication advice and issue management services. Others consist of various
operating segments that do not meet the requirements to be reported as an
individual reportable segment as defined in SFAS No. 131 on Disclosure about
Segments of an Enterprise and Related Information.
Operating segments are defined as components of an enterprise for which
separate financial information is available that is regularly evaluated by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The chief operating decision maker evaluates performance
and allocates resources based on an analysis of various performance indicators
for each of the above reportable segments. Components of profit and loss are
evaluated for commercial banking and investment banking segments. Further, the
chief operating
55
decision maker specifically reviews assets of our retail loan operations, which
are part of the commercial banking segment. The segment-wise information
presented below is consistent with the management reporting.
Commercial Banking Segment
Net income of the commercial banking segment increased by 91.6% to Rs. 6.4
billion (US$ 146 million) for the six-month period ended September 30, 2005
from Rs. 3.3 billion (US$ 76 million) for the six-month period ended
September 30, 2004, primarily due to an increase in net interest income by Rs.
5.9 billion (US$ 134 million) and non-interest income by Rs. 4.5 billion
(US$ 102 million) for the six-month period ended September 30, 2005 as
compared to the six-month period ended September 30, 2004.
Provisions for loan losses increased by 31.5% to Rs. 5.8 billion (US$ 131
million) for the six-month period ended September 30, 2005 from Rs. 4.4 billion
(US$ 100 million) for the six-month period ended September 30, 2004 primarily
due to increase in provisions on consumer loans and credit card receivables.
Non-interest income increased by 44.8% to Rs. 14.4 billion (US$ 328 million)
for the six-month period ended September 30, 2005 from Rs. 10.0 billion (US$
227 million) for the six-month period ended September 30, 2004. The large
increase was primarily due to growth in retail liability product income like
account servicing charges and transaction banking fee income from small
enterprises, as well as an increase in transaction banking and other fee income
from corporate banking. Net interest income increased 57.0% to Rs. 16.2 billion
(US$ 368 million) for the six-month period ended September 30, 2005 from Rs.
10.3 billion (US$ 234 million) for the six-month period ended September 30,
2004, primarily due to an increase in interest income on advances. Non-interest
expense increased 35.1% to Rs. 15.5 billion (US$ 353 million) for the six-month
period ended September 30, 2005 from Rs. 11.5 billion (US$ 261 million) for the
six-month period ended September 30, 2004 primarily due to an increase in
salary and other administration expenses.
Investment Banking Segment
Net income for the investment banking segment increased to Rs. 1.9 billion
(US$ 43 million) for the six-month period ended September 30, 2005 compared
to a loss of Rs. 100 million (US$ 2.3 million) for the six-month period ended
September 30, 2004 primarily due to an increase in trading account revenue and
an increase in gains from securities transactions offset by an increase in net
interest expense. Trading account revenue and gains on securities transactions
increased to Rs. 6.8 billion (US$ 155 million) for the six-month period ended
September 30, 2005 from Rs. 1.7 billion (US$ 38 million) for the six-month
period ended September 30, 2004 primarily due to capital gains realized on sale
of equity investments as we capitalized on the opportunities created by the
buoyant capital markets. This level of trading profits and capital gains is the
result of the specific market conditions and investors should be aware that
such gains may not be repeated in future periods.
Net interest expense increased to Rs. 2.5 billion (US$ 57 million) for
the six-month period ended September 30, 2005 from Rs. 221 million (US$ 5
million) for the six-month period ended September 30, 2004 primarily due to an
increase in interest expense on trading account liabilities and other short
term borrowings. Non-interest expense increased 33.3% to Rs.2.3 billion (US$
53 million) for the six-month period ended September 30, 2005 from Rs. 1.7
billion (US$ 40 million) for the six-month period ended September 30, 2004
primarily due to an increase in payments to and provisions for employees and
other administrative expenses.
Related Party Transactions
We conduct transactions with our related parties. The following represent
the significant transactions between us and such related parties:
Insurance Services
During the six-month period ended September 30, 2005, we paid insurance
premium amounting to Rs. 34 million (US$ 1 million) to ICICI Prudential Life
Insurance Company compared to Rs. 0.17 million (US$ 3,809) for six-month
period ended September 30, 2004 and Rs. 231 million (US$ 5 million) to ICICI
Lombard General Insurance Company compared to Rs. 58 million (US$ 1 million)
for the six-month period ended September 30, 2004. We received insurance claims
totaling to Rs. 5 million (US$ 107,533) from ICICI Prudential Life Insurance
Company compared to no insurance claims during six-month period ended September
30, 2004 and Rs. 37 million
56
(US$ 1 million) from ICICI Lombard General Insurance Company compared to Rs. 11
million (US$ 247,634) during six-month period ended September 30, 2004.
Referral Fees
During the six-month period ended September 30, 2005 we received referral
fees amounting to Rs. 240 million (US$ 5 million) from ICICI Prudential Life
Insurance Company compared to Rs. 95 million (US$ 2 million) for the
six-month period ended September 30, 2004 and Rs. 282 million (US$ 6 million)
from ICICI Lombard General Insurance Company compared to Rs. 75 million (US$
2 million) for the six-month period ended September 30, 2004.
Lease of Premises and Facilities
During the six-month period ended September 30, 2005, we received Rs. 73
million (US$ 2 million) for lease of premises, facilities and other
administrative costs from ICICI Prudential Life Insurance Company compared to
Rs. 78 million (US$ 2 million) for the six-month period ended September 30,
2004 and Rs. 70 million (US$ 2 million) from ICICI Lombard General Insurance
Company compared to Rs. 49 million (US$ 1 million) for the six-month period
ended September 30, 2004.
Secondment of Employees
During the six-month period ended September 30, 2005, we received Rs. 0.37
million (US$ 8,479) for seconded employees from ICICI Prudential Life
Insurance Company compared to Rs. 0.33 million (US$ 7,470) for the six-month
period ended September 30, 2004 and Rs. 2 million (US$ 35,518) from ICICI
Lombard General Insurance Company compared to Rs. 7 million (US$ 152,222) for
the six-month period ended September 30, 2004.
Asset Management Services
During the six-month period ended September 30, 2005, we provided asset
management services to TCW / ICICI Investment Partners LLC and earned fees of
Rs. 2 million (US$ 49,000) compared to Rs. 0.03 million (US$ 736) for the
six-month period ended September 30, 2004.
Deposits and Borrowings
During the six-month period ended September 30, 2005, we paid interest on
bonds/deposits/call borrowings amounting to Rs. 8 million (US$ 186,298) to
ICICI Prudential Life Insurance Company compared to Rs. 3 million (US$
74,836) for the six-month period ended September 30, 2004 and Rs. 3 million
(US$ 66,118) to ICICI Lombard General Insurance Company compared to Rs. 2
million (US$ 53,094) for the six-month period ended September 30, 2004.
Interest and Dividend
During the six-month period ended September 30, 2005, we received interest
on loans amounting to Rs. 6 million (US$ 125,390) from ICICI Prudential Life
Insurance Company compared to no interest on loans for the six-month period
ended September 30, 2004 and Rs. 1 million (US$ 16,773) from ICICI Lombard
General Insurance Company compared to no interest on loans for the six-month
period ended September 30, 2004 and we received dividend amounting to Rs. 81
million (US$ 2 million) from ICICI Lombard General Insurance Company compared
to Rs. 81 million (US$ 2 million) for the six-month period ended September
30, 2004.
Employee Loans
We have advanced housing, vehicle and general-purpose loans to our
employees, bearing interest ranging from 2.5% to 3.5%. The tenure of these loans
range from 10 years to 25 years. The loans are generally secured by the assets
acquired by the employees. Employee loan balances outstanding as of September
30, 2005 was Rs. 4.9 billion (US$ 112 million).
57
Purchase of Investments
During the six-month period ended September 30, 2005, we purchased
investments amounting to Rs. 1.0 billion (US$ 22 million) from ICICI
Prudential Life Insurance Company compared to Rs. 442 million (US$ 10
million) during the six-month period ended September 30, 2004 and Rs. 397
million (US$ 9 million) from ICICI Lombard General Insurance Company compared
to Rs. 50 million (US$ 1 million) during the six-month period ended September
30, 2004.
Sale of Investments
During the six-month period ended September 30, 2005, we sold investments
amounting to Rs. 3 billion (US$ 75 million) to ICICI Prudential Life
Insurance Company compared to Rs. 1 billion (US$ 30 million) during the
six-month period ended September 30, 2004 and Rs. 279 million (US$ 6 million)
to ICICI Lombard General Insurance Company compared to Rs. 13 million (US$
299,545) during the six-month period ended September 30, 2004. We accounted
gain of Rs. 11 million (US$ 244,576) on sale made to ICICI Prudential Life
Insurance Company compared to Rs. 0.27 million (US$ 6,194) during the
six-month period ended September 30, 2004 and gain of Rs. 3 million (US$
74,981) on sale made to ICICI Lombard General Insurance Company compared to
loss of Rs. 0.35 million (US$ 8,029) during the six-month period ended
September 30, 2004.
Custodial Charges
During the six-month period ended September 30, 2005, we received
custodial charges amounting to Rs. 3 million (US$ 58,421) from ICICI Lombard
General Insurance Company compared to Rs. 2 million (US$ 49,074) for the
six-month period ended September 30, 2004.
Related Party Balances
The following balances payable to/receivable from related parties are
included in the balance sheet:
At September 30, 2005
-----------------------------
(in millions)
Loans............................................ Rs. 3 US$ 0.08
Other assets..................................... 212 5
Deposits......................................... 1,940 44
Other liabilities................................ 0.14 0.003
Critical Accounting Policies
In order to understand our financial condition and results of operations,
it is important to understand our significant accounting policies and the
extent to which we use judgments and estimates in applying those policies. Our
accounting and reporting policies are in accordance with US GAAP and conform
to standard accounting practices relevant to our products and services and the
businesses in which we operate. US GAAP requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and the reported income and expenses
during the reported period. Accordingly, we use a significant amount of
judgment and estimates based on assumptions for which the actual results are
uncertain when we make the estimation.
We have identified three critical accounting policies, based on the
judgments and estimates required in the application of these policies. These
include valuation of securities and accounting for derivative transactions and
hedging activities, allowance for loan losses and accounting for securitization
transactions. Additional information about these policies can be found in Note
1 to our interim unaudited condensed consolidated financial statements. The
statements below contain forward-looking statements within the meaning of the
Private Securities Litigation Reform Act. See "Forward-Looking Statements."
58
Allowance for loan losses
The allowance for loan losses represents management's estimate of probable
losses inherent in the portfolio. We have developed appropriate policies and
procedures for assessing the adequacy of the allowance for loan losses that
reflect our careful evaluation of credit risk considering all information
available to us. In developing this assessment, we must rely on estimates and
exercise judgment regarding matters where the ultimate outcome is unknown, such
as economic factors, developments affecting companies in specific industries and
issues with respect to single borrowers. Depending on changes in circumstances,
future assessments of credit risk may yield materially different results, which
may require an increase or a decrease in the allowance for loan losses.
Larger balance, non-homogenous exposures representing significant
individual credit exposures are evaluated based upon the borrower's overall
financial condition, resources and payment record and the realizable value of
any collateral. Loans identified as trouble debt restructuring or other impaired
with a balance of Rs. 100 million and above are individually reviewed and an
allowance is determined based on the difference between the loan's carrying
value and the loan's fair value. Fair value is based on either the present value
of expected future cash flows discounted at the loan's effective interest rate,
the loan's observable market price or the fair value of the collateral, less
disposal costs, if the loan is collateral dependent. No other allowance is
provided on impaired loans that are individually reviewed.
Each portfolio of smaller-balance, homogenous loans, including consumer
loans and credit card receivables, is evaluated for impairment. The allowance
for loan losses attributed to these loans is established by a process that
includes an estimate of probable losses inherent in the portfolio. These include
historical delinquency and credit loss experience and current trends and
conditions.
These evaluation processes are subject to numerous estimates and
judgments. The use of different estimates or assumptions could produce
different results. We regularly monitor qualitative and quantitative trends in
the loan portfolio, including changes in the levels of restructured loans and
other impaired loans. The distribution of the allowance as described above does
not diminish the fact that the entire allowance is available to absorb credit
losses in the loan portfolio. Our principal focus, therefore, is on the
adequacy of the total allowance for loan losses.
Valuation of Securities and Accounting for Derivatives Transactions and
Hedging Activities
Our securities are classified into available for sale securities, trading
securities, venture capital investments and non-readily marketable securities.
The classification into available for sale and trading securities is based on
management's intention at the time of purchase. We no longer classify
investments in debt securities as held to maturity, due to sale of certain held
to maturity securities in fiscal 2002 by ICICI for reasons other than those
specified in SFAS No. 115. Further, we offer derivative products to our
customers to transfer, modify or reduce their foreign exchange and interest rate
risks and to manage our own interest rate and foreign exchange positions. The
derivatives market in India is evolving and our derivative volumes have
increased significantly since the amalgamation.
The fair values of quoted securities are determined based on market prices.
The fair value of securities for which quoted market prices are not available is
estimated as follows:
o The fair value of unquoted government of India securities is estimated
based on the yields to maturity of these securities published by
certain agencies approved by the Reserve Bank of India.
o The fair value of other unquoted securities and preference shares is
computed based on the mark-up, based on the credit rating of the
issuer by a credit rating agency, over the yields to maturity for
government of India securities, as published by certain agencies
approved by the Reserve Bank of India.
o The fair values of investments in unquoted mutual fund units are
estimated based on the latest repurchase price declared by the mutual
fund in respect of each particular scheme. If the repurchase price is
not available, the fair value is estimated based on the net asset
values of the respective mutual fund scheme.
59
o The fair values of certain derivative contracts are derived from
pricing models that consider market and contractual prices for the
underlying financial instruments, as well as the time value of money,
the yield curve and any other volatility factors underlying the
positions.
Changes in values of available-for-sale securities are recognized net of
taxes as a component of stockholders' equity, unless the value is impaired and
the impairment is not considered to be temporary. Impairment losses that are not
considered temporary are recognized in the income statement. We conduct regular
reviews to assess whether other-than-temporary impairment exists. Changes in the
fair values of trading account assets are recognized in the income statement.
Equity securities, forming part of our securities portfolio, are
considered as publicly traded if they have been actively traded on a securities
exchange within six-month period prior to the relevant balance sheet date. The
fair value of such securities is the last quoted price. Non-readily marketable
equity securities are recorded at cost and a provision is made for other than
temporary diminution. Equity securities acquired by conversion of loans in a
troubled debt restructuring are stated at their fair values and accounted for
in the same manner as equity investments acquired for cash.
The fair values of publicly traded venture capital investments are
generally based upon quoted market prices. In certain situations, including
thinly traded securities, large block holdings, restricted shares or other
special situations, the quoted market price is adjusted to produce an estimate
of the attainable fair value for the securities. For securities that are not
publicly traded, fair value is determined in good faith pursuant to procedures
established by the board of directors of the venture capital subsidiary. In
determining the fair value of these securities, consideration is given to the
financial conditions, operating results and prospects of the underlying
companies, and any other factors deemed relevant. Since the valuations are
inherently uncertain, these estimated values may differ significantly from the
values that would have been used had a ready market for the investments existed.
Changes in fair values of venture capital investments are recognized in the
income statement.
SFAS No. 133 and SFAS No. 138 require that all derivative instruments be
recorded on the balance sheet at their respective fair values with unrealized
gains and losses recorded either in accumulated other comprehensive income or in
the statement of income, depending on the purpose for which the derivative was
held.
We provide forward contracts to our customers for hedging their short-term
exchange rate risk on foreign currency denominated receivables and payables. We
generally provide this facility for a term of up to six-month period and
occasionally up to 12 months. We also offer interest rate and currency swaps to
our customers for hedging their medium and long-term risks due to interest rate
and currency exchange rate movements. We offer these swaps for a period ranging
from three to 10 years. We also hedge our own exchange rate risk related to our
foreign currency trading portfolio with products from banking counterparties.
At the inception of a hedge transaction, we formally document the hedge
relationship and the risk management objective and strategy for undertaking the
hedge. This process includes identification of the hedging instrument, hedged
item, risk being hedged and the methodology for measuring effectiveness of the
hedge. In addition, we assess both at the inception of the hedge and on an
ongoing basis, whether the derivative used in the hedging transaction has been
highly effective in offsetting changes in fair value or cash flows of the hedged
item, and whether the derivative is expected to continue to be highly effective.
Derivatives that do not meet the criteria for designation as a hedge under SFAS
No. 133 at inception, or fail to meet the criteria thereafter, are accounted for
in other assets with changes in fair value recorded in the statement of income.
We discontinue hedge accounting prospectively when it is either determined
that the derivative is no longer highly effective in offsetting changes in the
fair value or cash flows of a hedged item; the derivative expires or is sold,
terminated or exercised; the derivative is de-designated because it is unlikely
that a forecasted transaction would occur; or management determines that
designation of the derivative as a hedging instrument is no longer appropriate.
Changes in the fixed income, equity, foreign exchange markets would impact
our estimate of fair value in the future, potentially affecting principal
trading revenues. Similarly, pricing models and their underlying assumptions
60
impact the amount and timing of unrealized gains and losses recognized, and the
use of different pricing models or assumptions could produce different financial
results.
Securitization
We primarily securitize commercial loans through "pass-through"
securitizations. After the securitization, we generally continue to maintain
customer account relationships and service loans transferred to the
securitization trust. Transfers that do not meet the criteria for a sale under
SFAS No. 140, are required to be recorded as secured borrowings with a pledge of
collateral, and such secured borrowings are required to be reported as a
component of other borrowings. Recourse and servicing obligations and put
options written are recorded as proceeds of the sale.
Retained beneficial interests in the loans and servicing rights are
measured by allocating the carrying value of the loans between the assets sold
and the retained interest, based on the relative fair value at the date of the
securitization. The fair values are determined using financial models or quoted
market prices or sale value of similar assets.
Financial models and their underlying assumptions relating to delinquency,
prepayments, servicing costs and conversions from floating rate loans to fixed
rate loans, impact the amount and timing of gains and losses recognized and the
valuation of retained interests, and the use of different financial models or
assumptions could produce different financial results.
Recently Issued Accounting Standards
Accounting changes and error corrections
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3", or
SFAS 154. SFAS 154 replaces APB Opinion No. 20, "Accounting Changes", or APB 20,
and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial
Statements," and changes the requirements for the accounting for and reporting
of a change in accounting principle. APB 20 previously required that most
voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new
accounting principle. SFAS 154 requires retrospective application to prior
periods' financial statements for voluntary changes in accounting principle.
SFAS 154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005.
QSPE status of certain Commercial Mortgage Securitization Structures
We transfer commercial mortgage loans to trusts that issue various classes
of securities backed by the commercial mortgage loans to investors, or CMBS.
Those trusts are designed to be qualifying special purposes entities, or QSPE,
as defined by Statement of Financial Accounting Standards No. 140 (FAS 140),
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." We previously had analyzed the governing pooling and servicing
agreements for the CMBS trusts to which it transfers loans, and believes that
their terms are consistent with the criteria in FAS 140 for QSPE status.
Recently, regulators and standard setters have had discussions with industry
participants and accounting firms regarding whether certain provisions that are
common in CMBS structures satisfy the stringent QSPE criteria in FAS 140. The
regulators and standard setters are considering the need for clarifying
guidance. If such future guidance results in a determination that the CMBS
trusts are not QSPEs, our transfers may be required to be accounted for as
collateralized borrowings instead of as sales. Also, if such future guidance is
issued, we cannot predict what the transition provisions for implementing such
guidance will be.
Share based payment
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a
revision of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees, and amends FASB Statement No. 95, Statement of Cash Flows.
Generally, the approach in Statement 123(R) is similar to the approach
described in Statement 123. However, Statement 123(R) requires all share-based
payments to
61
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. SFAS No. 123(R) is generally
applicable to all awards granted, modified or settled in the first annual
reporting period under US GAAP that begins after June 15, 2005.
Statement 123(R) permits public companies to adopt its requirements using
one of two methods:
o A "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of
Statement 123(R) for all share-based payments granted after the effective
date and (b) based on the requirements of Statement 123 for all awards
granted to employees prior to the effective date of Statement 123(R) that
remain unvested on the effective date.
o A "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or
(b) prior interim periods of the year of adoption.
The company plans to adopt Statement 123 using the modified-prospective
method. As permitted by Statement 123, we currently account for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options. The
impact of adoption of Statement 123(R) cannot be predicted at this time because
it will depend on levels of share-based payments granted in the future.
However, had we adopted Statement 123(R) in prior periods, the impact of that
standard would have approximated the impact of Statement 123 as described in
the disclosure of pro forma net income and earnings per share in our unaudited
condensed consolidated financial statements. Statement 123(R) also requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after adoption.
Other-than-temporary impairments of securities
In November 2003, the Financial Accounting Standards Board, or FASB,
ratified a consensus on the disclosure provisions of Emerging Issues Task Force,
or EITF, Issue 03-1, "The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments." In March 2004, the FASB reached a consensus
regarding the application of a three-step impairment model to determine whether
investments accounted for in accordance with SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and other cost method
investments are other-than-temporarily impaired. However, with the issuance of
FASB Staff Position EITF 03-1-1, the provisions of the consensus relating to the
measurement and recognition of other-than-temporary impairments have been
deferred pending reassessment by the FASB.
The remaining provisions of this standard, which primarily relate to
disclosure, have been applied to all investments accounted for in accordance
with SFAS No. 115 and other cost method investments. We cannot determine the
impact of EITF 03-1 until after the FASB completes its reassessment.
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equities
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities. SFAS No. 150
requires issuers to classify as liabilities (or assets in some circumstance)
three classes of freestanding financial instruments that embody obligations for
the issuer. Generally, SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. Adoption of
SFAS No. 150 did not have a material impact on our consolidated financial
statements.
62
Derivative Instruments and Hedging Activities
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No.
133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. Adoption of SFAS No. 149 did not have a
material impact on our consolidated financial statements.
63
SELECTED STATISTICAL DATA
You should read the following discussion and selected statistical data
together with our unaudited interim consolidated financial statements included
elsewhere in this prospectus and our audited consolidated financial statements
and the section "Business" in our annual report on Form 20-F for the fiscal year
ended March 31, 2005, which is incorporated by reference in this prospectus. The
following discussion is based on our unaudited interim financial statements and
our audited financial statements and accompanying notes, which have been
prepared in accordance with US GAAP.
Funding
Our funding operations are designed to ensure stability of funding,
minimize funding costs and effectively manage liquidity. Since the amalgamation,
our primary source of funding has been deposits raised from both retail and
corporate customers. We also raise funds through short-term rupee borrowings and
domestic or overseas bond offerings pursuant to specific regulatory approvals.
Because ICICI was not allowed to raise banking deposits as a financial
institution, its primary sources of funding prior to the amalgamation were
retail bonds and rupee borrowings from a wide range of institutional investors.
ICICI also raised funds through foreign currency borrowings from commercial
banks and other multilateral institutions like the Asian Development Bank and
the World Bank, which were guaranteed by the government of India.
Our deposits constituted 63.2% of our total liabilities at September 30,
2005 compared to 58.6% of our total liabilities at year-end fiscal 2005. Our
borrowings constituted 25.2% of our total liabilities at September 30, 2005
compared to 27.9% of our total liabilities at year-end fiscal 2005. Our
borrowings increased to Rs. 488.6 billion (US$ 11.1 billion) at September 30,
2005 compared to Rs. 483.7 billion (US$ 11.0 billion) at year-end fiscal
2005.Our long-term debt decreased 2.7% to Rs. 357.4 billion (US$ 8.1 billion)
at September 30, 2005 compared to Rs. 367.5 billion (US$ 8.4 billion) at
year-end fiscal 2005. Our short-term borrowings and trading liabilities
increased 12.9% to Rs. 131.2 billion (US$ 3.0 billion) at September 30, 2005
compared to short-term borrowings and trading liabilities of Rs. 116.2 billion
(US$ 2.6 billion) at year-end fiscal 2005. Going forward, we will continue to
repay our borrowings in accordance with their scheduled maturities and raise
new funds primarily in the form of lower-cost deposits.
