ICICI Bank takes $264-m hit on overseas credit exposure

‘Current market value of assets lower than acquisition value’

“These are not sub-prime losses. We do not have any direct exposure to sub-prime market.” – Ms Chanda Kochhar

ICICI Bank has suffered marked to market losses of $264.3 million (about Rs 1,056 crore) on account of exposure to overseas credit derivatives and investments in fixed income assets, it was disclosed in the Rajya Sabha on Tuesday.

These losses are as on January 31, 2008, said Mr Pawan Kumar Bansal, Union Minister of State for Finance, replying to a question in the upper house.

Marked to market losses happen when the current market value of an asset is lower than its acquisition value, requiring the holder of the asset to make a provision equivalent to the difference.

Following this disclosure by the Minister, ICICI Bank shares tanked by 9.3 per cent to Rs 929 intra-day but recovered substantially later on clarification issued by the bank.

The stock ended the day at Rs 971.60, down 5.16 per cent from the previous close.

A notice to the stock exchanges later in the day said, ICICI Bank and its overseas banking subsidiaries have an aggregate exposure of $2.2 billion in credit derivatives. As on January 31, 2008, the marked-to-market losses on this portfolio were $155 million. Of this, $88 million has been provided for in its quarterly December 2007 financials.

In addition to this, the bank and its overseas banking subsidiaries have fixed income investments, whose marked-to-market losses are $108 million as on January 31, 2008. Of this, $101 million has been accounted for in the financial statement for the December quarter. “These are not sub-prime losses. We do not have any direct exposure to sub-prime market,” said Ms Chanda Kochhar, Joint Managing Director, ICICI Bank.

“We have some portfolio called CDO-CLN (collateralised debt obligation and credit linked notes) which is nothing but loans given out to corporates but held [by ICICI] in the form of securities. Since they are held in the form of securities, we have to mark them to market every quarter if interest rates go up or down. Because of the sub-prime crisis, since interest rates are moving up and spreads are widening, we have to take marked-to-market losses on these securities.”

The overseas losses of ICICI come from its investments in overseas credit derivatives and from its overseas subsidiaries’ investments in fixed income assets. These may be recoverable assets, but their current market value is lower than the price at which they were bought and the bank had to make provision for it. In other words, if ICICI has to sell these assets at today’ prices it would suffer the losses that the Minister talked about, said an analyst.