ICICI may see more MTM loss Apr-Jun as global credit spreads widen

Tuesday, Mar 4

.

By Suvashree Ghosh

MUMBAI - ICICI Bank may have to make more mark-to-market losses in the first quarter of 2008-09 (Apr-Mar), as credit spreads globally may widen further, said Joint Managing Director and Chief Financial Officer Chanda Kochhar today.

"MTM (mark-to-market) losses will be there for sometime," Kochhar told reporters after clarifying about the extent of the bank's subprime exposure and the impact on balance sheet.

The credit spreads have widened by 300 bps in the last eight months. There will be marginal hit, to the extent of single digit in percentage terms on the full year's net profit for providing on the MTM losses," Kochhar said.

Kochhar clarified that the bank had not incurred any credit loss and the mark-to-market loss was due to the increase in credit spreads. "There is no subprime credit loss. Since we hold these exposures as securities and not as loans, we have to mark-to-market," Kochhar said. The borrowers under his category are mostly Indian companies and the assets will be recovered after four years, that is, after these loans mature, she said.

The country's second largest lender's exposure in credit derivatives is $1.6 bln and in its U.K. and Canada subsidiaries the exposure is $500 mln, she said.

The bank has stopped taking exposure in the securitised market as "it creates a lot of volatility in P&L (profit and loss)," Kochhar said. Kochhar was clarifying after Minister of State for Finance Pawan Kumar Bansal today said ICICI Bank's overseas operations had reported MTM losses of $264.34 mln on credit derivatives and investments as on Jan 31. ICICI Bank shares fell to a day's low of 930 rupees after Bansal's announcement, but recouped some losses and at 4PM the shares were trading at 970.10 rupees, down 5.13% from Monday on National Stock Exchange.

"We have provided $90 mln for mark-to-market losses in December and will provide another $70 mln in this quarter (Jan-Mar). The remaining $100 mln is investments where we have not marked to market, as we have not sold these investments. It is just a balance sheet entry, which we did in December quarter," Kochhar said.

Out of the $90 mln, $50 mln is the MTM loss incurred by the bank and $20 mln is incurred by the bank's subsidiaries in U.K. and Canada. Meanwhile, the bank's credit growth in the last quarter was on expected line, though the mix is now shifting towards corporate loans, Kochhar said.

"The composition in credit is different, unlike that we used to have earlier where the retail segment showed very strong growth. Now, we are seeing robust growth in the corporate sector as well," she said. ICICI Bank expects its credit growth at 25% in the current financial year.  End

.