Our deposits increased 20.7% to Rs. 1,226.5 billion (US$ 27.9 billion) at
September 30, 2005 compared to Rs. 1,016.5 billion (US$ 23.1 billion) at
year-end fiscal 2005. This significant growth in deposits was achieved primarily
through increased focus on retail and corporate customers by offering a wide
range of products designed to meet varied individual and corporate needs and
leveraging on our network of branches, extension counters and ATMs.
The following table sets forth, for the periods indicated, the average
volume and average cost of deposits by type of deposit.
Six-month period ended September 30, (1)
----------------------------------------------------------------
2004 2005
---------------------- ---------------------------------------
Amount Cost(2) Amount Amount Cost(2)
------------ ------- ------------- ------------ -------
(in millions, except percentages)
Interest-bearing deposits:
Savings deposits............. Rs. 88,548 2.18% Rs. 135,647 US$ 3,087 2.35%
Time deposits................ 525,975 5.29 864,164 19,667 5.82
Non-interest-bearing deposits:
Demand deposits.............. 74,703 - 91,445 2,081 -
------------ ------- ------------- ------------ ------
Total deposits.................. Rs. 689,226 4.31% Rs. 1,091,256 US$ 24,835 4.90%
============ ======= ============= ============ ======
--------------------
(1) Average of quarterly balances at the end of March of the previous fiscal
year and June and September for the six-month periods ended September 30,
2004 and September 30, 2005. The average cost for each of the six-month
period ended September 30, 2004 and September 30, 2005 is annualized.
(2) Represents interest expense divided by the average of quarterly balances.
64
Our average deposits for the six-month period ended September 30, 2005
were Rs. 1,091.3 billion (US$ 24.8 billion) at an average cost of 4.9%
compared to average deposits of Rs. 689.2 billion (US$ 15.7 billion) at an
average cost of 4.3% for the six-month period ended September 30, 2004. Our
average time deposits for the six-month period ended September 30, 2005 were
Rs. 864.2 billion (US$ 19.7 billion) at an average cost of 5.8% compared to
average time deposits of Rs. 526.0 billion (US$ 12.0 billion) for the
six-month period ended September 30, 2004 at an average cost of 5.3%.
The following table sets forth, at the date indicated, the maturity profile
of deposits by type of deposit.
At September 30, 2005
---------------------------------------------------------
After one
year and
Up to within After
one year three years three years Total
----------- ------------ ----------- -----------
(in millions)
Time deposits................... 723,523 181,499 30,393 935,415
--------------------
(1) There is no contractual maturity for savings and demand deposits.
The following table sets forth, for the periods indicated, average
outstanding rupee borrowings based on quarterly balance sheets and by category
of borrowing and the percentage composition by category of borrowing. The
average cost (interest expense divided by average of quarterly balances) for
each category of borrowings is provided in the footnotes. The average cost for
the six-month periods ended September 30, 2005 and September 30, 2004 is
annualized.
Six-month period ended September 30, (1)
--------------------------------------------------------------------
2004 2005
--------------------------- --------------------------------------
(in millions, except percentages)
--------------------------------------------------------------------
Amount % to total Amount Amount % to total
------------ ---------- ------------ ------------ ----------
SLR bonds(2).................... Rs. 14,815 4.1% Rs. 14,815 US$ 337 4.1%
Borrowings from Indian
government(3)................ 4,930 1.4 3,823 87 1.1
Other borrowings(4)(5).......... 340,853 94.5 341,601 7,774 94.8
------------ ---------- ------------ ------------ ---------
Total........................... 360,598 100.0% 360,239 8,198 100.0%
============ ========== ============ ============ =========
--------------------
(1) Average of quarterly balances at the end of March of the previous fiscal
year and June and September for each of the six-month periods ended
September 30, 2004 and September 30, 2005.
(2) With an average cost of 11.66% for the six-month period ended September 30,
2005 and 11.24% for the six-month period ended September 30, 2004.
(3) With an average cost of 10.75% for the six-month period ended September 30,
2005 and 10.25% for the six-month period ended September 30, 2004.
(4) With an average cost of 8.64% for the six-month period ended September 30,
2005 and 8.76% for the six-month period ended September 30, 2004.
(5) Includes publicly and privately placed bonds, borrowings from institutions
and wholesale deposits such as inter-corporate deposits, certificate of
deposits and call borrowings.
65
The following table sets forth, at the date indicated, the maturity profile
of our rupee term deposits of Rs. 10 million (US$ 227,583) or more.
At September 30,
-----------------------------------------
% of total
2005 deposits
--------------------------- ----------
(in millions, except percentages)
Less than three months........................ Rs. 234,591 US$ 5,339 19.4
Above three months and less than six months... 170,836 3,888 14.2
Above six months and less than 12 months...... 175,751 4,000 14.6
More than 12 months........................... 41,100 935 3.4
------------ ------------ ---------
Total deposits of Rs. 10 million and more..... Rs. 622,278 US$ 14,162 51.6
============ ============ =========
The following table sets forth, at the dates indicated, certain information
related to short-term rupee borrowings, which consist of certificates of
deposits, inter-corporate deposits and borrowings from government-owned
companies, and trading liabilities.
At September 30,(1)
--------------------------------
2004 2005
------------- ------------
(in millions, except percentages)
Period-end balance............................ Rs. 38,768 Rs. 98,370
Average balance during the period(2).......... 65,824 83,215
Maximum quarter-end balance................... 65,874 98,370
Average interest rate during the period(3).... 5.88% 5.92%
Average interest rate at period-end(4)........ 5.33% 6.31%
--------------------
(1) Short-term borrowings include trading liabilities, such as borrowings in
the call market and repurchase agreements.
(2) Average of quarterly balances at the end of March of the previous fiscal
year and June and September for each of the six-month periods ended
September 30, 2004 and September 30, 2005.
(3) Represents the ratio of interest expense on short-term borrowings to the
average of quarterly balances of short-term borrowings. The average
interest rate for the six-month periods ended September 30, 2004 and
September 30, 2005 is annualized.
(4) Represents the weighted average rate of the short-term borrowings
outstanding at period end.
The average interest rate at September 30, 2005 at 6.31% was higher as
compared to the average interest rate at September 30, 2004 at 5.33%.
The following table sets forth, at the dates indicated, average outstanding
volume of foreign currency borrowings based on quarterly balance sheets by
source and the percentage composition by source. The average cost (interest
expense divided by average of quarterly balances) for each source of borrowings
is provided in the footnotes. The average cost for the six-month periods ended
September 30, 2005 and September 30, 2004 is annualized.
Six-month period ended September 30,(1)
-------------------------------------------------------------------
2004 2005
-------------------------- ---------------------------------------
Amount % to total Amount Amount % to total
------------ ---------- ----------- ------------- ----------
(in millions, except percentages)
Commercial borrowings(2).... Rs. 58,817 70.2% Rs. 154,226 US$ 3,510 86.4%
Multilateral borrowings(3).. 24,941 29.8 24,190 550 13.6
------------ ------- ----------- ------------ -------
Total....................... Rs. 83,758 100.0% Rs. 178,416 US$ 4,060 100.0%
============ ======= =========== ------------ -------
--------------------
(1) Average of quarterly balances at the end of March of the previous fiscal
year and June and September for each of the six-month periods ended
September 30, 2004 and September 30, 2005.
66
(2) With an average cost of 3.83% for the six-month period ended September 30,
2005 and 3.98% for the six-month period ended September 30, 2004.
(3) With an average cost of 3.75% for the six-month period ended September 30,
2005 and 3.03% for the six-month period ended September 30, 2004.
Risk Management
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the possibility of loss arising from changes in the value of
a financial instrument as a result of changes in market variables such as
interest rates, exchange rates and other asset prices. The prime source of
market risk for us is the interest rate risk we are exposed to as a financial
intermediary, which arises on account of our asset liability management
activities. In addition to interest rate risk, we are exposed to other elements
of market risk such as liquidity or funding risk, price risk on trading
portfolios, and exchange rate risk on foreign currency positions. See "Business
- Risk Management - Quantitative and Qualitative Disclosures About Market Risk"
in our annual report on Form 20-F for the fiscal year ended March 31, 2005,
which is incorporated by reference in this prospectus, for a description of our
market risk management procedures and our approach towards managing interest
rate risk.
The following table sets forth, at the date indicated, our asset-liability
gap position.
At September 30, 2005(1)-(4)
-------------------------------------------------------------
Greater than
Less than or one year and
equal to up to five Greater than
one year years five years Total
------------- ------------- ------------- -------------
(in millions)
Loans, net (excluding leased assets)........ Rs. 713,900 Rs. 370,551 Rs. 73,812 Rs. 1,158,263
Securities.................................. 240,780 114,460 146,151 501,391
Fixed assets (including leased asses)....... 1,876 8,363 31,707 41,946
Other assets(5)............................. 141,712 5,213 228,910 375,835
------------- ------------- ------------- -------------
Total assets................................ 1,098,268 498,587 480,580 2,077,435
Stockholders' equity........................ - 4,584 126,532 131,116
Debt(5)..................................... 1,266,126 231,416 196,681 1,694,223
Other liabilities........................... 34,635 27,737 189,724 252,096
------------- ------------- ------------- -------------
Total liabilities........................... 1,300,761 263,737 512,937 2,077,435
Total gap before risk management positions.. (202,493) 234,850 (32,357)
Risk management positions................... (10,836) 14,939 (4,103) -
------------- ------------- ------------- -------------
Total gap after risk management positions... Rs. (213,329) Rs. 249,789 Rs. (36,460) Rs. -
============= ============= ============= =============
--------------------
(1) Assets and liabilities are classified into the applicable categories, based
on residual maturity or re-pricing whichever is earlier. Classification
methodologies are generally based on Asset Liability Management Guidelines
issued by the Reserve Bank of India, effective from April 1, 2000.
(2) Items that neither mature nor re-price are included in the "greater than
five years" category. This includes equity share capital and a substantial
part of fixed assets.
(3) Impaired loans of residual maturity less than three years are classified in
the "greater than one year and up to five years" category and impaired
loans of residual maturity between three to five years are classified in
the "greater than five years" category.
(4) The risk management positions comprise foreign currency and rupee swaps.
(5) The categorization for these items is different from that reported in the
financial statements.
67
The following table sets forth, at the date indicated, the amount of our
loans with residual maturities greater than one year that had fixed and variable
interest rates.
At September 30, 2005
-------------------------------------------
Fixed rate Variable
loans rate loans Total
-------------------------------------------
(in millions)
Loans........................... Rs. 406,875 Rs. 292,832 Rs. 699,707
Price Risk (Banking book)
The following table sets forth, using the balance sheet at September 30.
2005 as the base, one possible prediction of the impact of adverse changes in
interest rates on net interest income for the next one year assuming a parallel
shift in yield curve at September 30, 2005.
At September 30, 2005
-----------------------------------------------------------
Change in interest rates
(in basis points)
-----------------------------------------------------------
(100) (50) 50 100
------------ ------------ ------------ ------------
(in millions, except percentages)
Rupee portfolio................ Rs. (341) Rs. (171) Rs. 171 Rs. 341
Foreign currency portfolio..... 216 108 (108) (216)
------------ ------------ ------------ ------------
Total.......................... Rs. (125) Rs. (63) Rs. 63 Rs. 125
============ ============ ============ ============
Based on our asset and liability position at September 30, 2005, the
sensitivity model shows that net interest income from the banking book for the
next one year would rise by Rs. 125 million (US$ 3 million) if interest
rates increased by 100 basis points during the next one year. Conversely, the
sensitivity model shows that if interest rates decreased by 100 basis points
during the next one year, net interest income for the next one year would fall
by an equivalent amount of Rs. 125 million (US$ 3 million). Interest rate
risk numbers at September 30, 2005 are low primarily due to the low duration of
government securities portfolio maintained by us and the large proportion of
floating rate loans in the housing loans.
Sensitivity analysis, which is based upon a static interest rate risk
profile of assets and liabilities, is used for risk management purposes only
and the model above assumes that during the course of the year no other changes
are made in the respective portfolios. Actual changes in net interest income
will vary from the model.
Price Risk (Trading book)
We undertake trading activities to enhance earnings through profitable
trading for our own account. ICICI Securities, our investment-banking
subsidiary, is a primary dealer in government of India securities, and a
significant proportion of its portfolio consists of government of India
securities.
The following tables sets forth, using the fixed income portfolio at
September 30, 2005 as the base, one possible prediction of the impact of changes
in interest rates on the value of our rupee fixed income trading portfolio for
the next one year, assuming a parallel shift in yield curve.
At September 30, 2005
---------------------------------------------------------------------------
Change in interest rates
(in basis points)
---------------------------------------------------------------------------
Portfolio
Size (100) (50) 50 100
------------ ------------- ------------ ------------ ------------
(in millions)
Government of India securities.. Rs. 15,124 Rs. 742 Rs. 371 Rs. (371) Rs. (742)
Corporate debt securities....... 6,287 123 62 (62) (123)
------------ ------------- ------------ ------------ -----------
Total........................... Rs. 21,411 Rs. 865 Rs. 433 Rs. (433) Rs. (865)
============ ============= ============ ============ ===========
68
At September 30, 2005, the total value of our rupee fixed income portfolio
was Rs. 21.41 billion (US$ 487 million). The sensitivity model shows that if
interest rates increase by 100 basis points during the next one year, the value
of the trading portfolio, would fall by Rs. 865 million (US$ 20 million).
Conversely, if interest rates fell by 100 basis points during the next one
year, under the model, the value of this portfolio would rise by Rs. 865
million (US$ 20 million).
As noted above, sensitivity analysis is used for risk management purposes
only and the model used above assumes that during the course of the year no
other changes are made in the respective portfolios. Actual changes in the value
of the fixed income portfolio will vary from the model above.
We revalue our trading portfolio on a daily basis and recognize aggregate
re-valuation losses in our profit and loss account. The asset liability
management policy stipulates an interest rate risk limit which seeks to cap the
risk on account of the mark-to-market impact on the mark-to-market book (under
the Indian GAAP classification which is different from the US GAAP
classification - see "Supervision and Regulation - Reserve Bank of India
Regulations - Banks' Investment Classification and Valuation Norms" in our
annual report on Form 20-F for the fiscal year ended March 31, 2005 which is
incorporated by reference into this prospectus) and the earnings at risk on the
banking book, based on a sensitivity analysis of a 100 basis points parallel and
immediate shift in interest rates.
In addition, the Risk Management Group stipulates risk limits including
position limits and stop loss limits for the trading book. These limits are
monitored on a daily basis and reviewed periodically. In addition to risk
limits, we also have risk monitoring tools such as Value-at-Risk models for
measuring market risk in our trading portfolio.
ICICI Bank is required to invest a specified percentage, currently 25.0%,
of its liabilities in government of India securities to meet the statutory
ratio requirement prescribed by the Reserve Bank of India. As a result, we have
a very large portfolio of government of India securities and these are
primarily classified as available for sale securities. Our available for sale
securities included Rs. 381 billion (US$ 8.7 billion) of government of India
securities at September 30, 2005. Our available for sale securities included
Rs. 334 billion (US$ 7.6 billion) of government of India securities at year-end
fiscal 2005. These are not included in the trading book analysis presented
above.
Equity Risk
At year-end fiscal 2005 and at September 30, 2005, the fair value of
trading account equity securities was Rs. 3.2 billion (US$ 73 million) and
Rs. 2.4 billion (US$ 54 million) respectively. At year-end fiscal 2005 and at
September 30, 2005, the fair value of our available for sale equity securities
investment portfolio was Rs. 21.3 billion (US$ 486 million) and Rs. 24.4
billion (US$ 554 million) respectively. This included non-readily marketable
securities of Rs. 7.2 billion (US$ 164 million) and Rs. 4.1 billion (US$ 94
million) at year-end fiscal 2005 and at September 30, 2005 respectively.
Loan Portfolio
Our gross loan portfolio, which includes loans structured as debentures
and preferred stock, was Rs. 1,247.0 billion (US$ 28.4 billion) at September
30, 2005, an increase of 15.9% over the gross loan portfolio of Rs. 1,075.8
billion (US$ 24.5 billion) at year-end fiscal 2005. At year-end fiscal 2005,
the gross loan portfolio increased 35.3% to Rs. 1,075.8 billion (US$ 24.5
billion) as compared to the gross loan portfolio of Rs. 795.3 billion (US$
18.1 billion) at year-end fiscal 2004. At September 30, 2005, approximately
84.6% of our gross loans were rupee loans. At September 30, 2005, our balance
outstanding in respect of loans outside India was Rs. 137.4 billion (US$ 3.1
billion), representing approximately 11.0% of our total gross loan portfolio.
Loan Portfolio by Categories
The following table sets forth, at the dates indicated, our gross rupee and
foreign currency loans by business category.
69
At March 31, At September 30,
---------------------------- ----------------------------
2004 2005 2005
------------- ------------ ----------------------------
(in millions)
Wholesale banking(1) Rs. 316,801 Rs. 326,946 Rs. 357,027 US$ 8,126
Rupee..................................... 244,668 269,953 275,877 6,279
Foreign currency.......................... 72,133 56,993 81,150 1,847
Working capital finance 80,505 135,573 129,071 2,938
Rupee..................................... 63,268 64,262 59,309 1,350
Foreign currency.......................... 17,237 71,311 69,762 1,588
Leasing and related activities(2) 16,015 13,353 12,012 273
Rupee..................................... 16,015 13,353 12,012 273
Foreign currency.......................... - - - -
Consumer loans and credit card receivables... 311,907 531,226 668,306 15,209
Rupee..................................... 311,690 528,592 660,595 15,034
Foreign currency.......................... 217 2,634 7,711 175
Other(3) 70,059 68,660 80,552 1,833
Rupee..................................... 70,044 50,259 47,514 1,081
Foreign currency.......................... 15 18,401 33,038 752
Gross loans
Rupee..................................... 705,685 926,420 1,055,307 24,017
Foreign currency.......................... 89,602 149,338 191,661 4,362
------------- ------------ ------------- -----------
Gross loans.................................. 795,287 1,075,758 1,246,968 28,379
Allowance for loan losses.................... (66,767) (75,900) (76,814) (1,748)
------------- ------------ ------------- -----------
Net loans.................................... Rs. 728,520 Rs. 999,858 Rs. 1,170,154 US$ 26,631
============= ============ ============= ===========
--------------------
(1) Wholesale banking includes project finance, corporate finance and
receivable financing but excludes leasing and related activities.
(2) Leasing and related activities includes leasing and hire purchase.
(3) Other includes bills discounted and inter-corporate deposits.
Our gross consumer loans and credit card receivables increased from Rs.
531.2 billion (US$ 12.1 billion), constituting 49.4% of our gross loans at
year-end fiscal 2005 to Rs. 668.3 billion (US$ 15.2 billion), constituting
53.6% of our gross loans at September 30, 2005. Our gross foreign currency
loans increased from Rs. 149.3 billion (US$ 3.4 billion), constituting 13.9%
of our total gross loans at year-end fiscal 2005 to Rs. 191.7 billion (US$
4.4 billion), constituting 15.4% of our total gross loans at September 30,
2005.
Collateral -- Completion, Perfection and Enforcement
Our loan portfolio consists largely of project and corporate finance and
working capital loans to corporate borrowers, and loans to retail customers,
including home loans, automobile loans, two wheeler loans, commercial business
loans, personal loans and credit card receivables and agricultural financing. In
general, our loans are over-collateralized. In India, there are no regulations
stipulating loan-to-collateral limits.
Corporate finance and project finance loans are typically secured by a
first lien on fixed assets, which normally consists of property, plant and
equipment. These security interests are perfected by the registration of these
interests within 30 days with the Registrar of Companies pursuant to the
provisions of the Indian Companies Act, 1956 when our clients are constituted as
companies. This registration amounts to a constructive public notice to other
business entities. We may also take security of a pledge of financial assets
like marketable securities, and obtain corporate guarantees and personal
guarantees wherever appropriate.
Working capital loans are typically secured by a first lien on current
assets, which normally consist of inventory and receivables. Additionally, in
some cases, we may take further security of a first or second lien on fixed
assets, a pledge of financial assets like marketable securities, or obtain
corporate guarantees and personal guarantees wherever appropriate.
70
A substantial portion of our loans to retail customers is also secured by a
first and exclusive lien on the assets financed (predominantly property and
vehicles).
We are entitled in terms of our security documents to repossess security
comprising assets such as plant, equipment and vehicles without reference to the
courts or tribunals unless a client makes a reference to such courts or
tribunals to stay our actions.
Separately, in India, foreclosure on collateral of property generally
requires a written petition to an Indian court or tribunal based on amounts
sought to be recovered. An application, when made, may be subject to delays and
administrative requirements that may result, or be accompanied by, a decrease in
the value of the collateral. These delays can last for several years leading to
deterioration in the physical condition and market value of the collateral. In
the event a corporate borrower makes an application for relief to a specialized
authority called the Board for Industrial and Financial Reconstruction,
foreclosure and enforceability of collateral is stayed. In fiscal 2003, the
Indian Parliament passed the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, as amended, which
strengthened the ability of lenders to resolve non-performing assets by granting
them greater rights as to enforcement of security including over immovable
property and recovery of dues, without reference to the courts or tribunals. See
also the section "Overview of the Indian Financial Sector - Recent Structural
Reforms - Legislative Framework for Recovery of Debts due to Banks" in our
annual report on Form 20-F for the fiscal year ended March 31, 2005 which is
incorporated by reference into this prospectus.
In case of consumer loans, we obtain post-dated checks towards repayment on
pre-specified dates, which if dishonored entitle us to initiate criminal
proceedings against the issuer of the checks.
We recognize that our ability to realize the full value of the collateral
in respect of current assets is difficult, due to, among other things, delays on
our part in taking immediate action, delays in bankruptcy foreclosure
proceedings, defects in the perfection of collateral and fraudulent transfers by
borrowers. However, cash credit facilities are so structured that we are able to
capture the cash flows of our customers for recovery of past due amounts. In
addition, we have a right of set-off for amounts due to us on these facilities.
Also, we regularly monitor the cash flows of our working capital loan customers
so that we can take any actions required before the loan becomes impaired. On a
case-by-case basis, we may also stop or limit the borrower from drawing further
credit from its facility.
Loan Concentration
We follow a policy of portfolio diversification and evaluate our total
financing exposure in a particular industry in light of our forecasts of growth
and profitability for that industry. ICICI Bank's Risk Management Group monitors
all major sectors of the economy and specifically follows industries in which
ICICI Bank has credit exposures. We seek to respond to any economic weakness in
an industrial segment by restricting new credits to that industry segment and
any growth in an industrial segment by increasing new credits to that industry
segment, resulting in active portfolio management. ICICI Bank's policy is to
limit its loan portfolio to any particular industry (other than retail loans) to
15.0%.
Pursuant to the guidelines of the Reserve Bank of India, ICICI Bank's
credit exposure to individual borrowers must not exceed 15.0% of its capital
funds, comprising Tier 1 and Tier 2 capital calculated pursuant to the
guidelines of the Reserve Bank of India, under Indian GAAP. Credit exposure to
individual borrowers may exceed the exposure norm of 15.0% of a bank's capital
funds by an additional 5.0% (i.e. up to 20.0%) provided the additional credit
exposure is on account of infrastructure financing. ICICI Bank's exposure to a
group of companies under the same management control must not exceed 40.0% of
its capital funds unless the exposure is in respect of an infrastructure
project. In that case, the exposure to a group of companies under the same
management control may be up to 50.0% of ICICI Bank's capital funds. With effect
from June 1, 2004, banks may, in exceptional circumstances, with the approval of
their boards, enhance the exposure by 5.0% of capital funds (i.e., 20.0% of
capital funds for an individual borrower and 45.0% of capital funds for a group
of companies under same management), making appropriate disclosures in their
annual reports. Exposure for funded facilities is calculated as the total
committed credit and investment sanctions or the outstanding funded amount,
whichever is higher (for term loans, as undisbursed commitments plus the
outstanding amount). Exposure for non-funded facilities is calculated as 100.0%
of the committed amount or the outstanding non-funded amount whichever is
higher. At September 30, 2005, ICICI Bank was in compliance with these
guidelines.
71
The following table sets forth, at the dates indicated, our gross loans
outstanding, including loans structured as debentures and preferred stock, by
the borrower's industry or economic activity.
At March 31, At September 30,
--------------------------------------------- -----------------------------------
2004 2005 2005
------------ ------------------------------ -----------------------------------
(in millions, except percentages)
Consumer loans and credit card
receivables.................. Rs. 311,907 39.2% Rs. 531,226 49.4% Rs. 668,306 US$ 15,209 53.6%
Iron and steel.................. 62,354 7.8 56,082 5.2 49,365 1,123 4.0
Services........................ 33,435 4.2 43,579 4.1 46,081 1,049 3.7
Crude petroleum and petroleum
refining..................... 20,807 2.6 45,160 4.2 41,438 943 3.3
Textiles........................ 29,941 3.8 31,214 2.9 30,280 689 2.4
Power........................... 45,199 5.7 31,062 2.9 30,239 688 2.4
Telecom......................... 27,919 3.5 19,757 1.8 23,630 538 1.9
Non-ferrous metals.............. 5,392 0.7 13,865 1.3 16,621 378 1.3
Transport equipment............. 13,068 1.6 14,339 1.3 15,528 353 1.3
Food products................... 8,122 1.0 10,826 1.0 14,581 332 1.2
Other(2)........................ 237,143 29.9 278,648 25.9 310,899 7,077 24.9
------------ ----- ------------- ----- ------------- ----------- -----
Gross loans..................... Rs. 795,287 100.0% Rs. 1,075,758 100.0% Rs. 1,246,968 US$ 28,379 100.0%
Allowance for loan losses....... (66,767) (75,900) (76,814) (1,748)
------------ ------------- ------------- -----------
Net loans....................... Rs. 728,520 Rs. 999,858 Rs. 1,170,154 US$ 26,631
============ ============= ============= ===========
--------------------
(1) Others principally include basic chemicals, fertilizers and pesticides,
transportation, paper and paper products, electrical equipment, food
products, petrochemicals, man-made fibres, machinery, sugar, plastics,
non-ferrous metals, drugs, mining, rubber and rubber products, shipping,
agriculture, construction, printing, mineral products, glass and glass
products, watches, healthcare, gems and jewelry, leather, cement and wood
products industries.
Our gross loan portfolio at September 30, 2005 increased by 15.9% to Rs.
1,247.0 billion (US$ 28.4 billion) compared to the gross loan portfolio at
year-end fiscal 2005. The largest increase was in consumer loans and credit card
receivables, which constituted 53.6% of gross loans at September 30, 2005
compared to 49.4% at year-end fiscal 2005 and 39.2% at year-end fiscal 2004. Our
gross loans to the iron and steel sector as a percentage of gross loans
decreased to 4.0% at September 30, 2005 compared to 5.2% at year-end fiscal
2005. Our gross loans to the services sector as a percentage of gross loans
decreased to 3.7% at September 30, 2005 compared to 4.1% at year-end fiscal
2005. Consumer loans and credit card receivables accounted for 33.9% of our
gross other impaired loans at September 30, 2005. The iron and steel sector
accounted for 7.8% of our gross restructured loans and 6.5% of our gross other
impaired loans at September 30, 2005. The power sector accounted for 2.0% of our
gross restructured loans and 16.5% of our gross other impaired loans at
September 30, 2005. See also "-Impaired Loans."
At September 30, 2005, our 20 largest borrowers accounted for approximately
11.6% of our gross loan portfolio (gross of unearned income and security
deposits), with the largest borrower accounting for approximately 2.0% of our
gross loan portfolio. The largest group of companies under the same management
control accounted for approximately 3.1% of our gross loan portfolio.
Geographic Diversity
Our portfolios were geographically diversified throughout India, primarily
reflecting the location of our corporate borrowers. The state of Maharashtra,
which is the most industrialized state in India, accounted for the largest
proportion of our gross loans outstanding at September 30, 2005.
Directed Lending
The Reserve Bank of India requires banks to lend to certain sectors of the
economy. Such directed lending is comprised of priority sector lending, export
credit and housing finance.
Priority Sector Lending
The Reserve Bank of India has established guidelines requiring banks to
lend 40.0% of their net bank credit (total domestic loans less marketable debt
instruments and certain exemptions permitted by the Reserve Bank of India from
time to time) to certain specified sectors called priority sectors. Priority
sectors include small-scale
72
industries, the agricultural sector, food and agri-based industries, small
businesses and housing finance up to certain limits. The agricultural sector is
further bifurcated into direct finance to agriculture which mainly includes
short-term crop loans and medium and long-term loans provided directly to
farmers for financing production and development needs and indirect finance to
agriculture which mainly includes financing the distribution of fertilizers,
pesticides, seeds, etc, financing distribution of inputs for the allied
activities such as, cattle feed, poultry feed, etc. and various other specified
categories. Out of the 40.0%, banks are required to lend a minimum of 18.0% of
their net bank credit to the agriculture sector (including direct agriculture
and indirect agriculture) and the balance to certain specified sectors,
including small scale industries (defined as manufacturing, processing and
services businesses with a limit of Rs. 10 million on investment in plant and
machinery, and an investment limit of Rs. 50 million in respect of certain
specified items), small businesses, including retail merchants, professional
and other self employed persons and road and water transport operators, housing
loans up to certain limits and to specified state financial corporations and
state industrial development corporations. To ensure focus of the banks on the
direct agricultural advances Reserve Bank of India has stipulated that the
lending under the indirect category should not exceed one-fourth of the
agricultural sub-target of 18%, therefore banks are necessarily required to
lend 13.5% of their net bank credit to the direct agricultural sector. While
granting its approval for the amalgamation, the Reserve Bank of India
stipulated that since ICICI's loans transferred to us were not subject to the
priority sector lending requirement, we are required to maintain priority
sector lending of 50.0% of our net bank credit on the residual portion of our
advances (i.e., the portion of our total advances excluding advances of ICICI
at year-end fiscal, 2002, henceforth referred to as residual net bank credit).
This additional 10.0% priority sector lending requirement will apply until such
time as our aggregate priority sector advances reach a level of 40.0% of our
total net bank credit. The Reserve Bank of India's existing instructions on
sub-targets under priority sector lending and eligibility of certain types of
investments/ funds for qualification as priority sector advances apply to us.
We are required to comply with the priority sector lending requirements at
the end of each fiscal year. Any shortfall in the amount required to be lent to
the priority sectors may be required to be deposited with government sponsored
Indian development banks like the National Bank for Agriculture and Rural
Development and the Small Industries Development Bank of India. These deposits
have a maturity of up to five years and carry interest rates lower than market
rates.
At year-end fiscal 2005, our priority sector loans were Rs. 191.1 billion
(US$ 4.4 billion), constituting 54.5% of our residual net bank credit against
the requirement of 50.0%. The following table sets forth our priority sector
loans, classified by the type of borrower, at year-end fiscal 2005.
% of residual
net bank credit
At March 31, at March 31,
---------------------------- ---------------
2005 2005 2005
------------ ----------- ---------------
(in millions, except percentages)
Small scale industries............ Rs. 2,334 US$ 53 0.7%
Others including small businesses. 121,100 2,756 34.5
Agricultural sector(1)............ 67,632 1,539 19.3
------------ ----------- ----
Total............................. Rs. 191,066 US$ 4,348 54.5%
============ =========== ====
--------------------
(1) Includes direct agriculture loans of Rs. 45.88 billion constituting 13.1%
of our residual net bank credit against the requirement of 13.5%.
Export Credit
As part of directed lending, the Reserve Bank of India also requires banks
to make loans to exporters at concessional rates of interest. Export credit is
provided for pre-shipment and post-shipment requirements of exporter borrowers
in rupees and foreign currencies. At the end of the fiscal year, 12.0% of a
bank's net bank credit is required to be in the form of export credit. This
requirement is in addition to the priority sector lending requirement but
credits extended to exporters that are small scale industries or small
businesses may also meet part of the priority sector lending requirement. The
Reserve Bank of India provides export refinancing for an eligible portion of
total outstanding export loans at the bank rate prevailing in India from time to
time. The interest income earned on export
73
credits is supplemented through fees and commissions earned from these exporter
customers from other fee-based products and services taken by them from us, such
as foreign exchange products and bill handling. At year-end fiscal 2005, our
export credit was Rs. 6.4 billion (US$ 146 million), constituting 1.8% of our
residual net bank credit.
Housing Finance
The Reserve Bank of India requires banks to lend up to 3.0% of their
incremental deposits in the previous fiscal year for housing finance. This can
be in the form of home loans to individuals or investments in the debentures
and bonds of the National Housing Bank and housing development institutions
recognized by the government of India. Housing finance also qualifies as
priority sector lending. At year-end fiscal 2005, our housing finance
qualifying as priority sector advances was Rs. 111.9 billion (US$ 2.6
billion) and was well above the minimum requirement prescribed by the Reserve
Bank of India.
Impaired Loans
The following discussion on impaired loans is based on US GAAP. For
classification of impaired loans under Indian regulatory requirements, see
"Supervision and Regulation - Reserve Bank of India Regulations - Loan Loss
Provisions and Non-Performing Assets" in our annual report on Form 20-F for the
fiscal year ended March 31, 2005 which is incorporated by reference into this
prospectus.
Impact of Economic Environment on the Industrial Sector
In 1991, India commenced a program of industrial liberalization involving,
among other things, the abolition of industrial licensing, reduction in import
tariff barriers and greater access for foreign companies to the Indian markets.
In the period following the opening up of the economy, a number of Indian
companies commenced large projects in expectation of growth in demand in India.
These projects generally had relatively high levels of debt relative to equity,
given inadequate depth in the equity capital markets in India at that time.
However, the negative trends in the global marketplace in the late 1990s,
particularly the South-east Asian economic crisis, a downturn in the commodities
markets and recessionary conditions in various economies, impaired the operating
environment for the Indian industrial sector. The manufacturing sector was also
impacted by increased competition arising from economic liberalization in India
and volatility in industrial demand and growth. These factors led to stress on
the operating performance of Indian corporations in certain sectors and the
impairment of a significant amount of loan assets in the financial system,
including loan assets of ICICI and ICICI Bank. Certain Indian corporations have
come to terms with this new competitive reality through a process of
restructuring and repositioning, including rationalization of capital structures
and production capacities. The increase in commodity prices since fiscal 2003
has had a favorable impact on the operations of corporations in several sectors.
Recognition of Impaired Loans
We identify a loan as impaired when it is probable that we will be unable
to collect the scheduled payments of principal and interest due under the
contractual terms of the loan agreement. We conduct a comprehensive analysis of
our corporate loan portfolio on a periodic basis for identification of impaired
loans and determination of the allowance required for loan losses. The analysis
considers both qualitative and quantitative criteria including, among others,
the account conduct, future prospects, repayment history and financial
performance. This comprehensive analysis includes an account-by-account analysis
of a substantial portion of the corporate loan portfolio. Corporate loans with
an outstanding amount of greater than Rs. 100 million are selected across risk
grades (generally adversely graded accounts) for a detailed review. In addition
to the detailed review of large balance loans, we also classify our portfolio
based on the overdue status of each account, after which we classify a loan as
impaired if principal or interest has remained overdue for more than 90 days.
Generally, when a loan is placed on non-accrual status, interest accrued and
uncollected on the loan in the current fiscal year is reversed from income, and
interest accrued and uncollected from the prior year is charged off against the
allowance for loan losses. Thereafter, interest on non-accrual loans is
recognized as interest income only to the extent that cash is received and
future collection of principal is not in doubt. When borrowers demonstrate over
an extended period the ability to repay a loan in accordance with the
contractual terms of a loan, which we had classified as non-accrual, the loan is
returned to accrual status.
74
We classify a loan as a troubled debt restructuring where we have made
concessionary modifications, that we would not otherwise consider, to the
contractual terms of the loan to a borrower experiencing financial difficulties.
Such loans are placed on a non-accrual status. For these loans, cash receipts
are normally applied to principal and interest in accordance with the terms of
the restructured loan agreement. With respect to restructured loans, performance
prior to the restructuring or significant events that coincide with the
restructuring are evaluated in assessing whether the borrower can meet the
rescheduled terms and may result in the loan being returned to accrual status
after a performance period.
Consumer loans are classified by aggregating individual loans into various
product categories. Total outstanding loans in a product category are then
classified into time buckets based on ageing, that is, the number of days
overdue. Consumer loans are generally identified as impaired when principal or
interest has remained overdue for more than 90 days. Consumer loans when
identified as impaired are placed on non-accrual status.
The value of impaired corporate loans is measured as the present value of
expected future cash flows discounted at the loan's effective interest rate, at
the loan's observable market price, or the fair value of the collateral if the
recovery of the loan is solely collateral dependent. If the value of the
impaired loan is less than the recorded investment in the loan, we recognize
this impairment by creating a valuation allowance with a corresponding charge to
the provision for loan losses. We make allowances for our smaller balance
homogeneous consumer loans by aggregating individual loans into various product
categories. Total outstanding loans in a product category are then classified
into time buckets based on ageing, that is, the number of days overdue. We
establish an aggregate allowance for loan losses on our smaller-balance
homogenous consumer loans (impaired and non-impaired loans) based on our
estimate of probable losses inherent in the time buckets identified for each of
the product categories.
Gross restructured loans decreased 6.9% to Rs. 139.2 billion (US$ 3.2
billion) at September 30, 2005 from Rs. 149.5 billion (US$ 3.4 billion) at
year-end fiscal 2005 primarily due to reclassification of certain loans as
unimpaired based on satisfactory performance of the borrower accounts and
reclassification of other impaired loans that were restructured or transferred
to an asset reconstruction company during the year. Gross other impaired loans
decreased 26.9% to Rs. 21.7 billion (US$ 495 million) at September 30, 2005
from Rs. 29.7 billion (US$ 676 million) at year-end fiscal 2005 primarily due
to reclassification of a large loan as unimpaired and reclassification of
certain other impaired loans that were restructured or transferred to an asset
reconstruction company during the year, as restructured loans. As a percentage
of net loans, net restructured loans were 7.3% at September 30, 2005 and 9.6%
at year-end fiscal 2005 and net other impaired loans were 0.6% at September 30,
2005 and 1.4% at year-end fiscal 2005.
The following table sets forth, at the dates indicated, our gross
restructured rupee and foreign currency loan portfolio by business category.
March 31, 2005 September 30, 2005
-------------- ------------------------------
(in millions, except percentages)
Wholesale banking(1)............ Rs. 140,866 Rs. 132,899 US$ 3,025
Rupee........................ 117,468 108,650 2,473
Foreign currency............. 23,398 24,249 552
Working capital finance......... 8,393 6,081 138
Rupee........................ 8,393 6,081 138
Foreign currency............. - - -
Leasing and related
activities(2)................. 259 204 5
Rupee........................ 259 204 5
Foreign currency............. - - -
Consumer loans and credit card
and others.................... - - -
Rupee........................ - - -
Foreign currency............. - - -
Total restructured loans
Rupee........................ 126,120 114,935 2,616
Foreign currency............. 23,398 24,249 552
------------- ------------- --------------
Gross restructured loans........ 149,518 139,184 3,168
75
March 31, 2005 September 30, 2005
-------------- ------------------------------
(in millions, except percentages)
Allowance for loan losses....... (53,929) (54,162) (1,233)
------------- ------------- --------------
Net restructured loans......... Rs. 95,589 Rs. 85,022 US$ 1,935
============= ============= ==============
Gross loan assets............... Rs. 1,075,758 Rs. 1,246,968 US$ 28,379
Net loan assets(3).............. 999,858 1,170,154 26,631
Gross restructured loans as a
percentage of gross
loan assets.................. 13.90% 11.16%
Net restructured loans as a
percentage of net loan
assets....................... 9.56% 7.27%
--------------------
(1) Includes project finance, corporate finance and receivables financing,
excluding leasing and related activities.
(2) Includes leasing and hire purchase.
(3) Net of provisions including unallocated provisions on lending assets not
specifically identified as restructured loans or other impaired loans.
The following table sets forth, at the dates indicated, our gross other
impaired rupee and foreign currency loan portfolio by business category.
March 31, 2005 September 30, 2005
-------------- ------------------------------
(in millions, except percentages)
Wholesale banking(1)............ Rs. 21,959 Rs. 12,295 US$ 280
Rupee....................... 17,882 8,260 188
Foreign currency............ 4,077 4,035 92
Working capital finance......... 1,868 1,523 35
Rupee....................... 1,868 1,523 35
Foreign currency............ - - -
Leasing and related
activities(2)................. 446 431 10
Rupee....................... 446 431 10
Foreign currency............ - - -
Consumer loans and credit card
receivables and others........ 5,440 7,483 170
Rupee....................... 5,440 7,483 170
Foreign currency............ - - -
Total other impaired loans
Rupee....................... 25,636 17,697 403
Foreign currency............ 4,077 4,035 92
------------- ------------- -------------
Gross other impaired loans...... 29,713 21,732 495
Allowance for loan losses....... (15,517) (14,440) (329)
------------- ------------- -------------
Net other impaired loans........ Rs. 14,196 Rs. 7,292 US$ 166
------------- ------------- -------------
Gross loan assets............... Rs. 1,075,758 Rs. 1,246,968 US$ 28,379
Net loan assets(3).............. 999,858 1,170,154 26,631
Gross other impaired loans as
a percentage of gross loan
assets....................... 2.76% 1.74%
Net other impaired loans as
a percentage of net loan
assets....................... 1.42% 0.62%
--------------------
(1) Includes project finance, corporate finance and receivables financing,
excluding leasing and related activities.
(2) Includes leasing and hire purchase.
(3) Net of provisions including unallocated provisions on lending assets not
specifically identified as restructured loans or other impaired loans.
76
The following table sets forth, at the dates indicated, gross restructured
loans by borrowers' industry or economic activity and as a percentage of total
gross restructured loans.
March 31, 2005 September 30, 2005
-----------------------------------------------------------------------
(in millions, except percentages)
Crude petroleum/refining........ Rs. 24,609 16.5% Rs. 25,405 US$ 578 18.3%
Textiles........................ 14,874 9.9 15,263 347 11.0
Telecommunications.............. 12,639 8.5 13,031 297 9.4
Iron and steel.................. 11,102 7.4 10,805 246 7.8
Transport equipment............. 7,672 5.1 7,745 176 5.6
Metal products.................. 6,564 4.4 5,760 131 4.1
Fertilizers and pesticides...... 5,933 4.0 5,496 125 3.9
Electronics..................... 5,135 3.4 5,095 116 3.7
Petrochemicals.................. 4,739 3.2 4,758 108 3.4
Man-made fibers................. 4,032 2.7 4,001 91 2.9
Plastics........................ 3,581 2.4 3,541 81 2.5
Sugar........................... 3,451 2.3 3,350 76 2.4
Machinery....................... 3,759 2.5 3,269 74 2.3
Power........................... 2,694 1.8 2,740 62 2.0
Services........................ 3,561 2.4 2,634 60 1.9
Electrical equipment............ 2,499 1.7 2,414 55 1.7
Basic chemicals................. 2,209 1.5 2,353 54 1.7
Cement.......................... 9,454 6.3 2,272 52 1.6
Drugs........................... 2,026 1.4 1,985 45 1.4
Paper and paper products........ 1,953 1.3 1,879 43 1.4
Food products................... 367 0.2 519 12 0.4
Rubber and rubber products...... 640 0.4 464 11 0.3
Non-ferrous metals.............. 124 0.1 182 4 0.1
Tea............................. 120 0.1 79 2 0.1
Other(1)........................ 15,782 10.6 14,144 322 10.1
------------- ------- ------------- ------------ -----
Gross restructured loans........ Rs. 149,518 100.0% Rs. 139,184 US$ 3,168 100.0%
============= ======= ============= ============ =====
Aggregate allowance for
loan losses................... (53,929) (54,162) (1,233)
============= ============= ============
Net restructured loans ......... Rs. 95,589 Rs. 85,022 US$ 1,935
============= ============= ============
--------------------
(1) Others principally include ports, shipping, wood, construction, glass,
computer software, health care products, vegetable oil, infrastructure,
fishing, non-bank finance companies, real estate, floriculture,
agriculture, printing, other chemicals, mining and mineral products.
The following table sets forth, at the dates indicated, gross other
impaired loans by borrowers' industry or economic activity and as a percentage
of total gross other impaired loans.
March 31, 2005 September 30, 2005
-----------------------------------------------------------------------
(in millions, except percentages)
Consumer loans and credit card
receivables.................. Rs. 5,449 18.3% Rs. 7,369 US$ 167 33.9%
Power........................... 12,483 42.0 3,584 81 16.5
Basic chemicals................. 1,659 5.6 1,650 38 7.6
Iron and steel.................. 1,366 4.6 1,419 32 6.5
Electrical equipment............ 962 3.2 917 21 4.2
Food products................... 734 2.5 740 17 3.4
Textiles........................ 707 2.4 653 15 3.0
Electronics..................... 616 2.1 616 14 2.8
77
March 31, 2005 September 30, 2005
-----------------------------------------------------------------------
(in millions, except percentages)
Paper and paper products........ 495 1.7 457 10 2.1
Plastics........................ 321 1.1 385 9 1.8
Construction.................... 363 1.2 351 8 1.6
Metal products.................. 230 0.8 209 5 1.0
Man-made fibers................. 199 0.7 199 5 0.9
Other chemicals................. 193 0.6 173 4 0.8
Services........................ 347 1.2 166 4 0.8
Cement.......................... 165 0.6 165 4 0.8
Non-ferrous metals.............. 222 0.7 164 4 0.8
Transport equipment............. 669 2.3 142 3 0.7
Machinery....................... 112 0.4 112 3 0.5
Rubber and rubber products...... 94 0.3 94 2 0.4
Drugs........................... 82 0.3 77 2 0.4
Petrochemicals.................. 59 0.1 59 1 0.3
Fertilizers and pesticides...... 42 0.1 42 1 0.2
Other(1)........................ 2,144 7.2 1,989 45 9.0
------------- ------- ------------- ------------ -----
Gross other impaired loans...... Rs. 29,713 100.0% Rs. 21,732 US$ 495 100.0%
============= ======= ============= ============ =====
Aggregate allowance for
loan losses................... (15,517) (14,440) (329)
============= ============= ============
Net other impaired loans ....... Rs. 14,196 Rs. 7,292 US$ 166
============= ============= ============
--------------------
(1) Others principally include clocks, gems & jewelry, shipping, agriculture,
wood, fishing, trading, non-bank finance companies, computer software,
leather & leather products, vegetable oils, health care products, printing,
glass, crude petroleum, sugar, mining and mineral products and
infrastructure-ports.
The largest proportion of our restructured and other impaired loans was to
the crude petroleum/refining, textiles and telecommunications industries. There
is a risk that restructured and other impaired loans in each of these and other
sectors could increase if Indian economic conditions deteriorate, there is a
negative trend in global commodity prices or projects under implementation are
unable to achieve profitable commercial operations.
Crude petroleum and refining. At September 30, 2005, we had classified
61.3% of our total loans to the crude petroleum and refining sector as
restructured loans. Restructured loans include loans to a large private sector
refinery project, the implementation of which was delayed due to natural
calamities and other factors, resulting in an overrun in the cost of the project
compared to the original appraised cost. The Corporate Debt Restructuring Forum
has approved the restructuring of this project. See "Overview of the Indian
Financial Sector - Recent Structural Reforms-Corporate Debt Restructuring Forum"
in our annual report on Form 20-F for the fiscal year ended March 31, 2005,
which is incorporated by reference in this prospectus.
Textiles. Over the last few years, the textiles sector was adversely
affected by the impact of erratic monsoons on cotton production, the South-east
Asian economic crisis, the small economic size and unviable capacity of several
textile units and competitive pressures from other low cost textile producing
countries. A substantial portion of our loans to this sector has been classified
as impaired. At September 30, 2005, we had classified 50.4% of our gross loans
in this sector as restructured loans and 2.2% as other impaired loans.
Telecommunications. At September 30, 2005, we had classified 55.1% of our
gross loans in this sector as restructured loans. Our restructured loans in this
sector mainly include loans to a specific group of companies that have been
restructured under the Corporate Debt Restructuring Forum.
Interest Foregone
The amount of interest foregone by us in respect of loans on which accrual
of interest was suspended at September 30, 2005, was Rs. 5.5 billion (US$ 125
million)
78
Allowance for Loan Losses
The following table sets forth, at the dates indicated, movements in our
allowances for loan losses.
Year ended Six-month period ended
-------------- -------------------------------------------------
March 31, 2005 September 30, 2004 September 30, 2005
-------------- ------------------ ---------------------------
(in millions, except percentages)
Aggregate allowance for loan
losses at the
beginning of the period........ Rs. 66,767 Rs. 66,767 Rs. 75,900 US$ 1,727
Add: Provisions for loan losses
Wholesale banking(1).......... 14,011 6,522 5,588 127
Working capital finance....... (560) (2953) (676) (15)
Leasing and related
activities(2)............... 348 167 (161) (4)
Others (3).................... 878 643 1,044 24
Total provisions for loan losses.. Rs. 14,677 Rs. 4,379 Rs. 5,795 US$ 132
Write-offs........................ (5,544) (1,585) (4,881) (111)
-------------- ------------- ----------- -----------
Aggregate allowance for loan
losses at the end
of the period.................. Rs. 75,900 Rs. 69,561 Rs. 76,814 US$ 1,748
Ratio of net provisions
for loan losses during the
period to average loans
outstanding(4)................. 1.8% 0.6% 0.6%
--------------------
(1) Includes project finance, corporate finance and receivables financing,
excluding leasing and related activities. Provisions include unallocated
provisions on lending assets not specifically identified as restructured
loans or other impaired loans.
(2) Includes leasing and hire purchase.
(3) Includes consumer loans and credit card receivables and bills discounted.
(4) Annualized for the six month period ended September 30, 2005.
We conduct a comprehensive analysis of our loan portfolio on a periodic
basis. The analysis considers both qualitative and quantitative criteria
including, among others, the account conduct, future prospects, repayment
history and financial performance. This comprehensive analysis includes an
account by account analysis of the entire loan portfolio, and an allowance is
made for any probable loss on each account. In estimating the allowance, we
consider the net realizable value on a present value basis by discounting the
future cash flows over the expected period of recovery. Further, we also
consider past history of loan losses and value of underlying collateral. For
further discussions on allowances for loan losses, see "Operating and Financial
Review and Prospects - Summary for the six months ended September 30, 2005,
compared to the six months ended September 30, 2004 - Provisions for Loan
Losses" and "Operating and Financial Review and Prospects - Critical Accounting
Policies - Allowance for Loan Losses."
Under US GAAP, the analysis of the provisions for restructured and other
impaired loans requires that we take into account the time delay in our ability
to foreclose upon and sell collateral. The net present value of a restructured
and other impaired loan includes the net present value of the underlying
collateral, if any. As a result, even though our loans are generally
over-collateralized, additional allowances are required under US GAAP because
US GAAP takes into account the time value of money.
Our restructured and other impaired loan portfolio largely includes
project finance and other term loans. These loans are generally fully secured
and have full recourse to the borrower. In most cases other than working
capital finance, we have a security interest and first lien on all the fixed
assets and a second lien on all the current assets of the borrower. In respect
of working capital finance loans, we have a security interest and first lien on
all current assets and a second lien on all fixed assets of the borrower.
Security interests typically include property, plant and equipment as well as
other tangible assets of the borrower, both present and future. ICICI typically
lent between 60.0% and 80.0% of the appraised value of the collateral. Hence,
these loans have historically been sufficiently over-collateralized so that
once collateral is realized we recover a substantial amount of our loan
outstanding. However, recoveries may be subject to delays of up to several
years, due to the long legal process in India. This leads to delay in
enforcement and realization of collateral. We maintain the impaired assets on
our books for as long
79
as the enforcement process is ongoing. Accordingly, an impaired asset may
continue for a long time in our portfolio until the settlement of loan account
or realization of collateral, which may be longer than US banks under similar
circumstances. While determining the allowance for loan losses we consider the
time taken for realizing the collateral. Hence, while impaired loans may
continue for a longer time in our portfolio we believe our allowance for loan
losses on such loans is adequate.
In fiscal 2003, the Indian Parliament passed the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002, as amended, which strengthened the ability of lenders to resolve
non-performing assets by granting them greater rights as to enforcement of
security and recovery of dues.
Each portfolio of smaller-balance, homogenous loans, including consumer
mortgage, instalment, revolving credit and most other consumer loans, is
individually evaluated for impairment. We establish an aggregate allowance for
loan losses on our smaller balance homogenous loans (impaired and non-impaired
loans) via a process that includes an estimate of probable losses inherent in
the portfolio, based upon various statistical analysis. These include migration
analysis, in which historical delinquency and credit loss experience is applied
to the current ageing of the portfolio, together with an analysis that reflects
current trends and conditions. The use of different estimates or assumptions
could produce different provisions for smaller balance homogeneous loan losses.
For restructured and other impaired loans in excess of Rs. 100 million
(US$ 2 million), which were 88.2% of our gross restructured and other
impaired loan portfolio at September 30, 2005, we followed a detailed process
for each account to determine the allowance for loan losses to be provided. For
the balance of smaller loans in the restructured and other impaired loan
portfolio, we follow the classification detailed below for determining the
allowance for loan losses.
Settlement Cases
In settlement cases allowances are calculated as per the scheme of
settlement on an individual basis.
Enforcement Cases
Enforcement cases are those cases (excluding cases referred to the Board
for Industrial and Financial Reconstruction or BIFR) in which we have commenced
litigation. We expect that only the secured portion of these loans is
recoverable, after a specified number of years from the date the loan is
recalled. The realizable value of these loans on a present value basis is
determined by discounting the estimated cash flow at the end of the specified
number of years from the date of the recall by the average interest implicit in
these loans.
Non-Enforcement BIFR Cases
Non-enforcement BIFR cases include cases which have been referred to the
Board for Industrial and Financial Reconstruction, which are further categorized
into accounts where the plant is under operation and accounts where the plant is
closed. We expect that in accounts where the plant is operational, the secured
portion of the loan is recoverable over specified annual payments. In respect of
those accounts where the plant is closed, we expect that the secured portion of
the loan will be recoverable at the end of a specified number of years based
upon historical experience.
Non-Enforcement Non-BIFR Cases and other loans
Non-enforcement non-BIFR cases include cases, which are neither under
litigation nor referred to the Board for Industrial and Financial
Reconstruction. This category is also divided into accounts where the plant is
under operation and accounts where the plant is closed. We expect that in those
accounts where the plant is operational, the secured portion of the loan is
recoverable over specified annual payments together with a recovery in interest
due at a specified rate. In respect of those loans where the plant is closed, we
expect that the secured portion of the loan will be recoverable over specified
annual payments.
The following table sets forth, for the period indicated, the results of
our restructured and other impaired loan classification scheme.
80
At September 30, 2005
----------------------------------------------
Percentage
expected to be Impaired loans,
realized on a net of
Gross impaired net present allowance for
loans value basis loan losses
------------- -------------- --------------
(in millions, except percentages)
Gross principal greater than Rs. 100 million..... Rs. 141,868 59.3% Rs. 84,129
Settlement cases................................. 378 55.4% 209
Enforcement cases................................ 2,081 68.7% 1,431
Non-enforcement BIFR cases....................... 1,063 39.9% 424
Non-enforcement non-BIFR cases & other loans..... 15,526 39.4% 6,121
------------- ----- -------------
Total............................................ Rs. 160,916 57.4% Rs. 92,314
============= ===== =============
We believe that the process for ascertaining allowance for loan losses
described above adequately captures the known losses on our entire loan
portfolio. We believe that our allowance for loan losses is adequate to cover
all known losses in our portfolio.
81
PRINCIPAL SHAREHOLDERS
The following table sets forth as of November 4, 2005, certain information
with respect to beneficial ownership of our equity shares by:
o each of our directors;
o each of our executive officers;
o all of our officers and directors as a group; and
o each shareholder known to us to be the beneficial owner of 5% or more
of our equity shares.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power or
investment power with respect to those securities and includes equity shares
issuable pursuant to the exercise of stock options or warrants that are
immediately exercisable or exercisable within 60 days of November 4, 2005. These
shares are deemed to be outstanding and to be beneficially owned by the person
holding those options or warrants for the purpose of computing the percentage
ownership of that person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person. Except as otherwise
noted below, the address for each person listed on the table is c/o ICICI Bank
Limited, ICICI Bank Towers, Bandra-Kurla Complex, Mumbai 400051, India.
The share numbers and percentages listed below are based on 741.0 million
equity shares outstanding, and include shares issuable upon exercise of
outstanding options or warrants within 60 days of November 4, 2005. Amounts
representing less than 1% are indicated with an "*."
Name and Address of Beneficial Owner Number(1) Percentage
---------------------------------------------------- --------- ----------
Directors and Executive Officers:
Mr. Narayanan Vaghul............................. 27,543 *
Mr. Ram Kishore Joshi............................ - -
Mr. Lakshmi Niwas Mittal......................... 3,110,700 *
Mr. Anupam Pradip Puri........................... - -
Mr. Vinod Rai.................................... - -
Mr. Somesh Ramchandra Sathe...................... - -
Mr. Mahendra Kumar Sharma........................ 5,050 *
Mr. Priya Mohan Sinha............................ - -
Prof. Marti Gurunath Subrahmanyam................ 1,613 *
Mr. V. Prem Watsa................................ - -
Mr. Sridar Iyengar............................... - -
Mr. T.S. Vijayan................................. - -
Mr. Kundapur Vaman Kamath(2)..................... 479,500 *
Ms. Lalita Dileep Gupte(3)....................... 390,637 *
Ms. Kalpana Morparia(4).......................... 308,690 *
Ms. Chanda Kochhar(5)............................ 179,575 *
Dr. Nachiket Mor................................. - -
Mr. Balaji Swaminathan(6)........................ 48,500 *
Mr. Bhargav Dasgupta(7).......................... 87,175 *
Mr. K. Ramkumar(8)............................... 23,250 *
Ms. Madhabi Puri-Buch(9)......................... 70,111 *
Mr. Nagesh Pinge(10)............................. 83,133 *
Mr. P. H. Ravikumar.............................. 11,000 *
Mr. Pravir Vohra(11)............................. 26,000 *
Ms. Ramni Nirula(12)............................. 140,800 *
Mr. Sanjiv Kerkar(13)............................ 152,844 *
Mr.V. Vaidyanathan............................... 39,610 *
82
Name and Address of Beneficial Owner Number(1) Percentage
---------------------------------------------------- --------- ----------
Ms. Vishakha Mulye(14)........................... 79,275 *
All directors and officers as a group (28 persons).. 5,265,006 *
Other 5% Shareholders
Life Insurance Corporation of India.............. 69,271,287 9.35
Yogakshema
Jeevan Bima Marg
Mumbai 400 021, India
Allamanda Investments Pte. Limited(15) .......... 66,234,627 8.94
5th Floor
Anglo Mauritius House
4 Intendance Street
Port Louis, Mauritius
--------------------
(1) Information on ownership of equity shares has been provided to us by our
registrar.
(2) Includes options, which are immediately exercisable, to purchase 411,000
equity shares.
(3) Includes options, which are immediately exercisable, to purchase 271,750
equity shares.
(4) Includes options, which are immediately exercisable, to purchase 287,500
equity shares.
(5) Includes options, which are immediately exercisable, to purchase 4,000
equity shares.
(6) Includes options, which are immediately exercisable, to purchase 15,000
equity shares.
(7) Includes options, which are immediately exercisable, to purchase 70,275
equity shares.
(8) Includes options, which are immediately exercisable, to purchase 23,250
equity shares.
(9) Includes options, which are immediately exercisable, to purchase 68,700
equity shares.
(10) Includes options, which are immediately exercisable, to purchase 47,550
equity shares.
(11) Includes options, which are immediately exercisable, to purchase 12,000
equity shares.
(12) Includes options, which are immediately exercisable, to purchase 81,000
equity shares.
(13) Includes options, which are immediately exercisable, to purchase 115,500
equity shares.
(14) Includes options, which are immediately exercisable, to purchase 45,320
equity shares.
(15) Allamanda Investments Private Limited is wholly-owned by Asia Financial
Holdings Private Limited, which is wholly- owned by Fullerton Management
Private Limited, which is wholly-owned by Temasek Holdings (Private)
Limited.
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RESTRICTION ON FOREIGN OWNERSHIP OF INDIAN SECURITIES
India strictly regulates ownership of Indian companies by foreigners.
Foreign investment in Indian securities, including the equity shares
represented by the ADSs, is generally regulated by the Foreign Exchange
Management Act, 1999, which permits transactions involving the inflow or
outflow of foreign exchange and empowers the Reserve Bank of India to prohibit
or regulate such transactions.
The Foreign Exchange Management Act, 1999 regulates transactions involving
foreign exchange and provides that certain transactions cannot be carried out
without the general or special permission of the Reserve Bank of India. The
Foreign Exchange Management Act, 1999 has eased restrictions on current account
transactions. However, the Reserve Bank of India continues to exercise control
over capital account transactions (i.e., those which alter the assets or
liabilities, including contingent liabilities, of persons). The Reserve Bank of
India has issued regulations under the Foreign Exchange Management Act, 1999 to
regulate the various kinds of capital account transactions, including certain
aspects of the purchase and issuance of shares of Indian companies.
Under the foreign investment rules, the following are the restrictions on
foreign ownership applicable to us:
o Foreign investors may own up to 74.0 % of our equity shares subject
to conformity with guidelines issued by the Reserve Bank of India
from time to time. This limit is under the so-called automatic route
and does not require specific approval of the Foreign Investment
Promotion Board. This limit includes foreign direct investment, ADSs,
Global Depositary Receipts and investment under the Portfolio
Investment Scheme by foreign institutional investors and also
non-resident Indians, and also includes shares acquired by
subscription to private placements and public offerings and
acquisition of shares from existing shareholders.
o Under the Issue of Foreign Currency Convertible Bonds and Equity
Shares (Through Depositary Receipt Mechanism) Scheme, 1993, foreign
investors may purchase ADSs or GDRs, subject to the receipt of all
necessary government approvals at the time the depositary receipt
program is set up.
o Under the portfolio investment scheme, (i) foreign institutional
investors, subject to registration with the Securities and Exchange
Board of India and the Reserve Bank of India, may hold in aggregate
up to 49.0% of our paid-up equity capital, provided that no single
foreign institutional investor may own more than 10.0% of our total
paid-up equity capital; and (ii) the shareholding of an individual
non-resident Indian or overseas corporate body is restricted to 5.0%
of our total paid-up equity capital.
o Since we have joint ventures in the insurance sector, applications
for foreign direct investment in ICICI Bank when required by
applicable law or regulation, have to be addressed to the Reserve
Bank of India for consideration in consultation with the Insurance
Regulatory and Development Authority in order to ensure that the 26%
limit of foreign shareholding applicable for the insurance sector is
not breached.
Pursuant to a circular dated November 29, 2001, the Reserve Bank of India
notified that, as of that date, overseas corporate bodies are not permitted to
invest under the portfolio investment scheme, though they may continue to hold
investments that have already been made under the portfolio investment scheme
until such time as these investments are sold on the stock exchange.
An Indian company may sponsor an issue of ADSs with an overseas depositary
against shares held by its shareholders at a price to be determined by the lead
manager. The proceeds of the issue must be repatriated to India within a period
of one month. The sponsoring company must comply with the provisions of the
Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depositary Receipt Mechanism) Scheme, 1993 and the guidelines issued
thereunder by the government of India from time to time. The sponsoring company
must also furnish full details of the issue in the prescribed forms to the
Reserve Bank of India within 30 days from the date of closure of the issue.
On November 23, 2002, the government of India's Ministry of Finance issued
Operative Guidelines for Disinvestment of Shares by the Indian Companies in the
Overseas Market through the Issue of ADSs. Under these guidelines, the
shareholders may divest their holdings in the overseas market through the
mechanism of a sponsored
84
ADS issue by the Indian company. The holdings which may be divested are
holdings in Indian companies which are listed either in India or on an overseas
exchange.
The divestment process is initiated when the Indian company whose shares
are being offered for divestment in the overseas market sponsors an ADS issue
against the block of existing shares offered by the shareholders under these
guidelines. Such ADS issues against existing shares offered for divestment must
also comply with the Securities and Exchange Board of India (Substantial
Acquisition of Shares and Takeover) Regulations, 1997, if the ADSs are cancelled
and the underlying shares are to be registered with the company. Such divestment
would result in foreign equity investment and would also need to conform to the
foreign direct investment sectoral policy. All mandatory approvals including
those under the Indian Companies Act, 1956 and the approval of the Foreign
Investment Promotion Board for foreign equity induction through the offer of
existing shares, would have to be obtained.
The Reserve Bank of India has issued a notification under the provisions
of the Foreign Exchange Management Act, 1999 permitting a registered broker in
India to purchase shares of any Indian company on behalf of a person resident
outside India, for the purpose of converting the shares so purchased into ADSs,
provided that:
o the shares are purchased on a recognized stock exchange;
o the Indian company has issued ADSs;
o the shares are purchased with the permission of the custodian of the
ADSs of the concerned Indian company and are deposited with the
custodian;
o the number of shares so purchased shall not exceed the number of ADSs
converted into underlying shares and shall be subject to sectoral
caps as applicable; and
o the non-resident investor, broker, custodian and the overseas
depositary comply with the provisions of the Scheme for Issue of
Foreign Currency Convertible Bonds and Ordinary Shares (through
Depositary Receipt Mechanism) Scheme, 1993 and the guidelines issued
thereunder by the government of India from time to time.
We obtained the approval of the Foreign Investment Promotion Board for our
ADS offering in March 2000 and sponsored ADS offering in March 2005 which were
foreign direct investments. The investments through the portfolio investment
scheme in the secondary market in India by foreign institutional investors,
non-resident Indians and overseas corporate bodies and investments through the
foreign direct investment scheme are distinct schemes that are available
concurrently. As of September 23, 2005, foreign investors owned approximately
73.3% of our equity in total, of which 27.2% was through the ADS program.
As an investor in ADSs, you do not need to seek the specific approval from
the government of India to purchase, hold or dispose of your ADSs. In the ADS
offerings, we obtained the approval of the government of India's Department of
Company Affairs and the relevant stock exchanges.
Equity shares which have been withdrawn from the depositary facility and
transferred on our register of shareholders to a person other than the
depositary or its nominee may be voted by that person provided the necessary
procedural requirements have been met. However, you may not receive sufficient
advance notice of shareholder meetings to enable you to withdraw the underlying
equity shares and vote at such meetings.
Notwithstanding the foregoing, if a foreign institutional investor,
non-resident Indian or overseas corporate body were to withdraw its equity
shares from the ADS program, its investment in the equity shares would be
subject to the general restrictions on foreign ownership noted above and may be
subject to the portfolio investment restrictions. Secondary purchases of
securities of a banking company in India by foreign direct investors or
investments by non-resident Indians, overseas corporate bodies and foreign
institutional investors above the ownership levels set forth above require
government of India approval on a case-by-case basis. It is unclear whether
similar case-by-case approvals of ownership of equity shares withdrawn from the
depositary facility by foreign institutional investors, non-resident Indians
and overseas corporate bodies would be required.
85
You will be required to make a public offer to the remaining shareholders
if you withdraw your equity shares from the ADS program and your direct or
indirect holding in us exceeds 15.0% of our total equity under the Securities
and Exchange Board of India (Substantial Acquisition of Shares and Takeover)
Regulations, 1997.
ADSs issued by Indian companies to non-residents have free transferability
outside India. Under current Indian regulations and practice, approval of the
Reserve Bank of India is not required for the sale of equity shares underlying
the ADSs by a non-resident of India to a resident of India if the sale has been
executed on a recognized stock exchange in India through a registered broker at
the prevailing market price. Approval of the Reserve Bank of India is neither
required for a sale of shares of a company other than a company engaged in
financial services sector, even if the transfer is other than on a recognized
stock exchange in India or through a registered broker, as long as conditions
generally prescribed by Reserve Bank of India are complied with. The same
restrictions apply to a renunciation of rights to a resident of India. Approval
of the Reserve Bank of India is neither required for sale of shares under the
portfolio investment scheme prescribed by the Reserve Bank of India provided
the sale is made on a recognized stock exchange and through a registered stock
broker.
Any new issue of equity shares of a banking company, either through the
automatic route or with the specific approval of the Foreign Investment
Promotion Board, does not require further approval of the Reserve Bank of
India, but must comply with certain reporting requirements.
Ownership Restrictions
The government of India regulates foreign ownership in Indian banks. The
total foreign ownership in a private sector bank, like ICICI Bank, cannot
exceed 74.0% of the paid-up capital and shares held by foreign institutional
investors under portfolio investment schemes through stock exchanges cannot
exceed 49.0% of the paid-up capital.
The Reserve Bank of India's acknowledgement is required for the
acquisition or transfer of a bank's shares which will take the aggregate
holding of the acquirer, whether direct or indirect, beneficial or otherwise,
together with the existing shareholding and/ or the shareholding of any
"Associated Enterprise" (as defined under Section 92A of the Income-tax Act,
1961) to 5.0% or more of the bank's total paid up capital. The Reserve Bank of
India, while granting acknowledgement, may take into account all matters that
it considers relevant to the application, including ensuring that shareholders
whose aggregate holdings are above specified thresholds meet fitness and
propriety tests. In determining whether the acquirer or transferee is fit and
proper to be a shareholder, Reserve Bank of India may take into account various
factors including, but not limited to the acquirer or transferee's integrity,
reputation and track record in financial matters and compliance with tax laws,
proceedings of a serious disciplinary or criminal nature against the acquirer
or transferee and the source of funds for the investment.
While granting acknowledgement for acquisition or transfer of shares that
takes the acquirer's shareholding to 10.0% or more and up to 30.0% of a private
sector bank's paid-up capital, Reserve Bank of India may consider additional
factors, including but not limited to:
o the source and stability of funds for the acquisition and ability to
access financial markets as a source of continuing financial support
for the bank,
o the business record and experience of the applicant including any
experience of acquisition of companies,
o the extent to which the acquirer's corporate structure is in
consonance with effective supervision and regulation of its
operations; and
o in case the applicant is a financial entity, whether the applicant is
a widely held entity, publicly listed and a well established
regulated financial entity in good standing in the financial
community.
While granting acknowledgment for acquisition or transfer of shares that
takes the acquirer's shareholding to 30.0% or more of a private sector bank's
paid-up capital, the Reserve Bank of India may consider additional factors,
including but not limited to whether or not the acquisition is in the public
interest and shareholder agreements and their impact on the control and
management of the bank's operations.
86
In February 2005, the Reserve Bank of India issued guidelines on ownership
and governance in private sector banks. This policy became effective on
February 28, 2005. The key provisions of the guidelines on ownership are:
o No single entity or group of related entities would be permitted to
directly or indirectly hold or control more than 10.0% of the paid,
up equity capital of a private sector bank and any higher level of
acquisition would require the Reserve Bank of India's prior approval;
o In respect of corporate shareholders, the objective will be to ensure
that no entity or group of related entities has a shareholding in
excess of 10.0% in the corporate shareholder. In case of shareholders
that are financial entities, the objective will be to ensure that it
is widely held, publicly listed and well regulated;
o The Reserve Bank of India may permit a higher level of shareholding
in case of restructuring of problem banks or weak banks or in the
interest of consolidation in the banking industry;
o Banks would be responsible for compliance of the "fit and proper"
criteria for shareholders on an ongoing basis; and
o Banks with shareholders with holdings in excess of the prescribed
limit would have to indicate a plan for compliance.
The Reserve Bank of India has recently announced guidelines stating that
these regulations would also apply in the event an existing shareholder's
shareholding exceed the specified limit as a result of a rights issue of shares
where other shareholders do not subscribe to the issue.
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GOVERNMENT OF INDIA AND RESERVE BANK OF INDIA APPROVALS
See "Restriction on Foreign Ownership of Indian Securities" in this
prospectus and in our annual report on Form 20-F for the fiscal year ended
March 31, 2005, which is incorporated by reference in this prospectus.
The equity shares underlying the ADS offered under the ADS offering
shall be held for the holders of the ADS by Deutsche Bank Trust Company
Americas and we have sought the Reserve Bank of India's acknowledgement for the
shareholding of the depositary in excess of 5% of our paid-up equity share
capital, as required by the Reserve Bank of India's guidelines.
The Ministry of Finance of the Government of India has issued guidelines
for issue of American Depositary Receipts and/or Global Depositary Receipts by
Indian companies which require that the price at which American Depositary
Receipts and/or Global Depositary Receipts are issued not be lower than the
product of (a) the number of equity shares represented by each American
Depositary Receipt and/or each Global Depositary Receipt and (b) the higher of
(i) the average of the weekly high and low price of the company's equity shares
for the six months preceding the date 30 days prior to the date on which
shareholder approval for the issue is obtained and (ii) the average of the
weekly high and low price of the company's equity shares for the two weeks
preceding the date 30 days prior to the date on which shareholder approval for
the issue is obtained.
88
TAXATION
Indian Taxation
In the opinion of Amarchand & Mangaldas & Suresh A. Shroff & Co., the
Indian tax consequences to investors in ADSs and equity shares who are not
resident in India whether of Indian origin or not (each a "non-resident") is
based on the provisions of the Indian Income-tax Act, 1961 (the "Income-tax
Act"), including the special tax regime for ADSs contained in Section 115AC,
which has been extended to cover additional ADSs that an investor may acquire in
an amalgamation or restructuring of the company, and certain regulations
implementing the Section 115AC regime. The Income-tax Act is amended every year
by the Finance Act of the relevant year. Some or all of the tax consequences
described herein may be amended or modified by future amendments to the
Income-tax Act.
The summary is not intended to constitute a complete analysis of the tax
consequences under Indian law of the acquisition, ownership and sale of ADSs OR
equity shares by non-resident investors. Potential investors should, therefore,
consult their own tax advisers regarding the tax consequences of such
acquisition, ownership and sale, including the tax consequences under Indian
law, the law of the jurisdiction of their residence, any tax treaty between
India and their country of residence, and in particular the application of the
regulations implementing the Section 115AC regime.
Residence
For the purpose of the Income-tax Act, an individual is a resident of India
during any fiscal year, if he (i) is in India in that year for 182 days or more
or (ii) having been in India for a period or periods aggregating 365 days or
more during the four years preceding that fiscal year, is in India for a period
or periods aggregating 60 days or more in that fiscal year. The period of 60
days is substituted by 182 days in the case of an Indian citizen or person of
Indian origin who being resident outside India comes on a visit to India during
the fiscal year or an Indian citizen who leaves India for the purposes of his
employment during the fiscal year. A company is resident in India in any fiscal
year if it is registered in India or the control and management of its affairs
is situated wholly in India in that year. A firm or other association of persons
is resident in India except where the control and management of its affairs are
situated wholly outside India.
Taxation of Distributions
Dividends paid are not subject to any Indian withholding or other tax.
However, we are required to pay tax at the rate of 14.025% on the dividends
distributed by us. The dividends, so paid are not taxable under section 115AC in
the hands of the ADS holders.
Taxation on Redemption of ADSs
The acquisition of equity shares upon redemption of ADSs by a non-resident
investor will not give rise to a taxable event for Indian tax purposes.
Taxation on Sale of ADSs or Equity Shares
Any transfer of ADSs outside India by a non-resident investor to another
non-resident investor will not give rise to Indian capital gains tax.
Subject to any relief under any relevant double taxation treaty, gain
arising from the sale of an equity share will generally give rise to a
liability for Indian income tax in the hands of the transferor. Such tax is
required to be withheld at source. Such gains would either be taxable as
capital gains or business income, depending upon the circumstances of the
investor. Where the equity share has been held for more than 12 months
(measured from the date of advice of redemption of the ADS by the Depositary as
specified below), the resulting long term capital gains would be exempt from
tax. Where the equity share has been held for 12 months or less, the resulting
short-term capital gains in the case of non-residents would be taxable at the
lower tax rate of 10.2% (including education cess) where the total income does
not exceed Rs. 1,000,000 (US$ 22,758) or 11.22% (including applicable surcharge
and
89
education cess) where the total income exceeds Rs. 1,000,000 (US$ 22,758)
during the fiscal year. These rates of tax are subject to the gains being
treated as capital gains and provided the shares are sold on recognized Indian
stock exchanges and are liable to securities transaction tax. In other cases,
the rate of tax applicable under the provisions of the Income-tax Act varies,
subject to a maximum of 41.82% (including applicable surcharges and education
cess). The actual rate depends on a number of factors, including the nature of
the non-resident investor.
Capital gains may be exempt from taxation or the tax rates mentioned above
may be lowered as per the provisions of any double taxation treaty entered into
by the government of India with the country of residence of the non-resident
investors. The double taxation treaty between the United States and India does
not provide US residents with any relief from Indian tax on capital gains.
As per the Finance (No. 2) Act, 2004, a transaction for the sale of equity
shares entered into on a recognised stock exchange in India settled by actual
delivery or transfer will be subject to securities transaction tax at the rate
of 0.1%, on the value of the transaction, payable by both the seller and buyer.
For purposes of determining the amount of capital gains arising on a sale
of an equity share for Indian tax purposes, the cost of acquisition of an
equity share received upon redemption of an ADS will be the price of the share
prevailing on the Bombay Stock Exchange Limited or the National Stock Exchange
on the date on which the Depositary advises the custodian of such redemption,
not the acquisition cost of the ADS being redeemed. The holding period of an
equity share received upon redemption of an ADS will commence on the date of
advice of redemption by the Depositary.
Rights
Distributions to non-resident investors of additional ADSs or equity shares
or rights to subscribe for equity shares made with respect to ADSs or equity
shares are not subject to Indian tax in the hands of the non-resident investor.
It is unclear whether capital gains derived from the sale of rights
outside India by a non-resident investor that is not entitled to exemption under
a tax treaty to another non-resident investor will be subject to Indian capital
gains tax. If the rights are deemed by the Indian tax authorities to be situated
within India, as our situs is in India, then the capital gains realized on the
sale of rights will be subject to customary Indian capital gains taxation as
discussed above.
Stamp Duty
Upon the issuance of the equity shares underlying the ADSs, we are
required to pay a stamp duty of 0.1% of the issue price per share. A transfer
of ADSs is not subject to Indian stamp duty. Normally, upon the receipt of
equity shares in physical form from the Depositary in exchange for ADSs
representing such equity shares, a non-resident investor would be liable for
Indian stamp duty applicable on re-issuance in physical form, which is the same
as stamp duty payable on the original issuance in physical form subject to a
maximum of Rs. 100 per share certificate. Similarly, a sale of equity shares in
physical form by a non-resident investor would also be subject to Indian stamp
duty at the rate of 0.25% of the market value of the equity shares on the trade
date, although customarily such tax is borne by the transferee, that is, the
purchaser. However, our equity shares are compulsorily delivered in
non-physical form except for trades of up to 500 shares, which may be delivered
in physical form. Under Indian stamp law, no stamp duty is payable on the
acquisition or transfer of equity shares in non-physical form. The State of
Maharashtra has provided that records of transactions, whether electronic or
otherwise, effected by a trading member of a stock exchange through the stock
exchange shall be liable for the payment of stamp duty in the case of delivery
at the rate of 0.01%, rounded off to the next rupee, and in the case of
non-delivery at the rate of 0.002%, rounded off to the next rupee, and if
relating to futures and options trading, at the rate of 0.002%, rounded off to
the next rupee.
Other Taxes
At present, there are no taxes on wealth, gifts or inheritance which apply
to the ADSs or equity shares.
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Service Tax
Brokerage fees paid to stockbrokers in connection with the sale or purchase
of shares which are listed on any recognized stock exchange in India are subject
to a service tax at a rate of 10.2% (including applicable education cess). The
stockbroker is responsible for collecting the service tax and paying it to the
relevant authority.
United States Taxation
In the opinion of Davis Polk & Wardwell, the following are the material
US federal income tax consequences of purchasing, owning and disposing of ADSs
or equity shares to the US Holders described herein, but is not a
comprehensive description of all of the tax considerations that may be relevant
to a particular person's decision to acquire such securities. This discussion
does not address US state, local and non-US tax consequences. The discussion
applies only to US Holders who hold ADSs or equity shares as capital assets
for US federal income tax purposes and it does not address special classes of
holders, such as:
o certain financial institutions;
o insurance companies;
o dealers and certain traders in securities or foreign currencies;
o persons holding ADSs or equity shares as part of a hedge, straddle,
conversion or other integrated transaction;
o persons whose functional currency for US federal income tax purposes
is not the US dollar;
o partnerships or other entities classified as partnerships for US
federal income tax purposes;
o persons liable for the alternative minimum tax;
o tax-exempt organizations; or
o persons that own or are deemed to own 10% or more of ICICI Bank voting
stock.
As used herein, a US Holder is a beneficial owner of ADSs or equity
shares that is, for US federal income tax purposes: (i) a citizen or resident
of the United States; (ii) a corporation, or other entity taxable as a
corporation, created or organized in or under the laws of the United States or
any political subdivision thereof or (iii) an estate or trust the income of
which is subject to US federal income taxation regardless of its source.
This discussion is based on the Internal Revenue Code of 1986, as amended,
administrative pronouncements, judicial decisions and final, temporary and
proposed Treasury regulations, all as of the date hereof. These laws are subject
to change, possibly on a retroactive basis. This discussion is also based in
part on representations by the depositary and assumes that each obligation under
the deposit agreement and any related agreements will be performed in accordance
with its terms.
For US federal income tax purposes, if a US Holder owns an ADS, such
holder will generally be treated as the owner of the equity shares underlying
the ADS.
The US Treasury has expressed concerns that parties to whom ADSs are
pre-released maybe taking actions that are inconsistent with the claiming of
foreign tax credits by US Holders of ADSs. Such actions would also be
inconsistent with the claiming of the preferential rates of tax, described
below, applicable to dividends received by certain non-corporate US Holders.
Accordingly, the availability of preferential rates for dividends received by
certain non-corporate US Holders could be affected by actions taken by parties
to whom ADSs are pre-released.
Please consult your tax adviser with regard to the application of the US
federal income tax laws to the ADSs or equity shares in your particular
circumstances, as well as any tax consequences arising under the laws of any
US state, local or other taxing jurisdiction.
91
This discussion assumes that ICICI Bank is not, and will not become, a
passive foreign investment company (as discussed below).
Taxation of Dividends
Distributions received by US Holders with respect to the ADSs or equity
shares, other than certain pro rata distributions of equity shares or rights to
acquire equity shares, will constitute foreign-source dividend income for US
federal income tax purposes to the extent paid out of ICICI Bank's current or
accumulated earnings and profits, as determined in accordance with US federal
income tax principles. The amount of the dividend a US Holder will be required
to include in income will equal the US dollar value of the rupees, calculated
by reference to the exchange rate in effect on the date the payment is received
by the depositary (in the case of ADSs) or by the US Holder (in the case of
equity shares), regardless of whether the payment is converted into US dollars
on the date of receipt. If a US Holder realizes gain or loss on a sale or other
disposition of rupees, it will be US-source ordinary income or loss. Corporate
US Holders will not be entitled to claim the dividends-received deduction with
respect to dividends paid by ICICI Bank. Subject to applicable limitations,
dividends received by certain non-corporate US Holders in taxable years
beginning before January 1, 2009 will be taxable at a maximum rate of 15%.
Non-corporate US Holders should consult their own tax advisers to determine
whether they are subject to any special rules that limit their ability to be
taxed at these preferential rates.
A US Holder will not be able to claim a US foreign tax credit for any
Indian taxes for which ICICI Bank is liable and must pay as a result of any
distribution on the ADSs or equity shares (as discussed under "- Indian Tax -
Taxation of Distributions").
Taxation of Capital Gains
A US Holder will generally recognize US-source capital gain or loss for US
federal income tax purposes on the sale or other disposition of ADSs or equity
shares, which will be long-term capital gain or loss if the ADSs or equity
shares were held for more than one year. The amount of gain or loss will be
equal to the difference between the amount realized on the sale or other
disposition and the US Holder's tax basis in the ADSs or equity shares. Under
certain circumstances as described under "-- Indian Taxation -- Taxation on Sale
of ADSs or Equity Shares," a US Holder may be subject to Indian tax upon the
sale or other disposition of equity shares. US Holders should consult their own
tax advisers with respect to their ability to credit this Indian tax against
their US federal income tax liability.
Passive Foreign Investment Company Rules
In general, a foreign corporation is a passive foreign investment company
(a "PFIC") for any taxable year if: (i) 75% or more of its gross income
consists of passive income (such as dividends, interest, rents and royalties)
or (ii) 50% or more of the average quarterly value of its assets consists of
assets that produce, or are held for the production of, passive income. Based
upon certain proposed Treasury regulations with respect to banks, which are
proposed to be effective for taxable years beginning after December 31, 1994,
ICICI Bank does not expect to be a PFIC for its current taxable year or in the
foreseeable future. However, since there can be no assurance that the proposed
Treasury regulations will be finalized in their current form, the manner of the
application of the proposed Treasury regulations is not entirely clear, and the
composition of our income and assets will vary over time, there can be no
assurance that ICICI Bank will not be considered a PFIC for any taxable year.
If ICICI Bank were treated as a PFIC for any taxable year during which a
US Holder held an ADS or equity share and such holder has not made the
mark-to-market election, as described below, such holder will be subject to
special rules generally intended to eliminate any benefits from the deferral of
US federal income tax that the holder could derive from investing in a foreign
corporation that does not distribute all of its earnings on a current basis,
Upon a disposition of ADSs or equity shares, including, under certain
circumstances, a disposition pursuant to an otherwise tax-free reorganization,
gain recognized by a US Holder would be allocated ratably over the holder's
holding period for the ADSs or equity shares. The amounts allocated to the
taxable year of the disposition and to any year before ICICI Bank became a PFIC
would be taxed as ordinary income. The amount allocated to each other taxable
year would be subject to tax at the highest rate in effect for individuals or
corporations, as appropriate, and an interest charge would be imposed on the
amount allocated to each such taxable year. Further, any distribution in
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respect of ADSs or equity shares in excess of 125% of the average of the annual
distributions on ADSs or equity shares received by a US Holder during the
preceding three years or such holder's holding period, whichever is shorter,
would be subject to taxation as described above.
If the ADSs or equity shares are "regularly traded" on a "qualified
exchange," a US Holder may make a mark-to-market election. The ADSs or equity
shares will be treated as "regularly traded" in any calendar year in which more
than a de minimis quantity of the ADSs or equity shares, as the case may be, are
traded on a qualified exchange on at least 15 days during each calendar quarter.
A "qualified exchange" includes a foreign exchange that is regulated by a
governmental authority in which the exchange is located and with respect to
which certain other requirements are met. The Internal Revenue Service has not
yet identified specific foreign exchanges that are "qualified" for this purpose.
The New York Stock Exchange on which the ADSs are traded is a qualified exchange
for US federal income tax purposes.
If a US Holder makes the mark-to-market election, such holder generally
will include as ordinary income the excess, if any, of the fair market value of
the ADSs or equity shares at the end of each taxable year over their adjusted
basis, and will be permitted an ordinary loss in respect of the excess, if any,
of the adjusted basis of the ADSs or equity shares over their fair market value
at the end of the taxable year (but only to the extent of the net amount of
previously included income as a result of the mark-to-market election). If a
US Holder makes the election, such holder's basis in the ADSs or equity
shares will be adjusted to reflect any such income or loss amounts. Any gain
recognized on the sale or other disposition of ADSs or equity shares will be
treated as ordinary income. Further, distributions would be taxed as described
above under "-Taxation of Dividends," except that the preferential dividend
rates with respect to dividends paid to certain non-corporate US Holders
would not apply.
If a US Holder owns ADSs or equity shares during any year in which ICICI
Bank is a PFIC, such holder must file Internal Revenue Service Form 8621.
In addition, if ICICI Bank were to be treated as a PFIC in a taxable year
in which ICICI Bank pays a dividend or for the prior taxable year, the
preferential dividend rates discussed above with respect to dividends paid to
certain non-corporate US Holders would not apply.
Information reporting and backup withholding
Payment of dividends and sales proceeds that are made within the United
States or through certain US-related financial intermediaries generally are
subject to information reporting and to backup withholding unless the US Holder
is a corporation or other exempt recipient or, in the case ofbackup
withholding, such holder provides a correct taxpayer identification number and
certifies that no loss of exemption from backup withholding has occurred. The
amount ofany backup withholding from a payment to a US Holder will be allowed
as a credit against such holder's US federal income tax liability and may
entitle such holder to a refund, provided that the required information is
timely furnished to the Internal Revenue Service.
93
UNDERWRITING
We and the underwriters for the ADS offering, or the Underwriters, named
below have entered into an underwriting agreement dated the date of this
prospectus with respect to the ADSs being offered. Subject to the conditions
set forth in the underwriting agreement, each Underwriter has severally agreed
to purchase from us the number of ADSs indicated in the following table.
Merrill Lynch International and Morgan Stanley & Co. International Limited are
the representatives of the Underwriters.
Number of
Underwriters ADSs
------------ ---------
Merrill Lynch International......................
Morgan Stanley & Co. International Limited.......
Nomura International (Hong Kong) Limited.........
---------
Total............................................
=========
All the ADSs to be underwritten by Nomura International (Hong Kong)
Limited will be offered by Nomura Securities Co., Ltd. in Japan, acting as the
sole bookrunner for the Japanese Public Offering and its certain selling
members (if any).
The Underwriters are, provided certain conditions are satisfied, committed
to take and pay for all of the ADSs being offered by this prospectus, if any are
taken, other than the ADSs and equity shares covered by the option described
below.
In addition, the Underwriters have an option to buy up to an additional
ADSs (representing up to an additional equity shares) from us. They
may exercise that option within 30 days of the date of this prospectus. If any
ADSs are purchased pursuant to this option, the Underwriters will severally,
subject to the conditions set forth in the underwriting agreement, purchase
additional ADSs in approximately the same proportion as set forth in the table
above.
The following table shows the per ADS and total underwriting discounts and
commissions to be paid to the Underwriters by us. Such amounts are shown
assuming both no exercise and full exercise of the Underwriters' option to
purchase additional ADSs (representing up to an additional equity
shares).
No Exercise Full Exercise
------------- ---------------
Per ADS........................ US$ US$
Total.......................... US$ US$
The ADSs sold by the Underwriters to the public will initially be offered
at the initial price to public set forth on the cover of this prospectus. Any
ADSs sold by the Underwriters to securities dealers may be sold at a discount
of up to US$ per ADS from the initial price to public. Any such securities
dealers may resell any ADSs purchased from the Underwriters to certain other
brokers or dealers at a discount of up to per ADS from the initial price
to public. If all the ADSs are not sold at the initial price to public, the
representatives may change the offering price and the other selling terms.
Our ADSs are quoted on the New York Stock Exchange under the symbol "IBN."
Our equity shares, including those underlying the ADSs, are listed on the
National Stock Exchange and the Bombay Stock Exchange Limited.
We estimate that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately US$ 1,440,000,
including registration fees of approximately US $60,000, estimated printing
fees of approximately US$ 130,000, estimated legal fees and expenses of
approximately US$ 1,050,000 and estimated accounting fees and expenses of
approximately US$ 200,000.
We are paying all the expenses of the offering, including underwriting
discounts and commissions, except that the Underwriters are paying for certain
legal fees and expenses, and printing fees and roadshow expenses.
94
In addition, we are also selling equity shares in India and other
jurisdictions outside the United States, where permitted, under an Indian
prospectus filed with the RoC in India, that is taking place simultaneously
with this offering. This ADS offering is conditional upon the completion of the
Indian public offering, which condition may be waived by mutual agreement of
the Underwriters and ourselves, provided that all relevant Indian regulations
are complied with. The Indian, public offering is subject to customary
conditions and there is no assurance that the Indian public offering will
close. The number of equity shares to be sold in the Indian public offering is
expected to equal the number that will result in gross proceeds of Rs. 50
billion or approximately US$ 1.1 billion (or Rs. 57.5 billion or approximately
US$ 1.26 billion assuming full exercise of the underwriters' over-allotment
option). ICICI Securities Limited is acting as our Indian financial advisor
Each purchaser of our equity shares in the Indian public offering is deemed
to have acknowledged, represented and agreed as follows:
(1) It is neither in the United States nor a United States person (as
defined in Regulation S under the Securities Act).
(2) The equity shares offered in the Indian public offering have not been
registered under the Securities Act.
(3) It is purchasing those equity shares in an offshore transaction
meeting the requirements of Rule 903 of Regulation S.
We have agreed with the Underwriters not to issue any equity shares, ADSs
or securities convertible into or exchangeable for ADSs or equity shares or any
similar securities during the period from the date of this prospectus continuing
through the date 120 days after the date of this prospectus, except with the
prior written consent of the representatives, and subject to certain exceptions.
Offshore investors will not be permitted to deposit equity shares into the
ADR facility until 40 days after the earlier of (i) the date the securities
are first offered to the public and (ii) the closing date for the offering.
Offshore investors would have to comply with the procedures under Indian law
for the deposit of equity shares into the ADR facility.
A prospectus in electronic format may be made available on the website
maintained by one or more underwriters or securities dealers. The
representatives of the Underwriters may agree to allocate a number of ADSs to
the Underwriters for sale to their online brokerage account holders. ADSs to be
sold pursuant to an Internet distribution will be allocated by the
representatives to the Underwriters that may make Internet distributions on the
same basis as other allocations. In addition, ADSs may be sold by the
Underwriters to securities dealers who resell ADSs to online brokerage account
holders.
The Underwriters reserve the right to withdraw, cancel or modify the
offering and to completely or partially reject any orders.
In order to facilitate the offering of ADSs, the Underwriters may purchase
and sell equity shares and/or ADSs in the open market. These transactions may
include short sales, stabilizing transactions and purchases to cover positions
created by short sales. Short sales involve the sale by the Underwriters of a
greater number of ADSs than they are required to purchase in the offering.
"Covered" short sales are sales made in an amount not greater than the
Underwriters' option to purchase additional ADSs from us in the offering. The
Underwriters may close out any covered short position by either exercising
their option to purchase additional ADSs or purchasing additional ADSs in the
open market. In determining the source of ADSs to close out the covered short
position, the Underwriters will consider, among other things, the price of ADSs
available for purchase in the open market as compared to the price at which
they may purchase ADSs through the over-allotment option. "Naked" short sales
are any sales in excess of such option. The Underwriters must close out any
naked short position by purchasing ADSs in the open market. A naked short
position is more likely to be created if the Underwriters are concerned that
there may be downward pressure on the price of ADSs in the open market after
pricing that could adversely affect investors who purchase in the offering.
Stabilizing transactions consist of various bids or purchases of ADSs made by
the Underwriters in the open market prior to the completion of the offering.
95
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased ADSs sold
by or for the account of such Underwriter in stabilizing or short covering
transactions (which shall not include sales for the account of clients of such
Underwriter).
Any of these activities by the Underwriters may stabilize, maintain or
otherwise affect the market price of the ADSs. As a result, the price of the
ADSs may be higher than the price that otherwise might exist in the open market.
The Underwriters are not required to engage in these activities. If these
activities are commenced, they may be discontinued by the Underwriters at any
time. These transactions may be effected on the New York Stock Exchange, in the
over-the-counter market or otherwise.
It is expected that delivery of the ADSs to the Underwriters will be made
against payment on a delayed basis. The exact time of delivery will be agreed
among the Joint Global Coordinators and us and is subject to certain regulatory
approvals in India, which may be obtained only after pricing. The time of
delivery is expected to occur no later than the ninth business day after the
date of pricing, subject to these regulatory approvals. We will notify you of
the time of delivery through a press release which we will post on our website
at www.icicibank.com. Prospective investors should be aware that the
notification of the exact time of delivery may not occur until two or three
business days before such time of delivery. Rule 15c6-1 under the Securities
Exchange Act of 1934, as amended, generally requires that securities trades in
the secondary market settle in three business days, unless the parties to the
trade expressly agree otherwise. Accordingly, purchasers who wish to trade ADSs
on any day prior to the third business day before the delivery of the ADSs will
be required, by virtue of the fact that the ADSs initially will settle on a
delayed basis, to specify an alternate settlement cycle at the time of any such
trade, or to make any necessary arrangements to ensure that ADSs are available
on the third business day after trading for settlement, to prevent a failed
settlement. Purchasers of ADSs who wish to make such trades should consult
their own advisors. Purchasers who are not able to borrow ADSs or make any
other necessary arrangements to prevent a failed settlement may not be able to
make any trades of ADSs prior to the third business day before the delivery of
the ADSs to the underwriters.
The Underwriters and certain of their affiliates have been and are
currently our clients to whom we provide, from time to time, ordinary course
commercial banking services.
From time to time, the Underwriters and certain of their affiliates have
provided and continue to provide commercial and investment banking services to
us for which they have received, and may in the future receive, customary
compensation.
As of November 23, 2005, affiliates of Merrill Lynch International, Morgan
Stanley & Co. Limited and Nomura International (Hong Kong) Limited owned
approximately 1,551,952, 3,651,344 and 2,619,482 of our equity shares
(including through ADSs), respectively.
We have agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
We have been advised by the Underwriters that Merrill Lynch International
expects to make offers and sales in the United States through its registered
broker-dealer affiliate, Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Morgan Stanley & Co. International Limited expects to make offers and sales in
the United States through its registered broker-dealer affiliate, Morgan
Stanley & Co. Incorporated.
The representatives of the Underwriters may be contacted at the following
address: Merrill Lynch International, Merrill Lynch Financial Centre, 2 King
Edward Street, London EC1A 1HQ, United Kingdom and Morgan Stanley & Co.
International Limited, 25 Cabot Square, Canary Wharf, London E14 4UA, United
Kingdom.
Selling Restrictions for the ADSs
No action has been taken in any jurisdiction (except in the United States)
that would permit a public offering of the ADSs, or the possession, circulation
or distribution of this prospectus or any other material relating to us or the
ADSs in any jurisdiction where action for that purpose is required. Accordingly,
the ADSs may not be offered or sold, directly or indirectly, and neither this
prospectus nor any other offering material or advertisements
96
in connection with the ADSs may be distributed or published, in or from any
country or jurisdiction except in compliance with any applicable rules and
regulations of any such country or jurisdiction.
Australia. This prospectus is not a disclosure document under Part 6D of
the Corporations Act 2001 (Cth) (the "Australian Corporations Act"), will not be
lodged with the Australian Securities and Investments Commission and does not
purport to include the information required of a disclosure document under the
Australian Corporations Act.
Accordingly, (i) the offer of ADSs under this prospectus is only made to
persons to whom it is lawful to offer ADSs without disclosure to investors
under Chapter 6D of the Australian Corporations Act under one or more
exemptions set out in Section 708 of the Australian Corporations Act, (ii) this
prospectus will be made available in Australia to persons set forth in (i)
above, and (iii) the Underwriters must send the offeree a notice stating in
substance that by accepting the offer of ADSs, the offeree represents that it
is such a person as set forth in (i) above and agrees not to sell or offer for
sale in Australia any ADSs sold to the offeree within 12 months after their
transfer to the offeree under this prospectus.
Canada. The ADS will not be sold in Canada or to residents of Canada other
than in compliance with applicable Canadian securities laws, or Canadian
Securities Laws. Without limiting the foregoing, each Underwriter will only
make offers and sales of the ADSs included in this offering in Canada or to
residents of Canada (i) through an appropriately registered securities dealer
or in accordance with an available exemption from the applicable registered
securities dealer requirements under the Canadian Securities Laws and (ii)
pursuant to an exemption from the prospectus requirements under Canadian
Securities Laws.
European Economic Area. In relation to each Member State of the European
Economic Area which has implemented the Prospectus Directive (each, a "Relevant
Member State"), each international underwriter has represented and agreed that,
with effect from and including the date on which the Prospectus Directive is
implemented in that Relevant Member State (the "Relevant Implementation Date"),
it has not made and will not make an offer of ADSs to the public in that
Relevant Member State prior to the publication of a prospectus in relation to
the ADSs which has been approved by the competent authority in that Relevant
Member State or, where appropriate, approved in another Relevant Member State
and notified to the competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive, except that it may, with effect from
and including the Relevant Implementation Date, make an offer of ADSs to the
public in that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to operate in the
financial markets or, if not so authorized or regulated, whose
corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (i) an average of at
least 250 employees during the last financial year, (ii) a total
balance sheet of more than (euro)43,000,000 and (iii) an annual net
turnover of more than (euro)50,000,000, as shown in its last annual or
consolidated accounts; or
(c) in any other circumstances which do not require the publication by us
of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an "offer of shares to
the public" in relation to any of the ADSs in any Relevant Member States means
the communication in any form and by any means, of sufficient information on
the terms of the offer and the ADSs to be offered so as to enable an investor
to decide to purchase or subscribe for the ADSs, as the same may be varied in
that Member State, by any measure implementing the Prospectus Directive in that
Member State, and the expression "Prospectus Directive" means Directive
2003/71/EC and includes any relevant implementing measure in each Relevant
Member State.
France. The ADSs will not be offered or sold, directly or indirectly, to
the public in France and only qualified investors (Investisseurs Qualifies) as
defined in and in accordance with Article L.411-2 of the French Code Monetaire
et Financier, as amended, and Decree no. 98-880 dated October 1, 1998, as
amended, acting for their own account, are eligible to accept the offer and sale
of the ADSs. This prospectus or any other offering material relating to the
ADS offering has not been and shall not be distributed to the public in
France. This prospectus has not been submitted to the clearance of the Autorite
des marches financiers.
97
Hong Kong. The ADSs will not be offered or sold in Hong Kong by means of
any document, other than to persons whose ordinary business is to buy or sell
shares or debentures, whether as principal or agent, or in circumstances which
do not constitute an offer to the public within the meaning of the Companies
Ordinance (Cap. 32) of Hong Kong. No advertisement, invitation or document
relating to the ADSs, whether in Hong Kong or elsewhere, which is directed at,
or the contents of which are likely to be accessed or read by, the public in
Hong Kong (except if permitted to do so under the securities laws in Hong Kong)
will be issued other than with respect to ADSs which are or are intended to be
disposed of only to persons outside Hong Kong or only to "professional
investors" within the meaning of the Securities and Futures Ordinance (Cap. 571)
of Hong Kong and any rules made thereunder.
Italy. The offering of the ADSs has not been registered with the
Commissione Nazionale per le Societa e la Borsa, or CONSOB, in accordance with
Italian securities legislation. Accordingly, (i) sales of the ADSs in the
Republic of Italy shall be effected in accordance with all Italian securities,
tax and other applicable laws and regulations; and (ii) the ADSs have not been
offered, sold or delivered, and will not be offered, sold or delivered, and
copies of this prospectus or any other document relating to the ADSs have not
been distributed in the Republic of Italy unless such offer, sale or delivery
of the ADSs or distribution of copies of this prospectus or other documents
relating to the ADSs in the Republic of Italy is to qualified investors
(operatori qualificati), as defined by Articles 25 and 31(2) of CONSOB
Regulation no. 11522 of 1 July 1998 as subsequently modified (Regulation
11522), except for individuals referred to in Article 31(2) of Regulation 11522
who exercise administrative, managerial or supervisory functions at a
registered securities dealing firm (a Societa di Intermediazione Mobiliare or
SIM), management companies (societa di gestione del risparmio) authorized to
manage individual portfolios on behalf of third parties and fiduciary companies
authorized to manage individual portfolios pursuant to Article 60(4) of
Legislative Decree no. 415 of 23 July 1996, and copies of this prospectus may
not be reproduced or redistributed or passed on, directly or indirectly, to any
other person or published in whole or in part. Any offer, sale or delivery of
the ADSs or distribution of copies of this prospectus in Italy must be made
solely by entities which are duly authorized to conduct such activities in
Italy and must be in full compliance with the provisions contained in
Legislative Decree no. 58 of 24 February 1998, Legislative Decree no. 385 of 1
September 1993 and any other applicable laws and regulations and possible
requirements or limitations which may be imposed by the Italian competent
authorities.
Japan. As part of the offering, it is expected a certain number of ADSs
will be offered in Japan in the Japanese Public Offering. It is intended that
the offering in Japan be made by way of a public offer in Japan or, if for any
reason, the Japanese Public Offering does not proceed, by way of a private
placement instead (in either case, in accordance with the Securities and
Exchange Law of Japan and the regulations thereunder). In any case, this
document is not intended to constitute an offer of or the solicitation of an
offer to buy ADSs to any resident of Japan. The Japanese Public Offering, if
made, will be made pursuant to the securities registration statement filed on
November 22, 2005 and its amendments to be filed by us with the relevant
authority in Japan in accordance with the Securities and Exchange Law of Japan,
as amended, collectively, the SRS. The offering price will be identical for both
the Japanese Public Offering and the offering. ADSs purchased by any
Underwriter to be sold in Japan will be purchased as principal and in
connection with the initial offering and distribution of such ADSs, such ADSs
will not be offered or sold, directly or indirectly, in Japan or to, or for the
benefit of, any resident of Japan or to others for re-offering or resale,
directly or indirectly, in Japan or to, or for the benefit of, any resident in
Japan, except in accordance with the terms and conditions of the Japanese
Public Offering under the SRS (in the case of such a Japanese public offering)
or except in compliance with the Securities and Exchange Law of Japan and other
applicable laws and regulations of Japan (in the case of a private placement).
As used in this paragraph, "resident in Japan" means any person residing in
Japan, including any corporations or other entities organized under the laws of
Japan.
New Zealand. This prospectus is not a prospectus. It has not been prepared
or registered in accordance with the Securities Act 1978 of New Zealand, or the
New Zealand Securities Act. This prospectus is being distributed in New Zealand
only to persons whose principal business is the investment of money or who, in
the course of and for the purposes of their business, habitually invest money,
within the meaning of section 3(2)(a)(ii) of the New Zealand Securities Act, or
Habitual Investors. By accepting this prospectus, you represent and warrant
that if you receive this prospectus in New Zealand, you are a Habitual Investor
and you will not disclose this prospectus to any person who is not also a
Habitual Investor.
98
The Netherlands. The ADSs may not be offered in the Netherlands other than:
(a) to legal entities which are authorized or regulated to operate in the
financial markets or, if not so authorized or regulated, whose
corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (i) an average of at
least 250 employees during the last financial year; (ii) a total
balance sheet of more than (euro)43,000,000 and (iii) an annual net
turnover of more than (euro)50,000,000, as shown in its last annual or
consolidated accounts;
(c) to any legal entity and any natural person who has asked to be
considered as a professional market party and is registered pursuant
to the Dutch Exemption Regulation (Vrijstellingsregeline Wte 1995);
and
(d) in any other circumstances which do not require the publication of a
prospectus pursuant to the Dutch Exemption Regulation.
Singapore. This prospectus has not been registered as an offering
memorandum or information memorandum with the Monetary Authority of Singapore.
No advertisement may be made offering or calling attention to an offer or
intended offer of the ADSs to the public in Singapore. No ADSs may be offered or
sold, no ADSs will be made the subject of an invitation for subscription or
purchase, and this prospectus or any other document or material in connection
with the offer or sale, or invitation for subscription or purchase, of ADSs may
not be circulated or distributed, whether directly or indirectly, to the public
or any member of the public in Singapore other than:
o to an institutional investor specified in Section 274 of the
Securities and Futures Act, Chapter 289 of Singapore, or the
Securities and Futures Act;
o to a sophisticated investor, and in accordance with the conditions
specified in Section 275 of the Securities and Futures Act; or
o otherwise pursuant to, and in accordance with the conditions of, any
other applicable provision of the Securities and Futures Act.
United Arab Emirates. This prospectus is not intended to constitute an
offer, sale or delivery of shares or other securities under the laws of the
United Arab Emirates (U.A.E.). The ADSs have not been and will not be registered
under Federal Law No. 4 of 2000 Concerning the Emirates Securities and
Commodities Authority and the Emirates Security and Commodity Exchange, or with
the U.A.E. Central Bank, the Dubai Financial Market, the Abu Dhabi Securities
Market or with any other U.A.E. exchange.
United Kingdom. Each international underwriter has represented and agreed
that:
(a) (i) it is a person who is a qualified investor within the meaning of
Section 86(7) of the Financial Services and Markets Act 2000, or the
FSMA, being an investor whose ordinary activities involve it in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of its business and (ii) it has
not offered or sold and will not offer or sell the ADSs other than to
persons who are qualified investors within the meaning of Section
86(7) of the FSMA or who it reasonably expects will acquire, hold,
manage or dispose of investments (as principal or agent) for the
purposes of their businesses where the issue of the ADSs would
otherwise constitute a contravention of Section 19 of the FSMA by us;
(b) it has only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement to
engage in investment activity (within the meaning of Section 21 of the
FSMA) received by it in connection with the issue or sale of the ADSs
in circumstances in which Section 21(1) of the FSMA does not apply to
it; and
(c) it has complied and will comply with all applicable provisions of the
FSMA with respect to anything done by it in relation to the ADSs in,
from or otherwise involving the United Kingdom.
99
LEGAL MATTERS
Certain US legal matters will be passed upon for us by Davis Polk &
Wardwell, our US counsel, and for the underwriters by Latham & Watkins LLP,
US counsel to the underwriters. The validity of the ADSs offered by us in this
prospectus and the validity of the equity shares represented by the ADSs and
certain other Indian legal matters will be passed upon by Amarchand & Mangaldas
& Suresh A. Shroff & Co., our Indian counsel, and by Khaitan & Co., Indian
counsel to the underwriters. Davis Polk & Wardwell may rely upon Amarchand &
Mangaldas & Suresh A. Shroff & Co. and Latham & Watkins LLP may rely upon
Khaitan & Co. with respect to all matters of Indian law.
EXPERTS
Our consolidated balance sheets as of March 31, 2004 and 2005 and the
related consolidated statements of earnings, stockholders' equity, cash flows
and other comprehensive income for each of the years in the three-year period
ended March 31, 2005 have been incorporated by reference herein in reliance upon
the report of KPMG, an independent registered public accounting firm,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
With respect to the unaudited condensed interim consolidated financial
statements as of September 30, 2004 and 2005, and for the six months then ended,
included herein, KPMG has reported that they applied limited procedures in
accordance with professional standards for a review of such information.
However, their report with respect thereto, included herein, states that they
did not audit and they do not express an opinion on such condensed interim
consolidated financial statements. Accordingly, the degree of reliance on their
report on such condensed interim statements should be restricted in light of the
limited nature of the review procedures applied. The accountants are not subject
to the liability provisions of Section 11 of the Securities Act for their report
on the unaudited condensed interim financial statements because that report is
not a report or a part of the registration statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Securities Act.
100
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INDEX TO US GAAP FINANCIAL STATEMENTS
ICICI Bank Limited and subsidiaries
Unaudited condensed consolidated financial statements
As of September 30, 2005 and for the six months ended September 30, 2005 and
2004
Contents Page
Report of independent registered public accounting firm......................F-2
Unaudited condensed consolidated balance sheets .............................F-3
Unaudited condensed consolidated statements of operations ...................F-5
Unaudited condensed consolidated statements of stockholders'
equity and other comprehensive income .....................................F-7
Unaudited condensed consolidated statements of cash flows ...................F-8
Notes to the unaudited condensed consolidated financial statements .........F-10
F-1
REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
ICICI Bank Limited
We have reviewed the accompanying condensed consolidated balance sheets of
ICICI Bank Limited and subsidiaries ("the Company") as of September 30, 2005,
the related condensed consolidated statements of operations, stockholders'
equity and other comprehensive income, and cash flows for each of the six-months
periods ended 30 September 2005 and 2004. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with US generally accepted accounting
principles.
We have previously audited, in accordance with standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of the Company as of March 31, 2005, and the related consolidated
statements of operations, stockholders' equity and other comprehensive income,
and cash flows for the year then ended (not presented herein); and in our report
dated April 30, 2005, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of March 31, 2005, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived. The United States dollar amounts are
presented in accompanying condensed consolidated financial statements solely for
the convenience of the readers and have been translated into United States
dollar on the basis described in Note 1 to the condensed consolidated financial
statements.
Mumbai, India KPMG
November 3, 2005.
F-2
ICICI Bank Limited and subsidiaries
Unaudited condensed consolidated balance sheets
In millions, except share data
Convenience
translation into
US$ As of
As of March 31 As of September September 30,
2005 30 2005 2005
-------------- --------------- ----------------
Assets
Cash and cash equivalents................................. Rs. 155,639 Rs. 151,095 US$ 3,439
Trading assets............................................ 75,538 59,588 1,356
Securities:
Available for sale..................................... 369,818 430,531 9,798
Non-readily marketable equity securities............... 7,209 4,142 94
Venture capital investments............................ 3,932 2,078 47
Investments in affiliates................................. 4,725 5,052 115
Loans, net of allowance for loan losses, security
deposits and unearned income........................... 999,858 1,170,154 26,631
Customers' liability on acceptances....................... 74,116 73,522 1,673
Property and equipment, net............................... 26,055 26,695 608
Assets held for sale...................................... 3,741 3,360 76
Goodwill.................................................. 7,407 8,161 186
Intangible assets, net.................................... 4,199 3,884 88
Deferred tax assets....................................... 12,111 8,379 191
Interest and fees receivable.............................. 17,211 22,141 504
Other assets.............................................. 101,888 108,653 2,473
--------------- --------------- ----------------
Total assets.............................................. Rs. 1,863,447 Rs. 2,077,435 US$ 47,279
=============== =============== ================
Liabilities
Interest bearing deposits................................. Rs. 889,626 Rs. 1,101,456 US$ 25,067
Non-interest bearing deposits............................. 126,908 125,007 2,845
Trading liabilities....................................... 24,258 20,880 475
Short-term borrowings..................................... 91,951 110,317 2,511
Bank acceptances outstanding.............................. 74,116 73,522 1,673
Long-term debt............................................ 367,499 357,443 8,135
Redeemable preferred stock................................ 1,044 1,099 25
Taxes and dividends payable............................... 17,885 16,080 366
Deferred tax liabilities.................................. 550 514 12
Other liabilities......................................... 139,546 134,108 3,052
--------------- --------------- ----------------
Total liabilities........................................ Rs. 1,733,383 Rs. 1,940,426 US$ 44,161
--------------- --------------- ----------------
Commitments and contingencies (Note 10)
Minority interest......................................... 2,068 5,893 134
Stockholders' equity:
Common stock at Rs. 10 par value: 1,550,000,000 and
1,000,000,000 shares authorized as of March 31, 2005 and
September 30, 2005 respectively; Issued and outstanding
736,738,564 and 740,881,117 shares as of March 31, 2005
and September 30, 2005, respectively...................... 7,368 7,409 169
F-3
ICICI Bank Limited and subsidiaries
Unaudited condensed consolidated balance sheets (Continued)
In millions, except share data
Convenience
translation
into US$
For the six months ended For the six
September 30, months ended
--------------------------- September 30,
2004 2005 2005
------------ ------------ -------------
Additional paid-in capital................................ 96,818 98,027 2,231
Retained earnings......................................... 20,581 21,137 481
Deferred compensation costs............................... (60) (41) (1)
Accumulated other comprehensive income.................... 3,289 4,584 104
--------------- --------------- ----------------
Total stockholders' equity................................ 127,996 131,116 2,984
--------------- --------------- ----------------
Total liabilities and stockholders' equity............... Rs. 1,863,447 Rs. 2,077,435 US$ 47,279
=============== =============== ================
See accompanying notes to the unaudited condensed consolidated financial
statements.
F-4
ICICI Bank Limited and subsidiaries
Unaudited condensed consolidated statements of operations
In millions, except share data
Convenience
translation
into US$
For the six months ended For the six
September 30, months ended
--------------------------- September 30,
2004 2005 2005
------------ ------------ -------------
Interest and dividend income
Interest and fees on loans............................... Rs. 33,168 Rs. 44,853 US$ 1,021
Interest and dividends on securities..................... 6,510 11,463 261
Interest and dividends on trading assets................. 1,057 1,548 35
Interest on balances and deposits with banks............. 705 1,175 27
Other interest income.................................... 1,081 498 11
------------ ------------ -------------
Total interest and dividend income....................... 42,521 59,537 1,355
Interest expense
Interest on deposits..................................... 14,905 26,822 610
Interest on long-term debt............................... 15,556 15,113 344
Interest on short-term borrowings........................ 1,304 2,112 48
Interest on trading liabilities.......................... 704 2,046 47
Other interest expense................................... 92 71 2
------------ ------------ -------------
Total interest expense................................... 32,561 46,164 1,051
============ ============ =============
Net interest income...................................... 9,960 13,373 304
Provision for loan losses................................ 4,379 5,795 132
------------ ------------ -------------
Net interest income/(loss) after provision
for loan losses........................................ 5,581 7,578 172
Non-interest income
Fees, commission and brokerage........................... 7,598 11,420 260
Net gain/(loss) on trading activities.................... (1,067) 2,422 55
Net gain/(loss) on venture capital investments........... (101) 449 10
Net gain on other securities............................. 2,854 3,956 90
Net gain on sale of loans and credit substitutes......... 2,745 2,430 56
Foreign exchange income.................................. (355) 660 15
Software development and services........................ 670 1,164 27
Gain/(loss) on sale of property and equipment............ (85) 50 1
Transaction processing services.......................... 1,297 2,363 54
Other non-interest income................................ 216 181 4
------------ ------------ -------------
Total non-interest income................................ 13,772 25,095 572
Non-interest expense
Salaries and employee benefits........................... 5,179 7,807 178
General and administrative expenses...................... 9,554 12,727 290
Amortization of intangible assets........................ 302 315 7
------------ ------------ -------------
Total non-interest expense............................... 15,035 20,849 475
------------ ------------ -------------
Income before equity in loss of affiliates,
minority interest and income taxes..................... 4,318 11,824 269
Equity in loss of affiliates............................. (670) (541) (12)
Minority interest........................................ 4 (31) (1)
------------ ------------ -------------
Income/(loss) before income taxes........................ 3,652 11,252 256
Income tax (expense)/benefit............................. (874) (3,522) (80)
------------ ----------- -------------
Net income............................................... Rs. 2,778 Rs. 7,730 US$ 176
============ ============ =============
See accompanying notes to the unaudited condensed consolidated financial statements.
F-5
ICICI Bank Limited and subsidiaries
Unaudited condensed consolidated statements of operations (Continued)
In millions, except share data
Convenience
translation
into US$
For the six months ended For the six
September 30, months ended
--------------------------- September 30,
2004 2005 2005
------------ ------------ -------------
Earnings per equity share: Basic (Rs.)................... Rs. 3.86 Rs. 10.46 US$ 0.24
Earnings per equity share: Diluted (Rs.)................. Rs. 3.82 Rs. 10.35 US$ 0.24
Weighted average number of equity shares
used in computingearnings per equity share (millions)
Basic.................................................... 720 739
Diluted.................................................. 726 747
See accompanying notes to the unaudited condensed consolidated financial statements.
F-6
ICICI Bank Limited and subsidiaries
Unaudited condensed consolidated statements of stockholders' equity and other comprehensive income
In millions, except share data
Accumulated
other
Common Stock Additional comprehensive Total
------------------------ paid-in Retained Deferred Income, net stockholder's
No. of shares Amount capital Earnings compensation of tax equity
------------- --------- ----------- ----------- ------------ ------------- -------------
Balance as of March 31, 2004....... 616,391,905 6,164 Rs. 65,341 Rs. 18,279 Rs. -- Rs. 4,741 Rs. 94,525
------------- --------- ----------- ----------- ------------ ------------- -------------
Common stock issued, net of issue
expenses .......................... 115,920,758 1,157 30,769 -- -- -- 31,926
Common stock issued on exercise
of stock options .................. 2,416,016 24 237 -- -- -- 261
Compensation related to employee
stock option plan ................. -- -- 110 -- (110) -- --
Amortization of compensation....... -- -- -- -- 22 -- 22
Comprehensive income
Net income/(loss)............... -- -- -- 2 ,778 -- -- 2,778
Net unrealized gain/(loss) on
securities, net of realization
(net of tax)................... -- -- -- -- -- (4,536) (4,536)
Translation adjustments
(net of tax)................... -- -- -- -- -- 97 97
-------------
Comprehensive income/(loss)........ -- -- -- -- -- -- (1,661)
Cash dividends declared =============
(Rs. 7.5 per common share)........ -- -- -- (6,228) -- -- (6,228)
------------- --------- ----------- ----------- ------------ ------------- -------------
Balance as of September 30, 2004... 734,728,679 Rs. 7,345 Rs. 96,457 Rs. 14,829 Rs. (88) Rs. 302 Rs. 118,845
------------- --------- ----------- ----------- ------------ ------------- -------------
Balance as of September 30, 2004
(US$) ............................. 167 2,195 338 (2) 7 2,705
Balance as of March 31, 2005....... 736,738,564 Rs. 7,368 Rs. 96,818 Rs. 20,581 Rs. (60) Rs. 3,289 Rs. 127,996
Common stock issued on exercise
of stock options .................. 4,142,553 41 597 -- -- -- 638
Compensation related to employee
stock option plan ................. -- -- (3) -- 3 -- --
Increase in carrying value on
direct issuance by subsidiary ..... -- -- 615 -- -- -- 615
Amortization of compensation....... -- -- -- -- 16 -- 16
Comprehensive income...............
Net income/(loss)............... -- -- -- 7,730 -- -- 7,730
Net unrealized gain/(loss) on
securities, net of realization
(net of tax)....................... -- -- -- -- -- 1,241 1,241
Translation adjustments
(net of tax)....................... -- -- -- -- -- 54 54
-------------
Comprehensive income/(loss)........ -- -- -- -- -- -- 9,025
Cash dividends declared (Rs. =============
8.5 per common share).............. -- -- -- (7,174) -- -- (7,174)
------------- --------- ----------- ----------- ------------ ------------- -------------
Balance as of September 30, 2005... 740,881,117 7,409 Rs. 98,027 Rs. 21,137 Rs. (41) Rs. 4,584 Rs. 131,116
------------- --------- ----------- ----------- ------------ ------------- -------------
Balance as of September 30, 2005
(US$).............................. -- 169 2,231 481 (1) 104 2,984
See accompanying notes to the condensed consolidated financial statements.
F-7
ICICI Bank Limited and subsidiaries
Unaudited condensed consolidated statements of cash flows
In millions, except share data
Convenience
translation
into US$
For the six months ended For the six
September 30, months ended
------------------------- September 30,
2004 2005 2005
----------- ------------ -------------
Operating activities
Net income.......................................................... Rs. 2,778 Rs. 7,730 US$ 176
Adjustments to reconcile net income to net cash (used in)/provided
by operating activities:
Provision for loan and other credit losses....................... 4,379 5,795 132
Depreciation..................................................... 1,650 2,075 47
Amortization of intangibles and deferred income.................. (83) (1,141) (26)
Amortization of discounts and expenses on borrowings............. 262 (31) (1)
Deferred income tax.............................................. (5,219) 3,586 82
Unrealized loss on trading assets................................ 2,194 196 4
Unrealized loss/(gain) on venture capital investments............ 101 (449) (10)
Other than temporary decline in value of other securities........ 480 379 8
Undistributed equity in loss of affiliates....................... 669 541 12
Minority interest................................................ (4) 31 1
(Gain)/loss on sale of property and equipment, net............... 85 (50) (1)
Gain on sale of securities available for sale.................... (2,854) (3,956) (90)
Gain on sale of loans............................................ (2,744) (2,430) (55)
Change in assets and liabilities
Trading account assets......................................... 50,459 15,754 359
Interest and fees receivable................................... (4,458) (4,930) (112)
Other assets................................................... (18,239) (7,029) (160)
Trading account liabilities.................................... (17,397) (3,378) (77)
Taxes payable.................................................. 617 (1,805) (41)
Other liabilities.............................................. 21,773 (1,588) (36)
------------ ------------ --------------
Net cash (used in)/provided by operating activities................. 34,449 9,300 212
------------ ------------ --------------
Investing activities
Purchase of available for sale securities........................... (98,451) (131,049) (2,982)
Purchase of venture capital investments............................. (659) (1,916) (44)
Purchase of non-readily marketable equity securities................ (1,115) (636) (15)
Proceeds from sale of available for sale securities................. 80,703 75,157 1,710
Proceeds from sale of venture capital investments................... 1,340 4,219 96
Proceeds from sale of non-readily marketable equity securities...... 1,488 3,702 84
Origination of loans, net........................................... (167,152) (241,246) (5,490)
Proceeds from sale of loans......................................... 119,461 69,365 1,579
Purchase of property and equipment.................................. (1,954) (3,224) (73)
Proceeds from sale of property and equipment........................ 107 559 13
Investments in affiliates........................................... (944) (868) (20)
Payment for business acquisition, net of cash acquired.............. (1,388) (612) (14)
------------ ------------ --------------
Net cash (used in)/provided by investing activities................. (68,564) (226,549) (5,156)
------------ ------------ --------------
F-8
ICICI Bank Limited and subsidiaries
Unaudited condensed consolidated statements of cash flows (Continued)
In millions, except share data
Convenience
translation
into US$
For the six months ended For the six
September 30, months ended
------------------------- September 30,
2004 2005 2005
----------- ------------ -------------
Financing activities
Increase in deposits, net........................................... Rs. 37,805 Rs. 209,934 US$ 4,778
Proceeds/repayment from short-term borrowings, net.................. 8,997 18,366 418
Proceeds from issuances of long-term debt........................... 49,823 37,982 864
Repayment of long term debt......................................... (67,771) (48,006) (1,093)
Proceeds from issuance of common stock.............................. 32,187 1,253 29
Cash dividends paid................................................. (6,228) (7,174) (163)
----------- ------------ -------------
Net cash provided by/(used in) financing activities................. 54,813 212,355 4,833
----------- ------------ -------------
Effect of exchange rate on cash and cash equivalents................ 1,215 350 8
----------- ------------ -------------
Net increase/(decrease) in cash and cash equivalents................ 21,913 (4,544) (103)
Cash and cash equivalents at the beginning of the period............ 98,985 155,639 3,542
----------- ------------ -------------
Cash and cash equivalents at the end of the period.................. Rs. 120,898 Rs. 151,095 US$ 3,439
=========== ============ =============
Supplementary information:
Cash paid for:
Taxes............................................................ Rs. 3,861 Rs. 5,877 US$ 134
Non-cash items:.....................................................
Foreclosed assets................................................ 15,503 3,296 75
Change in unrealized gain/(loss) on securities available for
sale, net...................................................... (4,536) 1,241 28
Acquisitions
Fair value of net assets acquired, excluding cash and cash
equivalents.................................................... 1,388 612 14
See accompanying notes to the unaudited condensed consolidated financial
statements.
F-9
ICICI Bank Limited and subsidiaries
Notes to the unaudited condensed consolidated financial statements
1. Significant accounting policies
Overview
ICICI Bank Limited ("ICICI Bank") together with its subsidiaries and
affiliates (collectively, the "Company") is a diversified financial services
group providing a variety of banking and financial services including project
and corporate finance, working capital finance, venture capital finance,
investment banking, treasury products and services, retail banking, broking and
insurance. Further, the Company also has interests in the software development,
software services and business process outsourcing businesses. The Company is
headquartered in Mumbai, India.
Basis of preparation
The accounting and reporting policies of the Company used in the
preparation of these condensed consolidated financial statements reflect general
industry practices and conform to generally accepted accounting principles in
the United States (US GAAP). In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation,
have been reflected. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes included in the annual report in Form 20F.
In the current period, the enacted corporate income tax rate decreased from
36.59% to 33.66% and the tax rate in respect of long term capital gains
increased from 20.91% to 22.44%. The net effect of this was an increase in
income tax expenses of Rs. 516 million for the period ended September 30, 2005.
The preparation of consolidated financial statements in conformity with
US GAAP requires that management makes estimates and assumptions that affect
the reported amount of assets and liabilities and disclosures of contingent
assets and liabilities as of the date of the consolidated financial statements
and the reported income and expense for the reporting period. The Company makes
estimates for valuation of derivatives and securities, where no ready market
exists, determining the level of allowance for loan losses and assessing
recoverability of goodwill, intangible assets and deferred tax assets.
Management believes that the estimates used in the preparation of the condensed
consolidated financial statements are prudent and reasonable. The actual
results could differ from these estimates.
Certain financial information that is normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, but is not required for interim reporting
purposes has been condensed or omitted.
Solely for the convenience of the readers, the unaudited condensed
consolidated financial statements as of and for the period ended September 30,
2005, have been translated into United States dollar at the noon buying rate in
New York City on September 30, 2005, for cable transfers in Indian rupees, as
certified for customs purposes by the Federal Reserve of New York of US$ 1 =
Rs. 43.94. No representation is made that the Indian rupee amounts have been,
could have been or could be converted into United States dollars at such a rate
or any other certain rate on September 30, 2005, or at any other certain date.
F-10
ICICI Bank Limited and subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
Stock-based compensation
The Company uses the intrinsic value based method of Accounting Principle
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and
related interpretations including FASB Interpretation No. 44, Accounting for
Certain transactions involving Stock Compensation an interpretation of APB
Opinion 25, issued in March 2000, to account for its employee stock-based
compensation plans. Compensation cost for fixed and variable stock based awards
is measured by the excess, if any, of the fair market price of the underlying
stock over the exercise price. Compensation cost for fixed awards is measured
at the grant date, while compensation cost for variable awards is estimated
until the number of shares an individual is entitled to receive and the
exercise price are known (measurement date).
Recently, the FASB issued SFAS No. 123 (Revised 2004) "Share - Based
Payment" requiring companies to change their accounting policies to record the
fair value of stock options issued to employees as an expense. Currently, the
Company does not deduct the expense of stock option grant from its income
statement based on the fair value method as the Bank has adopted pro-forma
disclosure provisions of SFAS No. 123 "Accounting for Stock based Compensation."
The Company is required to adopt SFAS No. 123 (R) from the fiscal year beginning
April 1, 2006. Had compensation cost been determined in a manner consistent with
the fair value approach described in SFAS No. 123, the Company's net income and
earnings per share as reported would have changed to the amounts indicated
below.
For the six-months period
ended September 30,
-------------------------
2004 2005
----------- -----------
Net income/(loss) (in millions)
As reported........................................ Rs. 2,778 Rs. 7,730
Add: Stock based employee compensation expense
included in reported net income... ......... 22 16
Less: Stock based employee compensation expense
determined under fair value based method.... (234) (267)
------------- -----------
Pro forma net income/(loss)........................ Rs. 2,566 Rs. 7,479
------------- -----------
Earnings/(loss) per share: Basic (in Rs.)
As reported........................................ 3.86 10.46
Pro forma.......................................... 3.56 10.12
Earnings/(loss) per share: Diluted (in Rs.)
As reported........................................ 3.82 10.35
Pro forma 3.53 10.01
The fair value of the options is estimated on the date of the grant using
the Black-Scholes options pricing model, with the following assumptions:
For the six-months period
ended September 30,
-------------------------
2004 2005
----------- -----------
Dividend yield................................... 2.7% 2.0%
Expected life.................................... 3-6 years 3-6 years
Risk free interest rate.......................... 4.6%-6.1% 6.4%-7.2%
Volatility....................................... 38.8% 37.7%
F-11
ICICI Bank Limited and subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
Reclassifications
Certain other reclassifications have been made in the financial statements
of prior periods to conform to classifications used in the current period. These
changes had no impact on previously reported results of operations or
stockholders' equity.
2. Business combination
During the six-months period ended September 30, 2005, the Company
acquired an additional 6% of the share capital in Prudential ICICI Asset
Management Company Limited, from Prudential PLC. The value of this transaction
is not material to the Company's condensed consolidated financial position,
results of operations or cash flows. The purchase consideration relating to
this step acquisition of Prudential ICICI Asset Management Company Limited has
been allocated to the assets and liabilities assumed as of the date of
acquisition based on management's preliminary estimates. Finalization of the
purchase price allocation, which is expected to be completed within seven
months from the date of the acquisition, may result in certain adjustments to
the purchase price allocation.
3. Segmental disclosures and related information
Segmental disclosures
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, establishes standards for the reporting of information about
operating segments. Operating segments are defined as components of an
enterprise for which separate financial information is available that is
regularly evaluated by the Chief Operating Decision Maker (CODM) in deciding how
to allocate resources and in assessing performance. The Company's operations
have been classified into the following segments: Commercial Banking segment,
Investment Banking segment and Others.
The Commercial Banking segment provides medium-term and long-term project
and infrastructure financing, securitization, factoring, lease financing,
working capital finance and foreign exchange services to clients. Further, it
provides deposit and loan products to retail customers. The Investment Banking
segment deals in the debt, equity and money markets and provides corporate
advisory products such as mergers and acquisition advice, loan syndication
advice and issue management services.
Others consist of various operating segments that do not meet the
requirements to be reported as on individual reportable segment as defined in
SFAS No. 131.
The CODM evaluates the Company's performance and allocates resources based
on performance indicators (components of profit and loss) of each of the
segments. Further, the CODM specifically reviews assets of the consumer loans
division, which is a part of commercial banking segment.
F-12
ICICI Bank Limited and subsidiaries
Notes to the unaudited condensed consolidated financial statements(Continued)
The profit and loss of reportable segments is set out below.
Commercial Banking Investment Banking
For the six months ended For the six months ended
September 30, September 30,
--------------------------- ---------------------------
2004 2005 2004 2005
------------ ------------ ------------ ------------
(in millions) (in millions)
Income from external customers
Interest income.......................... Rs. 33,300 Rs. 46,161 Rs. 9,219 Rs. 13,375
Non - interest income.................... 9,742 14,029 1,677 7,443
Income from other operating segments
Interest income.......................... 5,267 7,056 64 65
Non - interest income.................... 221 402 153 176
------------ ------------ ------------ ------------
Total income............................ Rs. 48,530 Rs. 67,648 Rs. 11,113 Rs. 21,059
Interest expense......................... Rs. 28,267 Rs. 37,050 Rs. 9,504 Rs. 15,954
Depreciation............................. 1,259 1,501 174 215
Provision for loan losses................ 4,382 5,764 (3) 31
Other expenses........................... 10,230 14,017 1,570 2,109
------------ ------------ ------------ ------------
Income/(loss) before taxes............... Rs. 4,392 Rs. 9,316 Rs. (132) Rs. 2,750
Income tax (expense)/benefit............. (1,051) (2,916) 32 (861)
------------ ------------ ------------- ------------
Net income/(loss)........................ Rs. 3,341 Rs. 6,400 Rs. (100) Rs. 1,889
A listing of certain assets of reportable segments is set out below.
Commercial Investment
Banking Banking Others Total
------------ ------------ ------------ -----------
As of September 30, 2005
(in millions)
Property and equipment................... Rs. 21,420 Rs. 1,145 Rs. 4,130 Rs. 26,695
Investment in equity affiliates.......... -- 15 5,037 5,052
Inter segment transactions are generally based on transfer pricing measures
as determined by management. Income, expenses, assets and liabilities are either
specifically identifiable with individual segments or have been allocated to
segments on a systematic basis. Corporate overheads and assets have also been
allocated to segments on a systematic basis.
A reconciliation between the segment income and consolidated totals of the
Company is set out below.
Income/(loss) before
taxes and accounting
Total income changes Net income/(loss)
------------------------- ------------------------- -------------------------
For the six months ended For the six months ended For the six months ended
September 30, September 30, September 30,
------------------------- ------------------------- -------------------------
2004 2005 2004 2005 2004 2005
----------- ---------- ----------- ---------- ----------- -----------
(in millions)
Commercial banking............. Rs. 48,530 Rs. 67,648 Rs. 4,392 Rs. 9,316 Rs. 3,341 Rs. 6,400
Investment banking............. 11,113 21,059 (132) 2,750 (100) 1,889
Others......................... 2,746 4,225 (608) (814) (463) (559)
Other reconciling adjustments.. (6,096) (8,300)
----------- ---------- ----------- ---------- ----------- -----------
Consolidated Total............. Rs. 56,293 Rs. 84,632 Rs. 3,652 Rs. 11,252 Rs. 2,778 Rs. 7,730
=========== =========== =========== ========== =========== ===========
F-13
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
A reconciliation between the segments and consolidated total assets of the
Company is set out below.
As of March 31 As of September
2005 30 2005
--------------- ---------------
(in millions)
Commercial Banking(1)........................................................ Rs. 1,207,789 Rs. 1,372,322
Investment Banking........................................................... 641,722 696,465
Others....................................................................... 9,229 11,066
--------------- ---------------
Total segment assets......................................................... Rs. 1,858,740 Rs. 2,079,853
Unallocable assets........................................................... 27,052 26,159
Eliminations................................................................. (22,345) (28,577)
--------------- ---------------
Consolidated total assets.................................................... Rs. 1,863,447 Rs. 2,077,435
--------------- ---------------
------------------
1) Commercial banking includes assets of consumer loans division of Rs. 685,374
million (March 31, 2005: Rs. 529,003 million), which are reviewed separately
by the CODM.
Geographic distribution
The business operations of the Company are largely concentrated in India.
Activities outside India include resource mobilization in the international
markets and operations of certain software development and services subsidiaries
in the United States, United Kingdom and Canada. The assets and income from
foreign operations are not significant to the overall operations of the Company.
Major customers
The Company provides banking and financial services to a wide base of
customers. There is no major customer, which contributes more than 10% of total
income.
4. Securitization activity
The Company primarily securitizes commercial loans through "pass-through"
securitizations. After the securitization, the Company generally continues to
maintain customer account relationships and services loans transferred to the
securitization trust. The securitizations are either with or without recourse.
In a few cases, the Company may enter into derivative transactions such as
written put options and interest rate swaps with the transferees.
During the six-months period ended September 30, 2005, the Company
securitized loans which resulted in gains of Rs. 2,430 million. The gains are
reported as a component of gain on sale of loans and credit substitutes.
As discussed above, the Company has written put options, which require the
Company to purchase, upon request of the holders, securities issued in certain
securitization transactions. The put options seek to provide liquidity to
holders of such instruments. If exercised, the Company will be obligated to
purchase the securities at the predetermined exercise price.
F-14
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
5. Issuance of stock by subsidiary
In April 2005, 3i Infotech Limited (formerly ICICI Infotech Limited) a
fully consolidated entity of the Company, involved in software development and
services, issued equity shares through an initial public offering of 21,766,844
equity shares at a premium of Rs. 90 per share amounting to Rs. 1,959 million.
As a result of the offering, the Bank's holding in 3i Infotech Limited reduced
from 92.4% at March 31, 2005 to 54.3% subsequent to the offering.
The offering price per share exceeded Company's carrying amount per share
in 3i Infotech, which resulted in an increase in the carrying value of
Company's investment in Infotech by Rs. 615 million. This change in the
carrying value has been recognized in the statement of stockholders' equity as
a capital transaction.
6. Investments in affiliates
The Company accounts for its 74% ownership interest in ICICI Prudential
Life Insurance Limited ("ICICI Prulife") and ICICI Lombard General Insurance
Company Limited ("ICICI Lombard") by the equity method of accounting because of
substantive participative rights held by the minority shareholders.
The carrying value of the investment in these companies as of September
30, 2005, was Rs. 5,036 million (March 31, 2005: Rs. 4,294 million). The
Company's equity in the loss of these affiliates for the six-months period
ended September 30, 2005 was Rs. 567 million (September 30, 2004: Rs. 707
million).
The summarized balance-sheets and statements of operations of these
entities as of and for the six-months period ended September 30, 2005 is set
out below.
Balance sheet As of September 30, 2005
----------------------------
ICICI Prulife ICICI Lombard
------------- -------------
(in millions)
Cash and cash equivalents......................... Rs. 2,054 Rs. 365
Securities........................................ 11,985 7,087
Assets held to cover linked liabilities........... 31,333 --
Other assets...................................... 7,402 6,137
------------- -------------
Total assets................................... Rs. 52,774 Rs. 13,589
============= =============
Provision for linked liabilities.................. Rs. 31,333 Rs. --
Other liabilities................................. 17,332 10,892
Stockholders' equity.............................. 4,109 2,697
------------- -------------
Total liabilities and stockholders' equity..... Rs. 52,774 Rs. 13,589
============= =============
F-15
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
For the six-months period
Statement of income ended September 30, 2005
----------------------------
ICICI Prulife ICICI Lombard
------------- -------------
(in millions)
Interest income.................................. Rs. 422 Rs. 231
Interest expense................................. -- --
------------ ------------
Net interest income.............................. Rs. 422 Rs. 231
Insurance Premium................................ 3,065 3,151
Other non-interest income........................ 738 328
Non-interest expense............................. (5,033) (3,567)
Income tax (expense)/benefit..................... (109) 8
------------ ------------
Net income/(loss)................................ Rs. (917) Rs. 151
============ ============
7. Loans
A listing of loans by category is set out below.
As of March 31, As of September 30,
2005 2005
---------------- -------------------
(in millions)
Project and corporate finance (1) (2) ............ Rs. 329,169 Rs. 359,054
Working capital finance (including
working capital term loans)... ................. 135,573 129,071
Lease financing................................... 18,400 16,659
Consumer loans and credit card receivables........ 526,515 663,083
Other............................................. 68,660 80,552
---------------- ----------------
Gross loans....................................... Rs. 1,078,317 Rs. 1,248,419
Unearned income................................... 68 1,158
Security deposits................................. (2,627) (2,609)
---------------- ----------------
Loans, net of unearned income and
security deposits............................... Rs. 1,075,758 Rs. 1,246,968
Allowances for loan losses........................ (75,900) (76,814)
---------------- ----------------
Loans, net........................................ Rs. 999,858 Rs. 1,170,154
================ ================
------------------
1) Non-readily marketable privately placed debt instruments are classified as
loans to reflect the substance of such transactions as substitutes for
direct lending (credit substitutes).
2) Includes Rs. 27,323 million (March 31, 2005: Rs. 31,268 million) of credit
substitutes classified as loans.
Project and corporate finance loans are generally secured by property,
plant and equipment and other tangible assets. Generally, the working capital
loans are secured by a first lien on current assets, principally comprising
inventory and receivables. Additionally, in certain cases the Company may
obtain additional security for working capital loans through a first or second
lien on property and equipment, pledge of financial assets like marketable
securities and corporate/personal guarantees.
8. Allowance for loan losses
Changes in the allowance for loan losses
Movements in the allowance for loan losses are set out below.
F-16
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
For the six- For the six-
months months
period ended period ended
September 30, September 30,
2004 2005
------------ -------------
(in millions)
Allowance for loan losses at the
beginning of the period...................... Rs. 66,767 Rs. 75,900
Provisions for loan losses, net of
releases of provisions
as a result of cash collections.............. 4,379 5,795
------------ ------------
Rs. 71,146 Rs. 81,695
Loans charged-off.............................. (1,585) (4,881)
------------ ------------
Allowance for loan losses at
the end of the period........................ Rs. 69,561 Rs. 76,814
============ ============
9. Employee benefits
Gratuity
In accordance with Indian regulations, the Company provides for gratuity,
a defined benefit retirement plan covering all employees. The plan provides a
lump sum payment to vested employees at retirement or termination of employment
based on the respective employee's salary and the years of employment with the
Company. The gratuity benefit provided by the Company to its employees is equal
to or greater than the statutory minimum.
In respect of the parent company, the gratuity benefit is provided to the
employee either through a fund administered by a Board of Trustees and managed
by Life Insurance Corporation of India (LIC) or through ICICI Prudential Life
Insurance Company Limited ("ICICI Prulife"). The Company is responsible for
settling the gratuity obligation through contributions to the fund. The plan is
fully funded.
In respect of the remaining entities within the group, the gratuity
benefit is provided through annual contributions to a fund administered and
managed by the LIC. Under this scheme, the settlement obligation remains with
the Company, although the LIC administers the scheme and determines the
contribution premium required to be paid by the Company.
F-17
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
The following table sets forth the funded status of the plans and the
amounts recognized in the financial statements:
As of September 30,
2005
-------------------
(in millions)
Change in benefit obligations
Projected benefit obligations at beginning of the period.... Rs. 946
Service cost................................................ 100
Interest cost............................................... 35
Benefits paid............................................... (37)
Actuarial (gain)/loss on obligations........................ (28)
Unrecognized prior service cost............................. --
---------------
Projected benefit obligations at the end of period.......... Rs. 1,016
---------------
Change in plan assets
Fair value of plan assets at beginning of the period........ Rs. 716
Actual return on plan assets................................ 27
Employer contributions...................................... 107
Benefits paid............................................... (37)
Actuarial (gain)/loss....................................... --
---------------
Plan assets at the period end............................... Rs. 813
---------------
Funded status............................................... Rs. (203)
Unrecognized actuarial loss................................. 201
Unrecognized transitional obligation........................ (15)
Unrecognized prior service cost............................. 53
---------------
Net prepaid gratuity cost................................... Rs. 36
===============
Accumulated benefit obligation for the period end........... Rs. 440
The components of the net gratuity cost are set out below.
For the six months ended
September 30,
------------------------
2004 2005
---------- ----------
(in millions)
Service cost......................................... Rs. 75 Rs. 100
Interest cost........................................ 28 35
Expected return on assets............................ (22) (30)
Amortization of transition asset/liability........... (1) (1)
Amortization of prior service cost................... 3 3
Actuarial (gain)/loss................................ 5 4
Curtailment (gain)/loss.............................. -- --
--------- ---------
Net gratuity cost.................................... Rs. 88 Rs. 111
========= =========
Weighted average assumptions used to determine net periodic benefit cost
for the period:
As of September 30,
2005
-------------------
Discount rate............................................... 8%
Rate of increase in the compensation levels................. 7%
Rate of return on plan assets............................... 7.5%
F-18
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
Weighted average assumptions used to determine benefit obligations:
As of September 30,
2005
-------------------
Discount rate............................................... 8%
Rate of increase in the compensation levels................. 7%
As of September 30, 2005, of the total plan assets Rs. 2 million (March
31, 2005 Rs. 2 million) has been invested in debt securities of the Company.
Plan Assets
The Company determines its assumptions for the expected rate of return on
plan assets based on the expected average long term rate of return over the
next 15 to 20 years.
The Company's asset allocation for the gratuity at the end of the year
ended March 31, 2005 and for the six-month period ended September 30, 2005 and
the target allocation for year ending March 31, 2006 by asset category based on
fair values is as follows:
Post-retirement Post-retirement
Target asset asset at Mar 31, asset at Sep 30,
Asset Category allocation 2006 2005 2005
--------------- --------------- ---------------
Debt Securities............... 0% 0% 0%
Other investments............. 100% 100% 100%
---- ---- ----
Total......................... 100% 100% 100%
==== ==== ====
The plan assets are maintained by LIC or ICICI Prulife.
Investment strategy for plan assets maintained by ICICI Prulife
The ICICI Prulife administers the plan fund and it independently
determines the target allocation by asset category. The investment strategy is
to invest in a prudent manner for providing benefits to the participants of the
scheme. The ICICI Prulife Trust primarily invests in Government of India
("GOI") debt securities or relatively low risk securities. The strategies are
targeted to produce a return that, when combined with the Company's
contribution to the funds will maintain the fund's ability to meet all required
benefit obligations. The insurance industry in the country is highly regulated
and ICICI Prulife functions within regulated investment norms.
Investment strategy for plan assets maintained by the LIC
LIC administers the plan fund and it independently determines the target
allocation by asset category. LIC primarily invests in government securities
and other debt instruments. The selection of investments and the asset category
is determined by LIC. LIC's strategy is to invest in a prudent manner to
produce a return that will enable the fund to meet the required benefit
obligations. The insurance industry in the country is highly regulated and LIC,
which is majority owned by the Government of India, functions within regulated
investment norms. As such, the return on investment is primarily subject to
interest rate risk with limited exposure to credit and other market risk. No
such events have occurred in the history of operations of the fund.
F-19
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
The investment strategy is to invest in a prudent manner for providing
benefits to the participants of the scheme. The strategies are targeted to
produce a return that, when combined with the Company's contribution to the
funds will maintain the fund's ability to meet all required benefit
obligations.
The benefit expected be paid in each of the next five fiscal year and in
the five fiscal years thereafter is as follows:
(in millions)
Expected company contributions to the fund
during the year 2005-2006................................. Rs. 176
Expected benefit payments from the fund during:
2005-2006................................................... 46
2006-2007................................................... 52
2007-2008................................................... 52
2008-2009................................................... 80
2009-2010................................................... 111
2010 to 2014................................................ 789
Pension
The Company provides for pension, a deferred retirement plan covering
certain employees. The plan provides for a pension payment on a monthly basis
to these employees on their retirement based on the respective employee's
salary and years of employment with the Company. Employees covered by the
pension plan are not eligible for benefits under the provident fund plan, a
defined contribution plan. The pension plan pertained to the acquiree which was
acquired with effect from April 2003.
The pension plan is funded through periodic contributions to a fund set-up
by the Company and administrated by a Board of Trustees. Such contributions are
actuarially determined.
F-20
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
The following table sets forth the funded status of the plan and the
amounts recognized in the financial statements.
As of September 30,
2005
-------------------
(in millions)
Change in benefit obligations
Projected benefit obligations at beginning of the period.... Rs. 1,019
Service cost................................................ 4
Interest cost............................................... 37
Benefits paid............................................... (31)
Actuarial (gain)/loss on obligations....................... (52)
----------------
Projected benefit obligations at the end of the period...... Rs. 977
----------------
Change in plan assets
Fair value of plan assets at beginning of the period........ Rs. 1,154
Actual return on plan assets................................ 6
Employer contributions...................................... 4
Gain/(loss) on plan assets.................................. --
Benefits paid............................................... (31)
----------------
Plan assets at the end of period ........................... Rs. 1,133
----------------
Funded status............................................... Rs. 156
Unrecognized actuarial loss/(gain).......................... (151)
Unrecognized transitional obligation........................ --
Unrecognized prior service cost............................. --
----------------
Net Amount Recognized....................................... Rs. 5
================
Accumulated benefit obligation at period end................ Rs. 913
================
The components of the net pension cost are set out below.
For the six months ended
September 30,
------------------------
2004 2005
----------- -----------
(in millions)
Service cost........................................... Rs. 5 Rs. 4
Interest cost.......................................... 35 37
Expected return on assets.............................. (38) (42)
Actuarial (gain)/loss.................................. -- (1)
----------- -----------
Net pension cost....................................... Rs. 2 Rs. (2)
========== ===========
Weighted average assumptions used to determine net periodic benefit cost
for the period:
As of September 30,
2005
-------------------
Discount rate.............................................. 8%
Rate of increase in the compensation levels................ 7%
Rate of return on plan assets.............................. 7.5%
Pension increases.......................................... 3%
F-21
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
Weighted average assumptions used to determine benefit obligations:
As of September 30,
2005
-------------------
Discount rate.............................................. 8%
Rate of increase in the compensation levels................ 7%
Pension increases.......................................... 3%
Plan Assets
The Company determines its assumptions for the expected rate of return on
plan assets based on the expected average long-term rate of return over the
next 15 to 20 years.
The Company's asset allocation for the pension at the end of the year
ended March 31, 2005 and for the six-months period ended September 30, 2005 and
the target allocation for year ending March 31, 2006 by asset category based on
fair values are as follows:
Target asset Pension assets Pension assets
allocation at Mar 31, at Sep 30,
Asset Category 2006 2005 2005
------------ -------------- --------------
Debt Securities..................... 100% 100% 100%
Other investments................... 0% 0% 0%
---- ---- ----
Total............................ 100% 100% 100%
==== ==== ====
The plan assets are maintained through a fund administered and managed by
a Board of Trustees.
The investment strategy of the Company is to invest in a prudent manner
for providing benefits to the participants of the scheme. The strategies are
targeted to produce a return that, when combined with the Company's
contribution to the funds will maintain the fund's ability to meet all required
benefit obligations. Risk is reduced by investment in GOI securities or
relatively low risk securities.
The benefit expected be paid in each of the next five fiscal year and in
the five fiscal years thereafter is as follows:
(in millions)
Expected company contributions to the fund
during the year 2005-2006................................. Rs. 10
Expected benefit payments from the fund during:
2005-2006................................................... 63
2006-2007................................................... 64
2007-2008................................................... 68
2008-2009................................................... 72
2009-2010................................................... 77
2010 to 2014................................................ 436
F-22
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
Superannuation
The permanent employees of the Company are entitled to receive retirement
benefits under the superannuation scheme operated by the Company.
Superannuation is a defined contribution plan under which the Company
contributes annually a sum equivalent to 15% of the employee's eligible annual
salary to LIC, the manager of the fund, which undertakes to pay the lump sum
and annuity payments pursuant to the scheme. The Company contributed, Rs. 53
million and Rs. 44 million, to the employees superannuation plan for the
six-month period ended September 30, 2005 and 2004 respectively.
Provident fund
In accordance with Indian regulations, employees of the Company (excluding
those covered under the pension scheme) are entitled to receive benefits under
the provident fund, a defined contribution plan, in which, both the employee
and the Company contribute monthly at a determined rate. These contributions
are made to a fund set up by the Company and administered by a Board of
Trustees. The contribution to the employee's provident fund amounted to Rs. 176
million and Rs. 127 million for the six-month period ended September 30, 2005
and 2004 respectively.
10. Commitments and contingencies
Loan commitments
The Company has outstanding undrawn commitments to provide loans and
financing to customers. These loan commitments aggregated Rs. 75,722 million as
of September 30, 2005 (March 31, 2005: Rs. 37,818 million). The interest rate
on these commitments is dependent on the lending rates on the date of the loan
disbursement. Further, the commitments have fixed expiration dates and are
contingent upon the borrower's ability to maintain specific credit standards.
Guarantees
As a part of its project financing and commercial banking activities, the
Company has issued guarantees to enhance the credit standing of its customers.
These generally represent irrevocable assurances that the Company will make
payments in the event that the customer fails to fulfill its financial or
performance obligations. Financial guarantees are obligations to pay a third
party beneficiary where a customer fails to make payment towards a specified
financial obligation. Performance guarantees are obligations to pay a third
party beneficiary where a customer fails to perform a non-financial contractual
obligation. The guarantees are generally for a period not exceeding 10 years.
The credit risk associated with these products, as well as the operating
risks, are similar to those relating to other types of financial instruments.
The current carrying amount of the liability for the Company's obligations
under the guarantee amounted to Rs. 1,686 million (March 31, 2005: Rs. 1,256
million).
Details of guarantees outstanding are set out below.
F-23
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
Nature of guarantee Maximum potential amount of future payments under guarantee
--------------------------------------------------------------------------
Less than 1
year 1-3 year 3-5 year Over 5 year Total
----------- ------------ ------------- ------------ -------------
(in millions)
Financial guarantees.................. Rs. 32,231 Rs. 12,601 Rs. 6,920 Rs. 7,781 Rs. 59,533
Performance guarantees................ 45,872 46,320 18,475 6,325 116,992
----------- ------------ ------------- ------------ -------------
Total.............................. Rs. 78,103 Rs. 58,921 Rs. 25,395 Rs. 14,106 Rs. 176,525
=========== ============ ============ ============ =============
The Company has collateral available to reimburse potential losses on its
guarantees. Margins available to the Company to reimburse losses realized under
guarantees amounted to Rs. 7,317 million (March 31, 2005: Rs. 4,066 million).
Other property may also be available to the Company to cover these losses under
guarantees.
Capital commitments
The Company is obligated under a number of capital contracts. Capital
contracts are job orders of a capital nature, which have been committed. As of
the balance sheet date, work had not been completed to this extent. Estimated
amounts of contracts remaining to be executed on capital account aggregated Rs.
1,828 million as of September 30, 2005 (March 31, 2005: Rs. 604 million).
Tax contingencies
Various tax-related legal proceedings are pending against the Company at
various levels of appeal either with the tax authorities or in the courts.
Where after considering all available information in the opinion of management
a liability requires accrual, the company has accrued such liability and does
not estimate any incremental liability in respect of related proceedings.
Where such proceedings are sufficiently advanced to enable management to
assess that a liability exist and is subject to reasonable estimation
management will record its best estimate of such liability. Where a reasonable
range of potential outcomes is estimated, management will record its best
estimate, or in the absence of a basis for selecting a specific estimate within
a range management will record a liability no less than the lower end of the
estimated range. The contested tax demands are adjusted by the tax authorities
against refunds due to the Company on favourable resolution of earlier years
appeals/completion of assessments or paid or kept in abeyance in accordance
with the terms of the stay order. The payment/adjustment/stay does not
prejudice the outcome of the appeals filed by the Company. The advanced tax
payments are recorded as advance tax payments under other asset. The Company
does not estimate any incremental liability in respect of these proceedings.
As of September 30, 2005, the Company has been assessed an aggregate of
Rs. 26,616 million in excess of the provision made in the financial statements
in income tax, interest tax, wealth tax and sales tax demands by the Government
of India's tax authorities for past years. The Company has appealed each of
these tax demands. The Company believes that the tax authorities are not likely
to be able to substantiate their income tax, interest tax, wealth tax and sales
tax assessments and accordingly has not provided for these tax demands as of
September 30, 2005 based on views of eminent counsels/favorable decisions in
own/other cases.
Of the above, Rs. 11,036 million relates to 'disallowance of depreciation
on leased assets'. This issue is an industry wide issue, involving multiple
litigations across the country.
F-24
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
In one of the instances relating to the above, the Income-tax Appellate
Tribunal which is the second appellate level authority, has disallowed the
depreciation to the Company in case of assets leased by it. The contingent
liability on this disallowance amounts to Rs. 189 million. The Company has
preferred an appeal to the Mumbai High Court, which has not yet come up for
hearing. The lower level tax authorities in subsequent years, have been
consistently denying the depreciation claim of the Company by treating the
lease transactions as loans and have allowed only the principal portion of
lease rentals as a deduction.
Based on judicial precedents and recent decisions of the Supreme Court and
based on consultation with senior tax counsel, the management believes that it
is more likely than not that the Company's tax positions will be sustained.
Accordingly, no provision has been made in the accounts.
Litigation
Various litigation and claims against the Company and its subsidiaries are
in process and pending. Based upon a review of open matters with legal counsel,
management believes that the outcome of such matters will not have a material
effect upon the Company's condensed consolidated financial position, results of
operations or cash flows.
Operating lease commitments
The Company has commitments under long-term operating leases principally
for premises and automated teller machines. The following is a summary of
future minimum lease rental commitments as of September 30, 2005, for
non-cancelable leases:
(in millions)
Lease rental commitments for the six month
ending March 31, 2006..................................... Rs. 536
Lease rental commitments for the year ending March 31,
2007.................................................. 890
2008.................................................. 849
2009.................................................. 784
2010.................................................. 744
2011.................................................. 708
Thereafter............................................ 2,272
------------
Total minimum lease commitments............................. Rs. 6,783
============
11. Recently issued accounting standards
SFAS No. 154 "Accounting Changes and Error Corrections"
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3"
("SFAS 154"). SFAS 154 replaces APB Opinion No. 20, "Accounting Changes" ("APB
20") and FASB Statement No. 3, "Reporting Accounting Changes in Interim
Financial Statements," and changes the requirements for the accounting for and
reporting of a change in accounting principle. APB 20 previously required that
most voluntary changes in accounting principle be recognized by including in
net income of the period of the change the cumulative effect of changing to the
new accounting principle. SFAS 154 requires retrospective application to prior
periods' financial statements for voluntary changes in accounting principle.
SFAS 154 is effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005.
F-25
ICICI Bank Limited and Subsidiaries
Notes to the unaudited condensed consolidated financial statements (Continued)
QSPE status of certain Commercial Mortgage Securitization Structures
The Company transfers commercial mortgage loans to trusts that issue
various classes of securities backed by the commercial mortgage loans to
investors (CMBS). Those trusts are designed to be qualifying special purposes
entities (QSPE) as defined by Statement of Financial Accounting Standards No.
140 (FAS 140), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The Company previously has analyzed the
governing pooling and servicing agreements for the CMBS trusts to which it
transfers loans, and believes that their terms are consistent with the criteria
in FAS 140 for QSPE status. Recently, regulators and standard setters have had
discussions with industry participants and accounting firms regarding whether
certain provisions that are common in CMBS structures satisfy the stringent
QSPE criteria in FAS 140. The regulators and standard setters are considering
the need for clarifying guidance. If such future guidance results in a
determination that the CMBS trusts are not QSPEs, the Company's transfers may
be required to be accounted for as collateralized borrowings instead of as
sales. Also, if such future guidance is issued, we cannot predict what the
transition provisions for implementing such guidance will be.
F-26
For and on behalf of the Board
K.V. Kamath
Managing Director & Chief
Executive Officer
Kalpana Morparia
Deputy Managing Director
Jyotin Mehta Vishakha Mulye G.Venkatakrishnan
General Manager & Chief Financial Officer General Manager Accounting
Company Secretary & Treasurer & Taxation Group
Rakesh Jha
General Manager
F-27
(This page has been left blank intentionally.)
[ICICI LOGO]
ICICI BANK LIMITED
American Depositary Shares
Representing Equity Shares
Joint Global Coordinators
Merrill Lynch International Morgan Stanley Nomura Securities
Bookrunners
Merrill Lynch International Morgan Stanley
Japan Offering Bookrunner: Nomura Indian Advisor: ICICI Securities
Securities Co. Ltd.
Prospectus dated December , 2005
PART II OF FORM F-3
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 8. Indemnification of Directors and Officers
Under Section 201 of the Indian Companies Act, 1956, a company is
prohibited from indemnifying any officer of the company or any person employed
by the company as an auditor against any liability which, by virtue of any rule
of law, would otherwise attach to him in respect of any negligence, default,
misfeasance, or breach of duty of which he may be guilty in relation to ICICI
Bank.
Article 215 of ICICI Bank's Articles of Association provides that the
directors and officers of ICICI Bank shall be indemnified by ICICI Bank against
all costs, losses and expenses which any director or officer may incur or become
liable for by reason of any contract entered into or act done by him in his
capacity as director or officer, including any liability incurred by him in
defending any proceeding brought against directors and officers in their
capacity if the indemnified director or officer receives judgment in his favor
or is acquitted in such proceeding.
The form of Underwriting Agreement to be filed as Exhibit 1.1 to this
registration statement will also provide for indemnification of ICICI Bank and
its directors and officers.
ICICI Bank has obtained directors and officers insurance providing
indemnification for certain of ICICI Bank's directors, officers or employees for
certain liabilities.
II-1
Item 9. Exhibits
Exhibit
Number Description of Document
------- -----------------------
1.1(1) Form of Underwriting Agreement.
4.1(2) Deposit Agreement among ICICI Bank, Deutsche Bank and the
holders from time to time of American Depositary Receipts
issued thereunder (including as an exhibit, the form of
American Depositary Receipt).
4.2(3) Letter Agreements dated February 19, 2002, April 1, 2002 and
March 8, 2005 amending and supplementing the Deposit
Agreement.
4.3(2) ICICI Bank's Specimen Certificate for Equity Shares.
5.1(1) Opinion of Amarchand & Mangaldas & Suresh A. Shroff & Co.
8.1(1) Opinion of Amarchand & Mangaldas & Suresh A. Shroff & Co. as
to certain Indian tax matters.
8.2(1) Opinion of Davis Polk & Wardwell as to certain US tax
matters.
15.1(4) Awareness Letter of KPMG, independent registered public
accounting firm, as to unaudited interim financial
information.
23.1(4) Consent of KPMG, independent registered public accounting
firm.
23.2 Consent of Amarchand & Mangaldas & Suresh A. Shroff & Co.
(included in Exhibit 5.1).
23.3 Consent of Davis Polk & Wardwell (included in Exhibit 8.2).
24.1(4) Power of Attorney by Mr. Narayanan Vaghul.
24.2(4) Power of Attorney by Mr. Somesh Ramchandra Sathe.
24.3(4) Power of Attorney by Mr. Mahendra Kumar Sharma.
24.4(4) Power of Attorney by Prof. Marti Gurunath Subrahmanyam.
24.5(4) Power of Attorney by Mr. T.S. Vijayan.
24.6(4) Power of Attorney by Mr. V. Prem Watsa.
24.7(4) Power of Attorney by Mr. Kundapur Vaman Kamath.
24.8(4) Power of Attorney by Ms. Lalita Dileep Gupte.
--------------------
(1) To be filed by an amendment to this registration statement or by a report
on Form 6-K that so indicates it is being incorporated by reference
herein.
(2) Incorporated herein by reference to ICICI Bank's Registration Statement on
Form F-1 (File No. 333-30132), filed on February 11, 2000.
(3) Incorporated herein by reference to ICICI Bank's Annual Report on Form 20-F
for the fiscal year ended March 31, 2002 filed on September 30, 2002 and
ICICI Bank's Registration Statement on Form F-3 (File No. 333-121664),
filed on March 11, 2005.
(4) Previously filed.
II-2
24.9(4) Power of Attorney by Ms. Kalpana Morparia.
24.10(4) Power of Attorney by Ms. Chanda Kochhar.
24.11(4) Power of Attorney by Dr. Nachiket Mor.
24.12(4) Power of Attorney by Ms. Vishakha Mulye.
II-3
Item 10. Undertakings
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant under Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ICICI Bank
Limited certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form F-3 and has duly caused Amendment No. 1
to this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Mumbai, India on November 25, 2005.
ICICI Bank Limited
By: /s/ JYOTIN MEHTA
----------------------------------
Name: Mr. Jyotin Mehta
Title: General Manager and Company
Secretary
Pursuant to the requirements of the Securities Act of 1933, Amendment No. 1
to this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman
---------------------------------
Mr. Narayanan Vaghul
* Non-Executive Director
---------------------------------
Mr. Somesh Ramchandra Sathe
* Non-Executive Director
---------------------------------
Mr. Mahendra Kumar Sharma
* Non-Executive Director
---------------------------------
Prof. Marti Gurunath Subrahmanyam
* Non-Executive Director
---------------------------------
Mr. T.S. Vijayan
* Non-Executive Director
---------------------------------
Mr. V. Prem Watsa
* Managing Director and
--------------------------------- Chief Executive Officer
Mr. Kundapur Vaman Kamath
* Joint Managing Director
---------------------------------
Ms. Lalita Dileep Gupte
* Deputy Managing Director
---------------------------------
Ms. Kalpana Morparia
* Executive Director
---------------------------------
Ms. Chanda Kochhar
* Chief Financial Officer
--------------------------------- and Treasurer
Ms. Vishakha Mulye
*By: /s/ Nilesh Trivedi November 25, 2005
----------------------------
Mr. Nilesh Trivedi
Attorney-in-Fact
Authorized Representative
/s/ Madhav Kalyan November 25, 2005
---------------------------------
Mr. Madhav Kalyan, as duly
authorized representative of
ICICI Bank Limited in the
United States.
Exhibit
Number Description of Document
------- -----------------------
1.1(1) Form of Underwriting Agreement.
4.1(2) Deposit Agreement among ICICI Bank, Deutsche Bank and the
holders from time to time of American Depositary Receipts
issued thereunder (including as an exhibit, the form of
American Depositary Receipt).
4.2(3) Letter Agreements dated February 19, 2002, April 1, 2002 and
March 8, 2005 amending and supplementing the Deposit
Agreement.
4.3(2) ICICI Bank's Specimen Certificate for Equity Shares.
5.1(1) Opinion of Amarchand & Mangaldas & Suresh A. Shroff & Co.
8.1(1) Opinion of Amarchand & Mangaldas & Suresh A. Shroff & Co. as
to certain Indian tax matters.
8.2(1) Opinion of Davis Polk & Wardwell as to certain US tax
matters.
15.1(4) Awareness Letter of KPMG, independent registered public
accounting firm, as to unaudited interim financial
information.
23.1(4) Consent of KPMG, independent registered public accounting
firm.
23.2 Consent of Amarchand & Mangaldas & Suresh A. Shroff & Co.
(included in Exhibit 5.1).
23.3 Consent of Davis Polk & Wardwell (included in Exhibit 8.2).
24.1(4) Power of Attorney by Mr. Narayanan Vaghul.
24.2(4) Power of Attorney by Mr. Somesh Ramchandra Sathe.
24.3(4) Power of Attorney by Mr. Mahendra Kumar Sharma.
24.4(4) Power of Attorney by Prof. Marti Gurunath Subrahmanyam.
24.5(4) Power of Attorney by Mr. T.S. Vijayan.
24.6(4) Power of Attorney by Mr. V. Prem Watsa.
24.7(4) Power of Attorney by Mr. Kundapur Vaman Kamath.
24.8(4) Power of Attorney by Ms. Lalita Dileep Gupte.
24.9(4) Power of Attorney by Ms. Kalpana Morparia.
24.10(4) Power of Attorney by Ms. Chanda Kochhar.
24.11(4) Power of Attorney by Dr. Nachiket Mor.
24.12(4) Power of Attorney by Ms. Vishakha Mulye.
--------------------
(1) To be filed by an amendment to this registration statement or by a report
on Form 6-K that so indicates it is being incorporated by reference
herein.
(2) Incorporated herein by reference to ICICI Bank's Registration Statement on
Form F-1 (File No. 333-30132), filed on February 11, 2000.
(3) Incorporated herein by reference to ICICI Bank's Annual Report on Form 20-F
for the fiscal year ended March 31, 2002 filed on September 30, 2002 and by
reference to ICICI Bank's Registration Statement on Form F-3 (File No.
333-121664), filed on March 11, 2005.
(4) Previously filed.